In anticipation of Messrs Bernanke and King cracking up the printing presses almost all asset classes are rallying.

-Gold is up as a hedge against the “enevitable” ensuing hyper inflation.

-Bonds are up as we will in any case slip into a Japan style deflationary spiral (plus all of those new dollars and pounds will be used to buy them). And….

-Shares are up, because that’s what happened last time; although net new investment is dwarfed by money going into the above.

Clearly this will end badly as only one scenario can play out.

But what of property?

Even discounting the precipitous lurch of -3.6% in the Halifax price index last month, the trend for house prices is clearly down and the consensus in the world of commercial property is that a double dip of some sort is inevitable.

So how will a further £50bn or so swilling around the investment coffers of banks and institutions effect us?  The correct answer wins a multi-million pound fortune and as much gold as he/she can eat.

Frankly I haven’t got a clue.

But the following might be possible:

-People buy into property as a hard asset hedge against inflation.

-Funds get a higher weighting into property in a search for yield.

-The banks have so much cash they start lending to any fat middle aged bloke who has renovated a flat before. Again.

Or maybe none of the above.

-In a response to inflation, interest rates shoot up and the vast amount of LTV busted loans default on interest payments too; we get a crash that makes 2008 look like tea party.

-A deflationary spiral undermines further rental growth and property is shunned for a decade as an asset class.

-The banks divi the excess capital amongst themselves in the form of huge bonuses and the industry has a second systemic crash in 2015 as a result of a moral and physical implosion brought on by an excess of hookers and cocaine.

Or maybe none of the above.

It seems that my blog following the PBR was spot on. The Treasury is struggling to define who is a banker and, thus, who are the lucky punters that get to pay a bit more tax to HMRC.

Dylan Lobo on Citywire has a good article talking through the issues.

http://www.citywire.co.uk/personal/-/news/money-property-and-tax/

In a nutshell if you do the following you are allegedly a banker:

“* Those accepting deposits (in other words providing current accounts and deposit accounts to retail customers).

* Those dealing in investment as a principal (in other words trading in derivatives, bonds, commodities etc. on their own account).

* Those dealing in investments as an agent (in other words trading in the above types of investments as behalf of clients), or arranging deals in investments.

* Those safeguarding and administering investments on behalf of clients.

* Regulated mortgage contracts (in other words carrying out retail mortgage lending).”

That should just about cover anyone working in Financial Services or doing anything that involves money, so in today’s London economy - just about everyone.

HMRC has noted this may not be workable? So will publish more guidelines in January, which is great given that many bonuses are paid in December. I am told many firms have or are suspending payments until they have this clarity. In the meantime a cloud will hangover the largest tax generating sector in our economy and the City as a financial centre. This may sound over dramatic but I am already told it is impacting investment and spending on high value goods, just what is needed in a recession.

I am still not against the idea of the tax but surely fiscal policy has to be well though through and not be so transparent as to only be effective in tabloid headlines. This is what happens when the politicians are allowed to make decisions rather than the mandarins - see any old repeat of Yes, Minister. Where is Humphrey?

Alistair Darling’s pre-budget report was never going to please people as he had a series of very tough decisions that has to be made - tax more and spend less. His contribution to the festive cheer was a bit more banker bashing, which always seems to please to populous, and a 2% reduction in the Bingo levy.

So, where a bank bonus pool is credited with more than £25k for any one employee it will be subject to a one off 50% windfall tax.

He justified this by saying that every UK bank had benefited weather directly or indirectly from government support and that taxing the bonus pool may encourage banks to re-build their core capital rather than paying away profits in remuneration. It is difficult to argue with either of these points.

However, this policy does raise a series of other issues that are far less clear cut and may result in Mr Darling’s policy being significantly undermined.

Firstly, who is a banker? Anyone who works for a UK registered bank would seem like a good definition. But I doubt it is so simple. There are banks of every size, colour and creed. Some banks simply operate a retail franchises, taking savings and making personal loans, others only provide advisory services or specialist products and then there are the large banks that do almost everything either directly or through a plethora of subsidiaries.

Many of these organisations could probably argue that they are not banks in the sense that they did not lend large amounts of money to poor credits or invest in toxic securities. For that matters many of them don’t even carry out the basic acts of taking deposits and lending money. If you are an M&A adviser or a tax specialist at a boutique bank that does not lend money are you a banker? Equally if these people are deemed to be bankers, then surely those that provide similar services from within accountancy firms or specialist consultancies must also be classified as bankers? What about the people who sell insurance at Direct Line, surely they are in the insurance business, well actually they are part of the RBS group, so are they bankers?

Given that the Treasury rarely thinks through these things before they are announced I doubt there is a definition as yet. Maybe they will just put a question on the tax return - are you a banker?

Secondly, will this tax work? I doubt it, there will be means around this surcharge. It only applies until the 5th April 2010 so banks may opt to pay people in the next tax year. Alternatively, banks may only pay a £25k bonus but might make available interest free loans to be repaid from next years inflated bonus (the tax is a one off so should not apply in 2011,) employees will get shares or options in lieu of bonuses or may have contracts moved to offshore service companies, with Goldman paying UK staff in the USA or Deutsche paying staff through Germany or the Channel Islands. There will already be an army of top brains looking for ways around this soon to be legislation and I am sure they will find a way, at least for the top banker who are the ones that a) carry most responsibility for the crisis but b) can afford the tax structuring advise to avoid tax.

This process will be helped by the fact that the effective tax rate for bonuses is now 70%+. People will generally accept a marginally higher tax rate but if a £100k bonus is now worth less than £30k by the time it reaches your pocket then that will prompt bankers (or most other people if they were in the same situation) to look at ways around this situation.  

Mr Darling estimates the new banker bonus tax will raise £500m. I bet it will be far less in reality but then again this is not about the money it is about moral values. I agree entirely that we should not reward those who almost created a systemic collapse of the financial system but the truth of the matter is that finance is so interwoven with every part of western society that it is impossible to accurately attribute blame on an individual basis.

I fully accept that in my banking career I contributed to the almighty debt fuelled asset bubble but I will now escape any tax penalty, whilst there are others who work at banks but contributed nothing to the credit crisis who will be taxed. Mr Darling had to take a stand and he is right to do so - it is a shame that he does not have sufficient sophisticated tools at his disposal to create a tax regime that will achieve the objectives that are so well supported by the British people.

At least we can all benefit equally from the reduction in tax on Bingo. Housey?

“Newcastle United needs to be filled with people who love this club”, so spoke, Alan Shrearer, yesterday.

For any right minded follower of football, and at this stage I must declare an interest as a life long Sunderland fan, this is plainly the last thing that The Geordie Nation need.  Newcastle have already been through more messiahs in the last twelve months than the average middle eastern suicide cult and look where it has got them.

What has this got to do with property and finance? I hear you ask.

Adimittedly not a lot, however what I think it does is illustrate how not to turn around a hopeless situation, such as many of the defaulting loans banks now find themselves with.  What is needed is a dispassionate, un-loving hand of an outsider, who is able to take clinical or even cynical view in how to make the best of a lost cause.

To resource their workout teams, many banks have co-opted their origination bankers en masse, who, like Mary Poppins, might actually be a little too close to the problem to offer a subjective solution. 

I have given this all of five minutes deliberation and have come up with a solution that could remove the current impasse and keep all of Morgan and my lovely banker friends in work:

The banks all swap loan books with each other.

This could executed in a number of ways; bankers in Canary Wharf could move to the building immediatley to the right, for example.

This would facilitate closure on their current pain and allow them to get tucked into sorting out problems that were, genuinely, not of their own making.  

Genius.

By the way, I also appreciate that as a Sunderland supporter, I do not qualify as a “right minded follower of football.”

There is a defined process of grieving that was first identified by the Swiss doctor Elizabeth Kubler-Ross, who worked with the terminally ill (John Kay FT 14/11/07).

There are four main stages:

-Shock and Denial; “Bloody hell Dawnay Day have just gone bust, thankfully we’re in much better shape so nothing to worry about here.”

-Anger; “I wouldn’t be in this mess if those b*astard bankers hadn’t lent me so much money.”

-Bargain; “Hey, Mr Banker, mate, let’s just ignore the LTV covenants, you’ll get your money back when the market improves.”

-Depression; “We’re doomed, I never should have become a suveyor in any case, I should have done somthing meaningful with my life, like be a social worker or teacher.”

-Acceptance; “I always wanted to be a social worker and my wife really does like shopping at Aldi.”

So the question is, where are we on Lizzies scale? Our experience would suggest that it very much depends on who you are speaking to, what day it is and how much they have been drinking.

How long it lasts for is anybody’s guess, Queen Victoria mourned her beloved Albert for over a decade.

http://www.ft.com/cms/s/0/852dcb7c-9253-11dc-8981-0000779fd2ac.html