Clean up our hospitals

MRSA deaths in the UK
Clostridium difficile deaths in the UK

The complacency about clostridium difficile (c. difficile) and MRSA is nothing short of scandalous. Last year, c. difficile claimed 6,480 lives, while MRSA took lives 1,652.

The reason for this shocking death toll is well understood by everyone; dirty hospitals and the fly-by-night contractors who are supposed to clean them. Every month last year, some 677 people died because of this misguided idea that hospital cleaning could be contracted out.

It is time to end this epidemic. Ward cleaning should be reintegrated back into the mainstream management of hospitals. There should also be a nationwide campaign of re-establishing hygiene standards within the NHS. This will require extensive ward closures but it needs to be done if we are to stop the escalating death toll from these two bugs.

Another piece on Northern Rock

Darling - in his own words

.... well, perhaps I exaggerate....

A quick primer on subprime

Here is a very funny link; check it out....

It is all about the banks.....

Over the last few weeks, a question has bugged me. Could the sub prime crisis bring down a major US investment bank? The crisis has already destroyed some 220 small financial institutions. It also forced Bank of America to bail out Countrywide, one of America's largest sub prime lenders. But what about a gorilla? Could it take down one of the big beasts roaming the financial jungle?

There are two badly wounded investment banks out there; Citigroup and Merrill Lynch. Out these two, Merrill looks the most vulnerable. In early January, the bank reported the worst quarter in its history, forcing the bank to write off $16 billion due to sub prime investments.

How much of a financial hit is $16 billion to a bank like Merrill? These days, balance sheets are available with a click of the mouse. Merrill started out in 2007 with assets amounting to $841 billion, and liabilities of $802 billion.

Subtracting assets from liabilities gives the bank's capital, which is the loss-making shock absorber. So long as the bank has a sufficiently large stock of capital, the bank can ride calamitous decisions like investing in sub prime assets. Simple arithmetic tells us that at the end of 2006, Merrill had capital amounting to around $39 billion.

The Merrill website has a couple of further, more interesting numbers for capital. During the first quarter, bank capital increased by around $2 billion, to around $41 billion. By the end of 2007, the bank had owned up to the losses. As a consequence, bank capital fell to $32 billion. In simple terms, sub prime investments burned up around 24 percent of Merrill's capital.

Looked from the perspective of bank capital, these losses are mighty. While subprime has not put the bank in any immediate danger of insolvency, neither is the bank in any shape to absorb any further shocks.

So when Bernanke met with the rest of the FOMC on Monday, he almost certainly had Merrill foremost in his mind. With the stock market crashing on monday, he had a vision of a further financial shock ripping through the banking system, zapping bank capital, much like the sub prime crisis did in 2007. He may be worried about a recession, but he is petrified of a major bank sinking into bankruptcy.

There is only one way he can help; reduce rates. This will allow banks like Merrill to increase their spreads between borrowing and lending money. Over time, bank profitability will improve and gradually bank capital will recover.

However, the rate cut comes at a time when inflationary pressure in the US is at a 17 year high. The CPI is now over 4 percent and will almost certainly rise further. After several years of relentless dollar weakness, import prices are rising.

However, when it comes to choice between Merrill or inflation, the Fed knows what to choose. It will be Merrill every time. This leads us to a profound conclusion. Whatever the Fed may say, monetary policy is there to serve Wall Street.

The impossible triangle

Consider these three headlines; all of them taken from the same edition of the Times:

Mortgage lending hits a new record in 2007
Half a million homeowners miss mortgage payments
Bargain hunters reignite UK housing market

Despite the seeming contradictions in the headlines, taken together the three articles provide an almost complete narrative about today's housing market.

The first article tells us of a bumper year of household debt accumulation "Gross mortgage lending rose to its highest level last year. Figures from the Council of Mortgage Lenders (CML) show that banks lent a total of £362 billion to homeowners last year, up 5 per cent on 2006 and the highest level since records began in 1999."

To be fair, the mood of the article quickly sours when it acknowledges the recent mortgage slowdown: "lending in December was £22.6 billion, down 25 per cent on November and the lowest level in any month since May 2005."

The second article is much more unpleasant; it is about debt despair and desperation. It tells of "almost half a million cash-strapped homeowners" who have "missed a monthly repayment on their mortgage in the past six months." Since there are almost 12 million mortgages in the UK, this means that about 4 percent of borrowers are in deep trouble. Should these repayment difficulties turn into repossessions, then the UK would have financial crisis every bit as bad as the sub-prime crisis over in the US.

So far, the story is clear; too much housing debt pushing far too many households into payment difficulties. But what about the third article? How does that fit into the reality of a rapidly deteriorating property market. Can the housing market really be reigniting?

The third article is about denial. The housing crash may be upon us, but there are still plenty of people ready to drop a quote that distorts reality. The market is not crashing, it is reigniting because "bargain hunters" have appeared to save the day.

It acknowledges that "the average price of a house has fallen for a third month", but despite declining prices "activity is growing as cheap deals draw out buyers ". Miles Shipside, from Rightmove, gleefully informs us: “Some home buyers are now able to find properties that have fallen into their affordability zone, and are bagging what they see as bargains against previous prices."

So there we have it, the three corners of the UK property market triangle; debt accumulation, debtors drowning in debt, and denial that anything is wrong.

Housing affordability - we still have a long way to go

(click on the chart for a larger image)

The UK house price to earnings ratio has actually fallen marginally in the last months of 2007. House prices are now crashing; they are already down almost 5 percent since July 2007. However, prices will need to fall much further before the price to earnings ratio reaches its long term equilibrium level.