Those who think the UK economy is about to sink under a sea of debt will find plenty of ammunition to support their view in figures published yesterday showing soaring levels of personal insolvency and home repossessions. Yet though the numbers are certainly alarming, and go some way to explaining the present, subdued state of the UK economy, they cannot yet be seen as a harbinger of financial Armageddon to come.
One of the primary reasons why personal bankruptcies are on the rise is that changes in the law make it much less painful to declare yourself insolvent than it used to be. In their tens of thousands, people are taking advantage of the new facility to run away from their debts.
In the morally degenerate parlance of our times, bankruptcy is now said not to carry the same social stigma as it used to, never mind the crass irresponsibility of those who spend money they haven't got, leaving their creditors high and dry when they decide the time is right to kiss goodbye to their obligations.
Much is written and said about the wicked banks and credit card companies, marketing debt by the yard at usurious interest rates. The prevailing sentiment is that it serves the banks right if they are left out of pocket. The truth of the matter is, however, that when debtors decide to clear the decks in this way, it is the rest of us that end up paying the bill. I risk sounding like Scrooge. "Are there no prisons, are there no workhouses?"
Yet many of those who today avail themselves of the debtors' charter which is modern bankruptcy law were second home owners who have been living close to millionaire lifestyles. There is plainly something wrong with society that it encourages people to live beyond their means on debt, yet the primary responsibility lies not with the aspirational trash served up on popular TV, but with the individual.
All the same, the phenomenon of rising insolvency cannot entirely be blamed on feckless living. More accommodative insolvency laws are plainly not the whole story. Surging house prices and interest rates at historically low levels have caused British households to spend as never before. Strip out investment in housing, and there has been no net saving going on in the British economy at all in recent years. Instead, we have witnessed a debt-fuelled consumer boom of unprecedented proportions.
With interest rates on the rise once more, and central bankers the world over attempting to withdraw the excess liquidity they pumped into economies to keep them going post the terrorist atrocities of September 11, lots of chickens are now coming home to roost. Credit has never been easier, and for those who have taken on too much debt, there's still plenty of distress to come.
Yet the present surge in insolvencies may already be largely yesterday's story. All the recent evidence has pointed to a sudden revival in savings as Britons reacquaint themselves with the virtues of thrift. Personal bankruptcy levels will get worse before they get better, but this will probably be the peak year. The vast majority of people have manageable debts. It is only if there was to be a generalised and significant rise in unemployment that the present level of personal debt in the economy would pose any kind of systemic risk.
If people save more and borrow less, they spend less too. You'd have to have been on a different planet not to notice the squeals of pain emanating from the high street. Yet though retail sales have been subdued, overall, they are still growing. Consumption growth as a whole, though again below trend, hardly supports the perception of a debt-inspired collapse in demand just around the corner.
Commission scores own goal on TV rights
BSkyB could scarcely have hoped for a better outcome to the Premier League's auction of football rights. OK, so it might have won the maximum of five allowed to any one bidder out of the six packages of games available. It has also had to pay more for just four packages than it paid for the whole lot last time.
Yet in the four it has got, Sky seems to have secured the pick of the bunch, including the most desirable A package of Sunday afternoon games. The winner of the other two, the Irish pay-TV company Setanta, is already carried on Sky's platform, and is therefore a provider Sky can work with.
Just as important from Sky's point of view, it has managed to shut out both the free-to-air bidders and cable, the latter of which has been made to look wholly ridiculous. By entering the auction, all NTL has succeeded in doing is bidding up the price against itself. It will now have to pay a bigger wholesale price for Sky's sports channel, which is still the mainstay of cable's pay-TV offering.
Other than Sky, who else emerges a winner? The Premier League clubs get a lot more for their TV rights, though this hardly seems likely to benefit the clubs, since anything they make seems to go like a fast-flowing river straight into transfer fees and players' salaries. Ferrari dealerships and hacienda-style country piles are therefore unambiguous winners too.
As for the pay-TV subscriber, they will only end up paying more, and twice to boot, since there are now two providers to subscribe to. Was this the outcome that the European Commission and its partner in incompetence, Ofcom, really wanted when they insisted on imposing such an absurd auction process on the Premier League? They wanted more competition for football rights, but even accepting that they have secured a little bit more for the game, they've failed to improve choice and price for the consumer one jot.Once again, Sky has succeeded in playing the regulators like a finely tuned violin. For both the European Commission and Ofcom, the outcome cannot be seen as anything other than a spectacular own goal. Either they should have left the process well alone, or they should have insisted on at least half the packages going to providers other than Sky. As it is, they have succeeded only in bidding up the price football addicts have to pay to watch Premiership football. All in all, an outstanding result.
Bronfman changes tune on EMI/Warner
My, how Edgar Bronfman, chairman of Warner Music Group, has changed his tune. Now on the receiving end of an unwanted $4.2bn takeover approach from EMI, he's suddenly come over all sceptical about the supposed benefits of takeovers. "Consolidation for consolidation's sake doesn't make a lot of sense," he said after rejecting EMI's approach. "Ours is not a business which requires scale economics."
Personally, I rather agree with him but this certainly wasn't his view five or six years ago when, for Mr Bronfman, pursuit of the deal seemed to be an all-consuming passion. As titular head of the Seagram dynasty, he set about transforming his inheritance in the drinks industry into an all-singing, all-dancing media goliath. Eventually, he folded the whole lot into Vivendi and, in the subsequent dot.com meltdown, ended up losing his shirt.
Ironically, one of the only decent bits to emerge from this corporate road crash was Universal Music, which as by far the largest of the music majors, has in fact been a textbook study of the upside to be gained from consolidation. The others have found it difficult to compete with the economies of scale Universal was able to achieve.
Mr Bronfman is just talking his book by insisting that there is nothing further to be gained from consolidation. The disaster of Vivendi might lead you to think he's learned his lesson on the perils of corporate deal making, but the success of Universal Music suggests that even in music there are very substantial benefits to be derived from "scale economics". Some Wall Street analysts urge Mr Bronfman to turn the tables on EMI and bid himself. Perhaps we can expect another volte face in coming weeks.Reuse content