Saturday, 8 January 2011
2011, A Bad Beginning
If you really want to know just how crazy the world of international finance is, how far out of control it has gone in recent years and why so many ordinary people living ordinary lives have had so much misery and loss inflicted on them you have only to look around you.
Or read the major feature in the Financial Times of Friday 8 January 2011 relating to the serious situation at Consensus Business Group, its major subsidiary Peverel and the implications for their eventual owners, well known property investors. It seems that Peverel will have to be sold by Consensus because they are in the hole for £100 million.
The Bank of America is riding to the rescue with the usual armoury of debt-equity swaps and other complicated arrangements. For those of us who follow USA affairs this may not be good news, there seem to be a number of reservations about that organisation at the moment. American taxpayers, already in a property crisis of their own, may not be amused.
In your home district or not far away there will be a block or blocks of flats, built for and occupied by elderly leaseholders who needed or wanted to make life simpler and easier in their declining years. Most of them were put up by McCarthy and Stone. Initially they ran their own in house property management services, Peverel, to do the basic work.
This was essentially site and buildings maintenance, attending to repairs and the usual services and keeping a degree of ordered, low key control over how the communal and related facilities were managed. Necessarily, this included keeping good relationships with the residents and occasionally dealing with crises.
There were not medical or social services functions or anything elaborate, it was all bog standard site and building functions with a top dressing of polite and ordinary human contacts, albeit being with some people who were ill and vulnerable. One objective was to ensure a quiet life as far as possible for all.
During the first decade Peverel was sold and bought several times before ending up with a very acquisitive and active financial group, Consensus BG, aiming to build a major, if not controlling, stake in property management and control.
This group had a number of aims. One was to engage in highly leveraged borrowing and lending to enable further acquisitions. Another was to securitise its assets and income streams to assist this. Another was to work the assets very hard to fund the personal Trusts, celebrity lifestyles and add to the fortunes of its owners.
Accordingly, in the leasehold retirement flats the service charges have increased well above the rate of inflation, other charges have gone up sharply and there is a raft of other fees and means of extracting money. The properties are a cash flow with little or no controls of means or ends.
In the warp and weft of all the financial dealings between the associated and owned companies, the relevant trusts, the inter lending, charging, income flows, fees and the rest it is impossible to disentangle what has been going on.
As there major outflows to accounts etc. in tax havens it is also impossible to find out what has happened, how much is involved, and who owns what because of secrecy.
Given the numbers and skills of all the lawyers involved everything will be legal in one jurisdiction or another. If there have been doubts in the minds of some of the good and the great these will have been assuaged by sessions on the ocean going yachts, introductions to the celebrities of the day, contributions to party funds and assistance to those interests and charities dear to the hearts of our elites.
The media have been entranced by these operations and any number of praises have been sung and applauding been done by journalists and financial reporters over the last few years. For those who actually live in the properties, however, there is now an organisation devoted to fighting exploitation and mismanagement. There are also a number of legal wrangles arising.
Many of the pensioners involved have been affected already by inflation in key areas, not included in the usual indexes. A good many who do have private pensions are in real difficulty. Those who depend on savings, and there are many widows, have been badly hit over the last couple of years.
So in the space of a decade a reliable and adequate means of homing and catering for the elderly to allow them a degree of peace and a settled way of living has turned into an arena for excessive and damaging financial risk taking. They are being stripped of their savings, face a management concerned only with money targets, and are embroiled in unpleasant disputes and legal wrangles.
If you want to realise the nadir of it think of this. It is 2.00 a.m. on a cold January night. Police and ambulances are gathered outside a block on a major emergency. A resident is in real medical danger.
But they can’t get in, the company in house security service will not let them in because it has been reorganised to improve its financial performance and bungled the systems.
Someone woken by the racket lets them in and assists them to the emergency. A few days later the company tells its manager to tell the someone that they will face action because an additional very minor cost has been incurred that was not authorised. Its security firm had to spend time looking it its files.
Now those in the block and others like them will learn that they are in the hole for their share of the company’s problems and the one certain thing is that they will paying and not those who were responsible. The money men will not be the real losers, one of them, in real trouble, is presently funded by a state owned bank.
Nothing will be done because one of the owners, according to reports, has bought personal access to the Prime Minister under his party’s current lobbying arrangements.