Three once great brands of various ages are falling by the wayside and according to some commentators are set to be far from the last.
Woolworths was probably the most obvious as their mix and match stores contained nothing essential and they had surprisingly failed to grab the power of the web. MFI were the victim, also, of an inexplicable lack of innovation in the face of increasing competition and recently worsening economic conditions. Lycos Europe - formerly top dog in the market - is suffering the consequences of missing countless opportunities, according to those who know more about it than me.
I remember Lycos in the early days of mass internet use - I believe it was the first search engine I used. If it wasn't Lycos, it was Ask. I certainly remember using Lycos content to read news and so on, although I don't think I used their email. Still, the last time I visited Lycos was probably 2002. And I have used the internet virtually daily since 2000.
Woolworths will leave a psychological hole in Britain though I couldn't truthfully claim to be expecting to miss them - jobs lost notwithstanding. I can't remember the last time I shopped in MFI - if I ever did. My two stores are B&Q and Ikea and always have been. Occasionally, I would venture into Homebase but only when they had a sale on that would help them get down to B&Q prices.
But, you see, these failures aren't entirely down to poor management but the ever tightening credit markets. Insurers ceased to cover Woolworth's stock orders and so Woolies had to pay in cash and service their £385m of debt. The lenders couldn't take any more and pulled the plug.
MFI couldn't pay the rent (literally) and lines of credit are now non-existant. Lycos couldn't convince banks that they could break even as early as 2011 and so fairwell.
These were only the very weakest of companies and so they are hitting the wall first but they are the tip of the iceburg - especially if retail insurers are getting as miserly as lending banks - and so we must hold our breath.
The talk is that the entire banking system is going to have to be nationalised on both sides of the Atlantic before liquidity truly returns and, frankly, I don't see how this can be avoided if governments want to minimise pain. The thing is, I do feel like this pain needs to be felt and then at the other end we may have a better system. Nationalising banking will cause untold ructions in societies who will be dead against government running banking for a host of reasons. "So I'll be lending to myself?" types of questions will abound and, of course, government banks are likely to be sensationally inefficient. But it could be argued that inefficient is better than collapsed.
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Thursday, November 27, 2008
Tuesday, November 25, 2008
Downhill
I'm no economist but I've believed the abyss was coming for a couple of years. The transparently perilous increase in house prices, flatly ridiculous availability of cheap debt ("credit" is just a euphemism) and the fact that the US and UK economies, in particular, were fuelled virtually 100% by this unsustainable supply of debt combined with vast financial institutions perching their lives on top of derivatives whose quality was based on a set of pitifully rosy assumptions was simply a time bomb. Real economists recognised this and I followed them.
I'm in a position where my sole exposure to this economic - infuriatingly self inflicted - earthquake is a couple of blocks of expensive debt (expensive from the start because it's unsecured) and a job. The job, I believe is fairly protected against this recession but I can't guarantee it.
I don't own a property or car or anything like that so, provided I stay employed, I can't see massive problems for me personally (famous last words...).
Still, sitting here and watching the world cave in is something to behold, it really is.
As of this week, the UK government has announced its pre-budget report containing a VAT cut, gifts to pensioners and those on benefits and borrowing that will soon mire the nation in a trillion pounds' worth of national debt ($1.5 trillion). Meanwhile, the US government has committed nearly $2 trillion in bail outs and ameliorating measures and this is before the $700bn infrastructure plan is announced that will be implemented by the Obama administration.
These figures are simultaneously eye-watering and stomach churning. The stomach churning part is the fact that it appears that the financial institutions who engineered this calamity are standing to gain the lion's share of these gargantuan sums. Precious little is going to directly or indirectly benefit little old you and me.
And, in case you were tempted to sit back finally and think that all this phenomenally expensive bailing out will solve the problem and we'll get back to normal in 2010 or so, not so fast. Even the governments proposing and announcing all these measures can't even come close to suggesting that success is even likely, let alone guaranteed.
The trouble is, we really have to change our economic psychology. We're going to have to live in a post-loan, post-mortgage society. Why have Germany, France and Italy comparatively skated over this black hole? Because mortgages are the exception and loans where not handed out like penny chews in those countries. We and America are going to be forced back into the more prudent European consumer borrowing model.
I was never really for a "house owning" society because I saw the risks of such massive loans in the hands of so many. It drives property prices to eventually unbearable heights, it places incompetents in possession of huge debt mountains they'll eventually mess up and it makes it harder for those who want to rent to afford rent. I fail to see the problem with renting - except you can't always keep pets.
As several people have said, if the government had built lots and lots of social housing whilst the money was there it would have given us a safety net and would have slowed down the rise in house prices (more supply and less incentive to buy when quality rental housing was about). On top of that, there would have been more jobs out there. This didn't happen and so we're left with the Chancellor begging the lenders not to kick people out of houses they should never have bought.
From inflation of 3%, interest rates of 4.5% and growth of about 2-3% two or three months ago we have gone to projections for the middle of next year of deflation, interest rates of 0.5% and a retracting economy by -1.1%.
It's like the world has simultaneously woken up and is in a bad dream. Thanks to none other than greedy idiots.
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I'm in a position where my sole exposure to this economic - infuriatingly self inflicted - earthquake is a couple of blocks of expensive debt (expensive from the start because it's unsecured) and a job. The job, I believe is fairly protected against this recession but I can't guarantee it.
I don't own a property or car or anything like that so, provided I stay employed, I can't see massive problems for me personally (famous last words...).
Still, sitting here and watching the world cave in is something to behold, it really is.
As of this week, the UK government has announced its pre-budget report containing a VAT cut, gifts to pensioners and those on benefits and borrowing that will soon mire the nation in a trillion pounds' worth of national debt ($1.5 trillion). Meanwhile, the US government has committed nearly $2 trillion in bail outs and ameliorating measures and this is before the $700bn infrastructure plan is announced that will be implemented by the Obama administration.
These figures are simultaneously eye-watering and stomach churning. The stomach churning part is the fact that it appears that the financial institutions who engineered this calamity are standing to gain the lion's share of these gargantuan sums. Precious little is going to directly or indirectly benefit little old you and me.
And, in case you were tempted to sit back finally and think that all this phenomenally expensive bailing out will solve the problem and we'll get back to normal in 2010 or so, not so fast. Even the governments proposing and announcing all these measures can't even come close to suggesting that success is even likely, let alone guaranteed.
The trouble is, we really have to change our economic psychology. We're going to have to live in a post-loan, post-mortgage society. Why have Germany, France and Italy comparatively skated over this black hole? Because mortgages are the exception and loans where not handed out like penny chews in those countries. We and America are going to be forced back into the more prudent European consumer borrowing model.
I was never really for a "house owning" society because I saw the risks of such massive loans in the hands of so many. It drives property prices to eventually unbearable heights, it places incompetents in possession of huge debt mountains they'll eventually mess up and it makes it harder for those who want to rent to afford rent. I fail to see the problem with renting - except you can't always keep pets.
As several people have said, if the government had built lots and lots of social housing whilst the money was there it would have given us a safety net and would have slowed down the rise in house prices (more supply and less incentive to buy when quality rental housing was about). On top of that, there would have been more jobs out there. This didn't happen and so we're left with the Chancellor begging the lenders not to kick people out of houses they should never have bought.
From inflation of 3%, interest rates of 4.5% and growth of about 2-3% two or three months ago we have gone to projections for the middle of next year of deflation, interest rates of 0.5% and a retracting economy by -1.1%.
It's like the world has simultaneously woken up and is in a bad dream. Thanks to none other than greedy idiots.
Click here for FREE customisable desktop wallpapers. Get them Now!
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