Two Blogs strikes back - The Barnet Council Leader Mike Freer Speaks !!!!

Having badgered Mike Freer for a response on his blog, it's only fair to post it here (with a few added comments of my own in BOLD). You can check the his blog just to make sure I've not been naughty and edited it by clicking HERE.

Much as I am pleased he's said something, I can't say I'm too impressed. Sorry if this is a rather long boring post, I had to respond. I promise I'll post some more entertaining stuff next time.

--------------

From Mike Freer's Blog

Icelandic deposits frozen not lost
October 23, 2008 – 6:18 pm

In recent days some residents have taken me to one side and asked how the Council came to have £27.4 million pounds “invested“ within Icelandic banks and what effect that would have on their Council Tax bills now that it had been lost forever.

Both local newspapers (the Hendon Times and the Barnet Press) have covered the story in some detail and both presented what I personally consider a fair assessment of the situation currently facing the Council in relation to Icelandic banks, but there are points that I would like to clarify for readers to avoid any unnecessary worry, confusion or misrepresentations. THATS A GOOD IDEA

Firstly, the money deposited with Glitnir and Landsbanki is not lost and negotiations continue via the Local Government Association to ensure that the Icelandic banks honour their financial obligations to local authorities. The Council following guidance from Government has a duty to ensure the best return for taxpayers of the borough by considering risk and returns, making prudent deposits of balances to ensure the best return. The Council has to place its cash somewhere, and as one of the largest local authorities in the United Kingdom it would be unwise to hold all of our money in one bank, or invested in low returning Gilts and Bonds - indeed we would have been open to government criticism that our treasury management strategy was not yielding enough investment. The interest generated has paid for our additional investment in libraries and the laying of new pavements in our town centres while keeping Council Tax increases below the rate of inflation.

FIRSTLY, IF THE COUNCIL WAS A PUBLICALLY QUOTED COMPANY ON THE STOCK EXCHANGE MR FREER WOULD NOT BE ALLOWED TO MAKE THIS STATEMENT WITHOUT A MASSIVE HEALTH WARNING. ALTHOUGH THE MONEY IS TECHNICALLY FROZEN, THE PROSPECTS OF IT BEING GOT BACK FROM THE INSTITUTIONS IN QUESTION (AS OPPOSED TO AS PART OF A GOVENMENT BAILOUT) ARE MINIMAL. SECONDLY THERE ARE PLENTY OF OTHER INSTITUTIONS OFFERING GOOD RATES OF INTEREST. THIRDLY THE QUOTE ABOUT THE LIBRARY AND PAVING IS A COMPLETE RED HERRING. IS HE SAYING THIS WAS ONLY FINANCABLE THROUGH INVESTING IN THESE ICELANDIC BANKS. FOURTHLY, THE DERIDED GILTS ETC, WOULD STILL BE THERE, THEY WOULDN'T BE FROZEN


The money deposited with financial institutions does not represent ‘spare’ funds, but represents rolling balances that are deposited and drawn down by the Council when needed. These are not investments and the Council has not bought stocks and shares in banks. The Council deposits money into bank accounts in the same way as normal savers and currently there is £328.8 million held in 31 financial institutions. These balances comprise money collected from council tax payments, housing rents, Business Rates, government grants and other income paid to the Council and is drawn down to pay for the day to day running of the Council, major projects or for payments to central government when needed.

ONE OF THE ICELANDIC ACCOUNTS WAS ON FIXED TERM AND HAD BEEN THERE FOR TWO YEARS. THIS COULDN'T EASILY BE DRAWN DOWN, BY FREERS OWN ADMISSION SO WAS IN EFFECT SPARE CASH. IN THE PAST TWO YEARS WE'VE HAD COUNCIL TAX RAISES. THE TWO YEAR FIXED RATE CASH COULDN'T BE DRAWN DOWN. ANOTHER RED HERRING


Despite banks always being considered as safe places to deposit money, the Council has a Treasury Management Strategy developed by those elected to the Council, which is updated annually and reported to the cabinet Resources Committee – together with an annual report on performance against the strategy that is also reported to this committee (normally in June). We form policy and officers of the Council with the expertise in this field, combined with external technical and professional advice, implement them. The popular misconception is that my colleagues and I choose where these investments are made. That is simply not true, and would be grossly irresponsible given our lack of expertise in the market place.

YET ANOTHER RED HERRING. SURELY GIVEN THE ALLOWANCES COUNCILLORS, ESPECIALLY CABINET MEMBERS AR PAID, IT IS NOT TOO MUCH TO ASK FOR A BIT OF SCRUTINY OF INVESTMENTS. IN THIS DAY AND AGE HOW HARD WOULD IT BE TO KEEP MEMBERS INFORMED OF THE COUNCILS INVESTMENTS BY EMAIL. THEY COULD THEN SCRUTINISE THEM AS MUCH AS THEY LIKE AND MAKE SUITABLE RECOMMENDATIONS. THE TECHNICAL EXPERTS COULD THEN FIELD ANY QUERIES AND AN APPROPRIATE PLAN OF ACTION DEVISED. I WOULD HAVE THOUGHT MONTHLY UPDATES ON ANY CHANGES IN INVESTMENTS WOULD BE PRUDENT. DON'T FORGET ADVISORS ADVISE, LEADERS LEAD


What my colleagues and I did identify as part of the policy setting process was that risks should not be taken when depositing money and therefore a cap of £15 million on the amount that could be placed with one financial institution was introduced. Had this cap not been introduced we could have found ourselves with exposure to Iceland on the same scale as other authorities, with some of this deposited in the run up to the actual collapse of the bank. Our decision to spread our deposits has meant that in these unprecedented times only 8% of our total deposits were exposed to the current crisis and I can only repeat, this money is not yet lost.

ONLY 8%? ONLY £27.5 MILLION? THIS ATTEMPT TO PLAY DOWN THE LOSS IS OUTRAGEOUS. IT STRIKES ME THAT NOTHING SHOULD BE INVESTED BY THE COUNCIL IN BANKS WITH THE SLIGHTEST DOUBT ABOUT THEIR FINANCIAL STABILITY. THERE WERE PLENTY OF WARNING SIGNS ABOUT THE ICELANDIC FINANCIAL SYSTEM. I'VE DETAILED THESE ELSEWHERE ON THIS SITE


One burning question is why did we not withdraw our deposits when warnings were being sounded about Iceland? The simple answer is that each credit rating agency did not downgrade the banks with which we deposited our money until the end of September 2008. The terms of the deposits were of a fixed term nature which meant that we would have to negotiate the return of the funds before their maturity date. Advice given to the Council since the start of this crisis is that the banks would have refused to renegotiate or would have imposed massive penalties which would have seen a guaranteed loss to the Council, something which is not yet set in stone.

THE MASSIVE PENALTIES WERE NOTHING COMPARED WITH THE PROSPECT OF TOTAL LOSS. THE STATEMENT THAT THERE WERE NO WARNINGS IS COMPLETE RUBBISH. CHECK THIS LINK FROM THE DAILY TELEGRAPH IN 2006 (WHEN SOME OF THESE DEPOSITS WERE BEING MADE).


Nobody foresaw the collapse of the entire banking sector either in the United Kingdom or Iceland. Claims that Council’s saw this collapse coming are spurious, and after contacting a number of authorities including Brighton & Hove they have advised that they were lucky, and that their deposits simply matured and were paid back on the due date originally agreed with the banks. They did not make the conscious decision to withdraw and indeed, Icelandic banks remained on their approved list of banks for use well into 2008.

NOW THIS IS OUTRAGEOUS. THE ENTIRE UK BANKING SYSTEM HASN'T COLLAPSED. I THINK MR FREERS FORMER BOSSES AT BARCLAYS OR HSBC MAY HAVE SOMETHING TO SAY ABOUT THIS STATEMENT. SO MUCH FOR TALKING UP THE ECONOMY. MR FREER SHOULD KNOW ALL OUR BANKS HAVEN'T COLLAPSED. HE SHOULD KNOW THAT MUCH OF THE ECONOMIC TURBULANCE WAS PREDICTED. NOT LEAST BY BARNET COUNCIL WHO TOOK OUT HUGE LOANS IN 2006 AS THEY EXPECTED THE ECONOMIC SITUATION TO TIGHTEN AND LOANS TO BECOME MORE EXPENSIVE. THIS IS STATED IN THE DOCUMENT FREER LINKS TO. BRIGHTON AND HOVE COUNCIL CHOSE NOT TO RENEW DEPOSITS, THERE WEBSITE SAYS AS A RESULT OF THE FINANCIAL WARNINGS. IS FREER CALLING THE BRIGHTON COUNCILLOR WHO MADE THE STATEMENT A LIAR? I WILL BE EMAILING THEM TO SEE WHETHER THEY AGREE WITH FREERS STATEMENT AND PUBLISHING ANY RESPONSE HERE (WHATEVER IT SAYS).


When our Icelandic deposits were made (up to 2 years ago) the economy was strong, banks and building societies were safe places for money to be deposited and the risks were low. The credit crisis has hit Barnet but it does not mean that we have lost any money and therefore we cannot at this time say how any services or capital projects, if any, will be affected - but residents can be assured that if the Icelandic authorities refuse to honour our deposits I will continue to press the Chancellor for a guarantee that he will provide the taxpayers of this borough with the same protection he has given to the banking sector who exposed themselves to the same institutions.

SO REALISTICALLY OUR FUTURE COUNCIL TAX LEVELS DEPENDS ON GORDON BROWN'S GOODWILL, RATHER THAN THE PERFORMANCE AND THE COMPETANCE OF MIKE FREER.THERE IS NO ACKNOWLEDGEMENT HERE OF ANY MISTAKES. THERE IS NO INDICATION THAT THE COUNCIL MADE BAD DECISIONS. THERE IS NO APOLOGY. IN MY EYES THIS IS A VERY CONDESCENDING AND ARROGANT REPLY. AS USUAL NOTHING IS FREER'S FAULT, THE COUNCIL DID A FANTASTIC JOB AND WE PAY FOR THE MISTAKES. A SORRY SITUATION. FOR SOMEONE WHO WORKED IN BANKING FOR SUCH A LONG, DID FREER LEARN NOTHING, AS HE SAYS HE ISN'T QUALIFIED TO COMMENT ON ADVISERS ADVICE