Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16
Bonds And Stocks At All-Time Highs: Are Markets Confused Or Broken? - 20th June 16
Silver Sleeping On the Job - 19th June 16
BrExit Odds Sink, REMAIN Polls Boost by Jo Cox Killing by Radical Right Extremist, Conspiracy? - 19th June 16
How Elliott Waves Tell You When to "Jump In" & When to "Jump Out" of Markets - 18th June 16
Stock Market Inflection Point During Bifurcation - 18th June 16
Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - 18th June 16
Gold Stocks - Bull Markets that Follow Epic Bears - 18th June 16
The Fed Giveth and the Gold Bullion Banks Taketh Away… - 17th June 16
Brexit: "The Vote Heard Around the World" - 17th June 16
Gold Stocks Summer Breakout? - 17th June 16
Stock Investors Get Higher Returns and More Dividend Income - In Less Time With Less Risk - 17th June 16
How to Use the Gold-to-Silver Ratio? - 17th June 16
Inflation, Deflation & Associated Trading Prospects - 17th June 16
Overnight Markets Struggling to Stay Flat - 17th June 16
Gold Price Surges to Highest in Nearly Two Years On Central Bank and Brexit Haven Demand - 17th June 16
Stock Market Thinking Upside Down; Dow 18k Still Key - 17th June 16
Jo Cox MP Terror Attack Killing Claimed for "Britain First" - Witness Report - 17th June 16
Stock Market, Iron Ore, Bitcoin – Is Silver Next for Chinese Momentum Investors? - 16th June 16
EU Referendum Campaigning Suspended Following Shooting of MP Jo Cox, Suspect Named as Tommy Mair - 16th June 16
Why People are Migrating to the UK, Illegal Immigration, Housing Crisis Consequences - 16th June 16
Stocks Fluctuate Following Recent Decline - Bottom Or Just Pause Before Another Leg Down? - 16th June 16
The US Consumer-Driven Economy Has Hit a Brick Wall - 16th June 16
Bitcoin Price Going Parabolic Again, Now At $730 and Up 60%+ In Last Three Weeks - 16th June 16
China's Hard Landing Has Already Begun! - 16th June 16
Crude Oil Price - Oil Bears vs. Support Zone - 16th June 16
Central Bankers Are Wrong About Inflation and Deflation - 15th June 16
Alignment Of The Dow, Interest Rates, Debt and Silver Cycles Will Deliver A Fatal Blow - 15th June 16
Stock Market Bounce May be Over - 15th June 16
EU Referendum: Have the Bookmakers Got it Wrong? LEAVE Opinion Polls Lead - 15th June 16
Gold Price Rally - 15th June 16
How to Invest for Brexit Report - 15th June 16
Stock Market Short of the Decade? - 15th June 16
Stock Market Sell Off Coming! - 14th June 16
QE - The Good, Bad & Ugly - 14th June 16
This Demographic Shift Makes Our Social Security Useless - 14th June 16
Gold Stocks Ultimate Objective in a World of Monetary Transition - 14th June 16
Philosophy of the New World Order - 14th June 16
The Brexit Game - Boris Johnson vs David Cameron EU Referendum Zombies - 14th June 16
EU Referendum: LEAVE Opinion Poll Lead of 51% to 49% Whilst Bookmaker Odds Still Strongly Favour REMAIN - 14th June 16
George Soros Making Big Bets on Gold - 14th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

© 2005-2016 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

Catching a Falling Financial Knife