Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

UK Interest Rate Swaps Financial Armageddon, Bankster Mis-Selling Bigger than PPI?

Interest-Rates / Banksters Dec 21, 2012 - 01:53 PM GMT

By: Nadeem_Walayat

Interest-Rates

Following the multi-billion PPI Mis-selling scandal, just when you thought it could not get any worse, Britain's crime syndicate that is our biggest banks have been revealed to have taken another systematic bite out of thousands of unsuspecting small businesses on a scale that could end up resulting to be as big as that of the mis-selling of PPI insurance.


PPI Mis-selling Recap

The banks and building societies after losing a court case in April 2011 brought by the British Bankers Association, were forced to start repaying what a year ago was estimated as approximately £5 billion in mis-sold payment protection insurance to their customers that in the vast majority of cases proved totally worthless. Barclays started the ball rolling by trying to ingratiate itself with its angry customers by automatically refunding all legitimate claims that had been submitted to date, with the other banks seeking to write to over 3 million customers over the subsequent year which has seen the estimated total mushroom to now £15 billion.

My own personal PPI experience was when I opened a credit card account with Lloyds TSB Bank many years ago, despite specifically rejecting their offer to add payment protection insurance to the credit account they STILL signed me up to it and and started to charge me on a monthly basis. I immediately complained and stated that I specifically told them that I did not want it, against which they relented and stopped charging me for a service that I never wanted in the first place, though never refunded me for the payments they had taken. This type of behaviour illustrates why over 3 million people have been mis-sold PPI.

The mushrooming estimated compensation from £4 billion to £15 billion now has gone hand in hand with what is just as bad which are the relentless hundreds of PPI claims companies that constantly cold call throughout the day, it has got to the point where I am sure many people that just like me don't answer the phone any more to unrecognised numbers because it will likely turn out to be just another PPI claims firm or another cold caller such as "sign up to our broadband", "change your energy provider" etc.

DO NOT USE ANY PPI FIRMS - Instead as I covered 18 months ago (19 Jun 2011 - Warning on Banks PPI Complaints and Compensation Claims) this is what you need to do -

Write a simple letter of complaint to your bank requesting repayment of mis-sold PPI charges in full with interest to include:

  • your full name and address
  • PPI policy details / ref number
  • When the policy started and what did it exactly cover
  • Reason for complaint i.e. that you did not want it and nor was it explained properly, or if you are self-employed or part-time that the policy was not valid for you as you could never have claimed on it.

The financial ombudsman service has for a some time made available a detailed questionnaire that you can use as a further guide for a complaint, though this amount of detail is probably now no longer necessary (download the consumer questionnaire in Word format).

Interest Rate Swaps Mis-Selling - What are Interest Rate Swaps ?

Simply these are derivatives contracts that hedge against a change in interest rates. Very similar to the examples of Fixed, Capped and Discount rate mortgages. However most of the Swaps sold to small businesses were hedges against a rise in interest rates (usually linked to base rate), i.e. the contract would pay out the the difference between the strike rate and the prevailing higher market interest rate, or charge them if the market rate was lower than the strike rate.

No Swap No Loan

The problem at the core of the Swaps mis-selling scandal is that small business were bullied into signing up to these complex derivatives as a requirement for borrowing money from the banks so it was not as though the small business went looking for Interest rate swaps but were sold these complex products even over short phone calls in an hard sell of being tied to loans and that of only focusing on the risk of imminent rises in interest rate rises and that the Swaps would protect loans against such rate rises, all without ever properly explanation of or understanding by the customers of the consequences as they tended to perceive them in terms of capped or fixed rate mortgages and therefore failed to appreciate what would happen if interest rates fell which would have left the customers liable for the difference as the following example illustrates

Small business wants to borrow £250k from the bank over 5 years, loan requires to buy an Interest rate swap product (Fix the rate) to protect against a rate rise. Business given the impression it's like a fixed rate mortgage and unaware of the key consequence that the penalty for early exit would be 50% of the original loan £125k, also prompted to buy a fix that is longer than the loan term so that it generates more commission for the bank.

Base Interest Rate Swap Strike rate 5.5% - Credits for any rise above 5.5%, Debits for any fall below 5.5%.

Interest rates crash following Financial Armageddon resulting in a base rate at just 0.5% (for 3 years) making the small business liable for an extra 5%, or £12,500 per year (probably plus extra fees), Plus HIGH early exit costs of 50% of the original loan (£125k), despite being told that they could exit at anytime without cost.

The result is that these products have been directly responsible for bankrupting many small businesses and draining cash out of many more businesses which is the exact opposite of what the record low interest rates were supposed to achieve.

FSA Snoring on the Job Again

The FSA as usual has been deaf dumb and blind to the criminal activities of its bankster brethren as the the banking sector and regulator senior staff operate a revolving door between them, one day a banker, next day a regulator and then back at being a banker, which ensures that there is only ever 'light touch' regulation of the big banks crime syndicate.

However, the FSA under much political pressure is slowly starting to address Interest Rate Swaps mis-selling, though as explained above it is likely to take some time before businesses are compensated which means in the meantime many more businesses will go bust.

How Big Could Mis-Selling be?

It is early days, current estimates put the bill at £3 billion. However at a similar point the PPI was estimated at just £2 billion which has now mushroomed to £15 billion. So Swaps mis-selling could get to a similar amount if not greater than PPI's £15 billion.

The bill for all bankster crimes will ultimately be paid by ordinary tax payers as a continuous stream of Bank of England bailouts that is Quantitative Easing that inflates consumer prices.

What to do ?

AVOID THE Swaps Mis-selling Claims firms that will soon start springing up like mushrooms. Instead write a letter of complaint to your bank. Depending on their response, complain to the Financial Ombudsman, however compensation is capped at £150k so court action may prove necessary. In which case compile a full dossier of information, including requesting documents and transcripts of any phone calls from the bank.

UK Interest Rate Swaps Market

The current market rate is 1.5% for a 5 year swap - Which means IF interest rates go up then this should generate a credit / profit. However the RISK is that if market interest rates fall further then the difference is the price paid. Also market interest rates and those that the banks will sign you upto are not the same as banks add their commission on top of as much as 1%.

Will Interest Rates Go Up?

My long standing forecast (March 2011) is for UK base rates to target a rate of 4% by the end of 2014.

Source and Comments: http://www.marketoracle.co.uk/Article38177.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2012 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014