Alt Lending Week Ending 25th November 2022

The downside to a crypto collapse – The Spectator 19th November 2022 

Right of Centre publication The Spectator magazine makes an interesting point in the aftermath of the collapse of FTX. The author is a traditional and well-respected Banker who has no truck whatsoever with Crypto currencies however the point he makes is quite valid. Even so I am not sure I agree with him. The basis of his fears is that a complete crypto meltdown would have unknown consequences within the worldwide financial system in which theses fantasy assets exist. He is right but what is better to continue to pursue the make-believe stories for a little while longer or to accept the reality that these assets don’t and never have existed as a store of value. The Financial markets have always had their fair share of spivs and snake oil salesmen and until those idiots who  believed the crypto hype understand that what they believed in was the Kings invisible clothes then we are just laying the groundwork for the next Ponzi scheme.

A Lesson for Sovereign debt analysts

Ratings agency Fitch has decided that two tranches of debt worth $ 2.9 billion issued by a Luxembourg entity on behalf of F1 are rated as “junk” or below the BBB minimum for investment grade paper. The reasoning for this is that China’s zero Covid policy could prevent the sport form returning to China with all that this entails for F1’s finances. A race is indeed scheduled in Shanghai for April next year and nobody is suggesting that the overall financial model of F1 is in any way flawed but such is the problem of dealing with any authoritarian regime that does exactly what it likes without any reference or regards for what others might think, including their own populations. For China substitute, Iran, Russia North Korea etc. etc. China is fundamentally no different. The lesson is an old one. If you sup with the devil then use a long spoon.

Unaffordable mortgage rates and their impact on the economy

I just happened to notice a tombstone in the Telegraph this morning that advertises Bank of Scotland’s Home Loan rates. Apparently if you are one of the unlucky ones to have a variable rather than a fixed rate loan with Bank of Scotland then next month you are going to be stung with a risk premium of 4.45% above the bank’s own base rate. I don’t want to single anyone out as the mortgage market in the UK is a mish mash of “products” some of which make sense and a lot of which don’t. Meanwhile the bean counters who determine these rates just carry on regardless without any reference to whether the risk premium is appropriate. To take a practical example Just supposing a property has a small outstanding variable mortgage of £ 100k outstanding and the value of the property is say £ 800k. In other words there is absolutely no likelihood of there ever being a loan loss. Is the risk premium appropriate? The answer is no. If the mortgage was £ 700k the answer might be yes in today’s market. But we do not price mortgages according to risk. Some intellectual rigour ought to be applied to how we do these things. The way we price and structure mortgage lending in the UK is another thing that holds back growth because it uses blunt instruments like loan to value. 



Howard Tolman is a London based well known ex Banker, Entrepreneur, and IT specialist



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