Baltic Dry Index. 1063 -07
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
Since I can’t do an update this morning due to
other commitments, today a look back at how it used to be when bubbles burst. In
1825 the Government repealed the Bubble Act created after the South Sea Bubble
of 1720. Joint stock companies became legal again. Then came the “internet
bubble” of its era, the arrival of railways. Today, step forward George Hudson,
“The [UK] Railway King.”
But first this.
Christine Lagarde under investigation in fraud case; German consumer confidence hit by geopolitical fears - business live
Wednesday 27 August 2014 14.02 BST
There are new concerns over the strength of the eurozone economy, after a
stream of disappointing economic news.German consumer confidence has been hit by the escalating tensions with Russia, the unrest in Iraq, and the conflict between Israel and Gaza.
Economic expectations have tumbled at their fastest rate in at least 30 years, with pollsters warning that the economy has shifted down by a couple of gears.
Italian consumer confidence has also fallen, with citizens more gloomy about its prospects. Matteo Renzi’s government is expected to cut its growth forecasts soon, according to its economy minister.
And industrial confidence in France has dipped, a reminder of the challenges facing Francois Hollande’s new government.
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"There
is no reason whatever to fear a crash".
Charles
Mackay. 2 October 1845, Glasgow Argus, on Railway Mania.
Railway Mania
Railway
Mania
was an instance of speculative
frenzy
in Britain in the 1840s.
It followed a common pattern: as the price of railway shares increased, more
and more money was poured in by speculators, until the inevitable collapse. It
reached its zenith in 1846, when no fewer than 272 Acts
of Parliament
were passed, setting up new railway companies, and the proposed routes totalled
9,500 miles (15,300 km) of new railway. Around a third of the railways
authorised were never built – the company either collapsed due to poor
financial planning, was bought out by a larger competitor before it could build
its line, or turned out to be a fraudulent enterprise to channel investors'
money into another business.
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George Hudson
George Hudson (probably 10 March 1800 – 14 December 1871) was an English railway financier who, because he controlled a significant part of the railway network in the 1840s, became known as "The Railway King" - a title conferred on him by Sydney Smith in 1844. Hudson played a significant role in linking London to Edinburgh by rail, carrying out the first major merging of railway companies (the Midland Railway) and represented Sunderland in the House of Commons. Hudson’s success was built on dubious financial practices and he frequently paid shareholders out of capital rather than money the company had earned.Eventually in 1849 a series of enquiries launched by the railways he was chairman of exposed his methods, although many leading the enquiries had benefitted and approved of Hudson’s methods when it suited them. Hudson fell a long way becoming bankrupt and after losing his Sunderland seat he was forced to live abroad to avoid arrest for debt. His name is associated with financial wrongdoing although a lot of others were at least partially guilty of similar practices. In his defence he never named any of his co-conspirators although many of them turned their backs on him when the bubble burst. However there is no doubt that under British Law in 2014 Hudson would have been imprisoned for these financial misdemeanors.
George Hudson was born to parents John and Elizabeth Hudson on 10 March 1800. His mother died at the age of 38 when George was six and his father two years later. He was brought up by older brothers William and John and after a cursory education he left Howsham at age 15.Beaumont (2003) suggests that this may have been the result of the slump affecting agriculture in 1815, but there was also a payment of 12 shillings and 6 pence recorded in the Howsham poor book as being “received of George Hudson for bastardry”.[1]
Hudson was apprenticed to Bell and Nicholson, a firm of drapers in College Street, York. He finished his apprenticeship in 1820, was taken on as a tradesman, and given a share in the business early in 1821. On 17 July that year he married Nicholson's daughter Elizabeth. When Bell retired, the firm became Nicholson and Hudson.[2] By 1827 the company was the largest drapery, indeed the largest business, in York.[3]
In 1827, his great-uncle Matthew Botrill fell ill and Hudson attended at his bedside. In thanks for this, the old man made a will leaving him his fortune of £30,000.[3] In later years when exiled in France, Hudson acknowledged "it was the very worst thing that could have happened to me. It let me into the railways and all my misfortunes since".[4] Hudson became a prominent member of the York Board of health and when cholera visited the city in 1832 Hudson distinguished himself as a spirited public servant visiting the sick and reporting on their welfare.”[5]
From being a Methodist and a Dissenter,[Note 1] Hudson changed his allegiance to become a High Church Tory and became treasurer of the York Conservative Party in 1832. He supported the unsuccessful candidature of John Henry Lowther in the general election of 1832 and again in an 1833 bye-election. Although York was primarily a Whig city the influence Hudson had on the campaigns was being noticed.[6]
In 1833 it became possible for joint stock country banks to conduct their business in the City of London and he took a leading part in the establishment of the York Union Banking Company with its agent in the city being George Carr Glyn.
----In the summer of 1834 Hudson met George Stephenson by chance in Whitby and they became friends and business associates. He learnt of Stephenson's dream of a railway from London, using a junction of the London and Birmingham Railway at Rugby, through Derby and Leeds to Newcastle – but bypassing York.[8]
In fact, since 1833, plans had been advanced for three lines – the Midland Counties Railway from Rugby to Derby, the Birmingham and Derby Junction Railway from Henley in Arden just outside Birmingham to Derby, and the North Midland Railway from there to Leeds.
In 1835 the York railway committee became the York and North Midland Railway (YNMR)[9] and at Hudson’s suggestion the new line would join the North Midland at Normanton a few miles east of Leeds. The YNMR received its Act of Parliament on 21 June 1836.[2][10] and at its first official meeting Hudson was elected Chairman with other officers including James Meek, James Richardson and Richard Nicholson (Hudson’s brother-in-law).[11]
At this time there was also another railway being planned which would link York to Darlington called the Great North of England Railway. Its promoters hoped that it would be part of an East Coast route to Scotland and whilst initially favouring Leeds and York they eventually chose York as their southernmost destination although Hudson had little to do with this decision.[12]
Work started on the YNMR line in April 1837 with a new station being built in York. Opening to a junction on the Leeds to Selby line took place on 29 May 1839 and to Normanton on 1 July 1840 meaning London was now linked by rail to York.[11] On 9 November 1840 the YNMR leased the Leeds and Selby Railway for £17,000 per year and Hudson propmptly closed the line so passengers had to use his route via Castleford.[13][Note 2]
----In 1848 a pamphlet called “The bubble of the age” or “The fallacy of railway investment, Railway Accounts and Railway dividends” alleged that the dividend paid by Hudson’s companies were paid out of capital rather than revenue. Hudson was attacked by Midland shareholder and Liverpool shipowner J H Brankner in February 1849, over his fight with the GNR. This was then exacerbated by Hudson’s agreement with the Great Northern to allow then to use the Burton Salmon route (see above) which many felt effectively sold them out. [33]
Hudson had been borrowing money at a high interest rate to keep some of his companies afloat. A payment of £400,000 had to be made in 1849 many of these companies were left in a difficult position with falling revenues, an economic depression and little scope for future shareholder dividends. In York the City Council led by George Leeman were demanding money for the Lendal Bridge project and many of Hudson’s allies were unseated at local elections that year.
The shareholders that had so fulsomely praised Hudson for the large dividends paid now lined up against him. In the Midland Railway meeting of 15 February 1849 there were calls for a committee of inquiry to be set up which Hudson managed to quash by threatening to resign. Five days later at the meeting of the York, Newcastle and Berwick Railway two shareholders Horatio Love and Robert Prance revealed a number of shares had been sold to the company at a value far in excess of what they were actually worth and the beneficiary was Hudson. This time the call for a committee of inquiry to be set up was successful. [34]
The Eastern Counties Railway Annual General Meeting was on the 28 February and Hudson decided not to attend. Vice chair David Waddington faced the wrath of the shareholders (who had received a very small dividend) and promptly blamed at absent Hudson. Another committee of inquiry was set up under William Cash and within a month the Midland Railway shareholders had set one up and Hudson had resigned. [35]
In April 1849 the Prance report (YNMR) revealed the wrongful valuation of the shares and Hudson had to pay back £30,000. Later that month he faced a hostile ECR inquiry (formed of men who had approved everything he did in previous years) after which he resigned. On 7 May MP Francis Charteris alleged possible bribery of MPs and another inquiry was started. Hudson addressed parliament on 17 May but the damage was done. However although Hudson was being scapegoated others did not always escape. William Cash who had called for and chaired the ECR enquiry was revealed by that enquiry to be chair of a committee designed to frustrate one of their competitors. .[36][37]
On 17 May Hudson resigned from the YNMR to avoid sacking and a committee was set up to look at the allegation that Hudson had used their money to build a private station at Londesborough Park on the Market Weighton line.[38] As 1849 progressed more was unearthed and by the autumn Hudson was being asked to repay £750,000. He sold Londesborough Park and then paid £200,000 off to the YNBR (chairman George Leeman) rather than face being taken to court.[39]
Despite this in 1849 the railway bridge across the Tyne was opened and the following year Monkwearmouth Dock (Hudson was chairman of the dock company) opened in 1850. In 1852 the YNMR offered to let Hudson settle his outstanding liabilities to them for £50,000 which he rejected. The YNMR directors promptly went to law with three separate cases which proved a fatal blow to Hudson.[40]
These were heard in 1853 and Hudson lost all three and by winter of that year he had negotiated a settlement of £72,670 to clear all his debts. He had to sell his property at Newby Park and the purchaser Viscount Downe used Hudson’s enemy George Leeman to complete his purchase.[41] By 1856 the YNMR debt was £16,000 and this was taken over by the North Eastern Railway upon merger in 1864.
----In the run up to the 1852 general election Hudson - who by this time was in severe financial difficulty - spoke on several issues including a repeal of a timber tax and on a corrupt practices bill. He was re-elected by 54 votes in the election but with his railway career in decline and drinking heavily he presented rather a forlorn figure.
After a period in Spain where he tried and failed to get a new railway project off the ground and suffering badly from gout, Hudson returned to Sunderland for the 1857 general election and was elected again albeit with a reduced majority. Between 1857 and 1859 the fortunes of the Sunderland Dock company foundered and the town became increasingly disenchanted with Hudson.[50]Hudson held onto his the seat until his defeat at the 1859 general election[51] where he polled 790 out of 4,000 votes. This defeat removed the protection Hudson had as an MP from imprisonment and he subsequently went into exile
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“Those who don't know history are destined to repeat it.”
Edmund Burke
At the Comex silver depositories Wednesday final figures were: Registered 59.99
Moz, Eligible 118.70 Moz, Total 178.69 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Back to the banksters again. Trying to double dip,
have their cake and eating it too. In a
landmark decision of the Northern Ireland High Court, Lloyds Banking Groups
Bank of Scotland’s position was found to
be both illegal and “unconscionable.” Is anyone surprised in our new lawless age.
Bank of Scotland held to account
18 August 2014
Chris McGrath LLB, Solicitor with Housing Rights Service, discusses a
recent Housing Rights Service High Court Case where Bank of Scotland was found
to be double billing customers in mortgage arrears.The Northern Ireland High Court has very recently handed down judgement in test cases concerning the mortgage arrear practices of Bank of Scotland plc. The judgement is critical of Bank of Scotland plc and the lender is held to account over poor practice in dealing with borrowers’ mortgage arrears.
Curious rise in monthly instalments
The cases all involved claims for possession by Bank of Scotland plc of the family home following the accrual of mortgage arrears. Housing Rights Service provides representation to borrowers facing possession proceedings and in 2013 a pattern was identified of unexplained increases to the contractual monthly instalments of Bank of Scotland plc customers. In some cases the contractual monthly instalments had increased by hundreds of pounds, despite there being no rise in the banks interest rates.Following further investigation it appeared that the Bank of Scotland had been capitalising the borrowers’ mortgage arrears by adding the arrears to the outstanding mortgage balance, without the borrowers’ consent. This resulted in an increased mortgage instalment, so that, in effect, the customers were paying off the arrears but were not aware of this, nor aware of how much was being paid to address the arrears. Significantly, the bank continued to proceed with legal action to seek possession of the properties and sought additional payments towards the arrears in order to prevent possession.
Following identification of this issue the Chancery Court regularly refused to grant Orders in such cases, and three test cases were agreed upon to address the issues raised.
Practice questioned by Chancery Master
Master Ellison noted that all three cases raised a point of some importance.- Whether the lender may consolidate (capitalise) arrears with the effect of increasing the contractual monthly instalment to spread those arrears over the remaining term of the mortgage, and also; rely on the arrears so consolidated as outstanding arrears for the purpose of possession proceedings.
Difficulties faced by affected borrowers
The defendants argued that the practice adopted by Bank of Scotland plc was unfair because it prevented them from making a payment proposal to the court to repay the arrears. Ultimately this prevented the court from exercising its discretion to defer possession.The Administration of Justice Act 1970 section 36 and Administration of Justice 1973 section 8, provides the court with discretion to adjourn proceedings or make a suspended order for possession on terms that the defendants pay the arrears within a defined period of time that the court regards as reasonable. The practice of Bank of Scotland plc and lack of clarity in respect of the account figures appeared to compromise this discretion.
The practice further compromised the affordability of payments to arrears, as the bank was seeking a much higher payment than was necessary to address the arrears. As noted by Master Ellison;
“The position of the defendants is that they
do not understand how these provisions could have allowed the plaintiff on the
one hand to revise their monthly instalments to include contributions towards
outstanding arrears and on the other hand to claim in proceedings for
possession that those arrears remain overdue, given that the plaintiff itself
has arranged for them to be repaid by way of monthly instalments over the
remainder of the mortgage term.” (para 19)
Good capitalisation or bad capitalisation?
The Plaintiff stated that their practice of adding the arrears to the monthly instalment was in fact a duty under their mortgage contract, and that as the arrears had not been extinguished on their accounting system then this did not equate to capitalisation.However, within his judgement Master Ellison refers at length to previous case law and the regulatory framework derived from the Financial Conduct Authority and is unequivocal in his assessment that the lenders practice of restructuring mortgage accounts so that arrears are included within a revised monthly instalment is capitalisation.
Furthermore, the court states:
“Where, as in the present cases, the
plaintiff consolidates unilaterally, without any attempt to secure the
borrowers agreement and without any assessment of affordability, that is
extremely “poor” capitalisation according to the definition and criteria of the
Financial Conduct Authority.” (para 54)
Court criticises practice of “double billing”
Following the finding of the court that the practice adopted by Bank of Scotland plc was indeed capitalisation, it was subsequently necessary to consider whether the lender was in a position to continue to rely on these arrears for the purpose of possession proceedings.On dealing with this point, the court observed that the lender was acting inconsistently with the legislation; namely the Administration of Justice Act 1970 section 36 and Administration of Justice Act 1973 section 8. The court highlighted the fact that lenders cannot evade or contract out of the exercise of the court's discretion to defer possession under the legislation.
The court has stated that the capitalisation of the arrears in essence resulted in these arrears being extinguished, and as such it should not be permissible to rely on such arrears to ground possession proceedings.
The court was critical of the lender's actions in this regard:
“The plaintiffs reliance on extinguished
arrears may fairly be described as double –billing. Unilateral consolidation
with double billing creates very real problems for borrowers, their advisers
and the court. To the extent at least of the double billing, it is unconscionable.”
(para 57)
Banks are an almost irresistible attraction for that element of our society which seeks unearned money.
J. Edgar Hoover
The monthly Coppock Indicators finished July.
DJIA: +157 Down. NASDAQ: +318 Down. SP500: +232 Down. The Fed’s final bubble has taken on a
very scary wobble, but this is nothing compared to the return of real interest
rates at some point ahead.
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