Talking of banks...

... here are some photos I took in the City last Friday.

Note the window cleaner:

When I'm cleaning windows!
Originally uploaded by David Farrer

The way we were

One of my grandfathers was Provost of Annan. He served on the Audit Committee of the Annan Savings Bank, which was founded back in 1835. In 1875 the Annan Bank incorporated the remaining 28 accounts of the neighbouring Ruthwell Parish Bank, which was the world's first savings bank.

I recently dug out my copy of the 1967 Annual Report of the Annan Bank. Let's have a look at an extract from the Auditors' Report:

We have examined the Depositors' Accounts in the Books of the Savings Bank and have checked the same with the List of Depositors' Balances, which amount with interest to £1,678,456. A copy of this List certified by us is open to inspection at the Savings Bank by Depositors for the purpose of comparing the amounts in their Pass Books with their balance shown on the list.

During the year we have visited the Savings Bank in business hours and have compared 2,321 Pass Books with the relative Depositors' Accounts in their Ledger and found them to agree.

In all 6,216 accounts were open, so over one third of customers' Pass Books were actually verified individually by the Auditors. Not quite like today, I think.

And what about the Bank's investments, which totalled £1,828,753?

Certificates or other evidence representing the whole of the Investments held by the Savings Bank as at 31st January, 1967, have been produced to us and found to be in order.

The Bank's investments were extremely conservative. There's no mention of derivatives or the like, although one does wonder whether it was wise to have as much as £1,000 tied up in "Office premises, furniture and equipment."

Isn't it time for prudent and cautious local bankers to make a comeback?

Back Again

Here are my photos from the Libertarian Aliance Conference that was held at the weekend.

The two star speakers:

David Friedman
Originally uploaded by David Farrer

Hans-Hermann Hoppe
Originally uploaded by David Farrer

No Win situation...

I see that Oprah may be the next US ambassador in London. Not a good idea, I think. These days we need someone who is knowledgeable about economics.

Now, I fully understand that President Obama will want to appoint some fellow persons of colour to key positions. Who we need in Grosvenor Square is Thomas Sowell. Not only is Sowell one of America's greatest economists, he is considerably blacker than Obama. And he's a keen photographer.

It's a no-brainer. And Tom can moonlight by teaching economics to Mr Brown and Mr Darling.

Should Sowell be unavailable, Alvin Hall is the obvious second choice.

Small world

Back in 2005 I was at an Edinburgh event attended by David Cameron. The soon-to-be Tory leader entered the room and worked the crowd. He shook my hand and said: "Hello, I'm David Cameron." "Hello, I'm David Farrer," I replied. The chap to my left looked at me. Cameron turned to my neighbour and once again said: "Hello, I'm David Cameron." And my neighbour replied: "Hello, I'm David Purdie." I stared at my neighbour.

As Cameron moved on Messrs Farrer and Purdie said simultaneously "St Quivox Road?" And yes, we had both lived a few doors apart in that street in Prestwick around forty years earlier.

I knew from my mother that David Purdie had become a doctor but not that he was now a prominent public speaker. Anyway, he's now on the blogroll and having heard David speak at the Adam Smith dinner I can confirm that Dr Purdie is indeed a successful practitioner of his new calling.

Too few banks?

Here's an interesting comment from "Ben Franklin" (post number 73) on the Belmont Club:

The only other thing I would add is that I am in the advertising industry and most of the ads for sub-prime loans had dried up before the recent bail-out bill. As soon as that went through the volume for these ads went up 10 times. Whatever the government did to “fix” the problem ain’t working because all they did was just give everyone who didn’t make money the first time around another shot at the craps table.

The small business community that I am a denizen of is absolutely livid at the bailout because they see very clearly what has happened. They have good noses for how to make money and can see how the government system could be exploited by people less wise or scrupulous than they are. It seems funny this should be the case when all of the Harvard MBA’s in Washington and on Wall Street drove right into it.

So the sub-prime lenders haven't learnt and the spending goes on. But why not if the taxpayer will bail you out? I see that the American small business community opposes the US bailout but I get the impression that bank bailouts are more popular here in the UK. So why the difference?

I'd guess that it's because there are far more banks per-capita in the US than in this country. Effectively we have only five banks that cater for almost all business customers. If even one goes down the contagion could destroy any or all of the other four. In the US there's a greater likelihood that your bank is sound. So what is the British government proposing? A merger between Lloyds and HBOS reducing the total to four! Or even fewer if nationalisation continues. This is the opposite of what we should be doing. It would be far healthier if we had more banks that competed vigorously and under such a regime the failure of one bank would be less likely to be systematic.

Oh, the inhumanity

How about this?

GMAC to limit car loans to buyers with good credit

Money and Credit

Here's Brian Micklethwait's latest podcast on the current crisis. This one takes the form of a discussion between Brian and fellow libertarians Antoine Clarke and Michael Jennings. Listen to this and be assured that there are some people who understand what's going on and what needs to be done, and not done.

I saw that Guido (another long-term libertarian) is showing a picture of The Theory of Money and Credit by Ludwig von Mises. Mises was the most prominent of the Austrian School of Economics that was briefly mentioned in Brian's podcast. I looked out my copy last night and was rather shocked to note that I'd bought it in 1973! Such a pity that none of our politicians today would spend time reading Mises. How different things could be.

Day of reckoning?

It's becoming almost impossible to keep with events at the moment. I phoned a colleague at around 9.15 this morning to tell him that RBS shares had been suspended. That turned out to be a false rumour but since then both RBS and HBOS shares have lost 40% of their value. This evening it's being reported that all British banks will be partly nationalised. Bank of America is down 19% at the moment but who knows what'll be the situation in ten minutes' time?

Meanwhile I read that Iceland has arranged for a 4 billion Euro loan from Russia.

But read this:

The government of Iceland is using the threat of a €4 bn loan from Russia in exchange for a 99-year lease on the airport at Keflavik - a former American air base - as leverage to obtain financial support from the West.

So perhaps it's not yet a done deal. I suppose one advantage of a Russian takeover of Keflavik would be a cut in the outrageous price of beer in the terminal. That's a joke by the way. More seriously, I recall reading a thriller in which WW3 starts with a Soviet "container ship" running aground on Iceland and out of it emerges troops and tanks who promptly defeat the Americans and take over the US anti-submarine base. Needless to say the good guys won in that case. Now? I haven't a clue, except to say that von Mises must be laughing in his grave.

Tom Burroughes on the crisis

Brian Micklethwait has done another of his interviews; this time it's with financial journalist Tom Burroughes. Like Brian, Tom is a long-term member of the Libertarian Alliance and he also writes for Samizdata as Jonathan Pearce (we can now reveal!)

And from the USA here's another video that's as scary as any I've seen: