Iceland -South Norfolk withdrew, why not the others

annie42

If South Norfolk was on the ball and took their money out, why did'nt the financial bosses of some of the other local councils do the same. There have been numerous articles in the last few weeks in the press and on the internet raising concerns about the amount of Icelandic debt relative to the country's size and population. I took the bulk of my savings out two weeks ago and my isa with a lesser amount in it last Saturday and I'm only an Interior Designer with no financial expertise!

apt

The Kent county councillor on the radio kept bleating about the rating agencies and 'AA-rating'. Did he not realise that rating agencies also rated packages including subprime loans as AAA? Given there have been plenty of reports describing Iceland as being, in effect, a giant hedge fund councils should not have had money in Icelandic banks.

Oblivion

annie42 wrote: »

If South Norfolk was on the ball and took their money out, why did'nt the financial bosses of some of the other local councils do the same. There have been numerous articles in the last few weeks in the press and on the internet raising concerns about the amount of Icelandic debt relative to the country's size and population. I took the bulk of my savings out two weeks ago and a smaller isa last Saturday and I'm only an Interior Designer with no financial expertise.

When bigger players like Local Authorities put money on deposit, some of it will be for a fixed term, such as one month or three months, rather than instant access, so as to get the best interest rates on offer. Consequently, some councils will have been caught out by the rapidly changing circumstances in the financial markets when they are locked in to a deal.

Dave.

Rafter

Annie,

It doesn't quite work like that when organisations lend to each other.

You can't just withdraw your money overnight.

Councils will lend money for 1 week, 1 month, 3 month, 6 months and so on, and unless the money is 'maturing' they can't just withdraw it when they want.

If they only lent the money 'overnight' the return would be much lower (and council tax higher).

One thing it does highlight is why so many councils have so much money and hundreds of civil servants pushing it around the country. Much of this money comes from the fact that they collect council tax and rates in big lumps - for example if you pay your council tax by direct debit then you make 10 payments and then no payment in February and March each year.

The councils therefore take in millions they don't actually need during the year and then invest it so they have enough in Feb and March when they don't get as much income.

Wouldn't it be better to take 12 monthly payments and not have so much cash floating around to be invested in small iceland with tiny populations?

Iceland for example probably has a smaller population than kent, but Kent was prepared to lend the equivalent of £167 to every man woman and child in Iceland. NUTS!

As apt says though, the ratings agencies have a lot to answer for rating Icelandic banks much higher than some much more solid and relaible institutions here in the UK such as many of our Building Societies that do nothing more exotic than offer mortgages to our neighbours, friends and families!

R.

annie42

Thanks for explaining. I understand the points you make. Should'nt our money be in our banks though rather than a country which is'nt even a member of the EU. Not that the EU member states have co-operated as much as they might have done.

Oblivion

Rafter wrote: »

Wouldn't it be better to take 12 monthly payments and not have so much cash floating around to be invested in small iceland with tiny populations?

Two very different issues wrapped up in this one sentence.

The 10 months of regular income as opposed to a 12 month recovery regime has served councils very well over the years. It's all about cash flow, getting money in as quickly as possible, and the opportunity to invest that cash earlier rather than later. Plus it gave councils two months at the end of the year in which to pursue arrears and keep recovery rates up in the year of billing.

The second issue, however, is where best to place that revenue stream for maximum interest revenue in order to keep next year's council tax down. It used to be a fairly simple process when markets were predictable and reliable. Not so any more. I wouldn't like the job of a council's Loans & Investments Officer in these troubled times.

Dave.

opinions4u

We all have a degree in hindsight.

Iceland is a member of the EEA (EU plus a few 'friendly' countries).

While I would prefer a policy of councils only investing in UK banks, if they'd all piled in to Northern Rock/B&B, would we have been applauding their actions.

The question is what percentage of reserves have been lost. Anything over 20% is when questions should be asked.

annie42

Apparently The Lib Dems raised questions in Parlaiment months ago as to the suitabilty if investing in Iceland.

Nick_C

opinions4u wrote: »

While I would prefer a policy of councils only investing in UK banks, if they'd all piled in to Northern Rock/B&B, would we have been applauding their actions.

Estimates are flying about that up to a billion of deposits from Councils and UK Charities may have been lost.

Northern Rock and B&B were nationalised because of liquidity problems. No one would lend them money.

If UK Councils had lent their money to NR & BB, they may well both have been in business now, and the UK banking crisis may not have got to the stste we are in today!