by Richard Alexander
BARCLAYS Bank has recently been found guilty of manipulating the interbank lending rates, netting huge profits for themselves as a consequence.
And a wholesale mis-selling of complex ‘interest rate swap’ instruments – to 28,000 business customers – has also emerged in the last fortnight.
To cap it all, Barclays’ chief executive Bob Diamond has just resigned under pressure for these and other scandals that happened ‘on his watch’ – and will now potentially benefit from a huge settlement as a consequence.
You can be forgiven for thinking the world has gone a little mad.
On the bigger stage, looking at the Eurozone lurching from summit to summit, was it really a case of 20th time lucky with a solution that will work?
I am not given to pessimism, but I really don’t think we are any closer to a lasting solution just yet.
The latest summit may have ended on a positive note.
It allows the Eurozone rescue funds to buy Italian and Spanish debt in the form of government bonds, without the money passing through the respective governments.
This resulted in the value of the Euro immediately, rallying by some two per cent.
But will it last?
The rally was based on the reduction in Spanish yields which dropped from seven per cent to 6.3 per cent, with Italy dropping below the six per cent level.
These rates remain very high but since they are not sustainable in the longer term, more needs to be done.
The biggest problems for the man in the street are that all the numbers being bandied around in relation to banks and government borrowings have far too many zeros on them to allow anyone to really understand what it all means.
And yet, they have a direct influence on not only our day-to-day lives but our financial planning as well.
As we are often told, recovery will be slow and long-term planning is necessary to see sustainable growth return.
In many ways, the same is true of financial planning and in particular, those reliant on income from invested capital or pension funds to meet everyday needs.
Those with sufficient capital to be certain that even at very low interest rates.
They are generating sufficient income for immediate needs, and leaving some behind to let the capital
grow, are in an envious position.
Most do not have that reassurance.
The main problem with relying on this type of investment is that, in real terms, when you allow for inflation, the value of the capital is going down each year – even for those who are not spending all the interest.
Strategically, the financial planning approach needs to be more adventurous.
Break down your needs into ‘nice to have’ and ‘need to have’ and think of your estate planning in terms of ‘immediate future’, ‘medium’, then ‘long term’ and ‘eventual’.
You may not be able to cover all bases straight away, but by taking a more more realistic, structured approach, you can ensure your ‘need to haves’ are met before working on the ‘nice to haves’.