The Obscurer

Sunday 5th April 2009

The "More" Gauge

“Congratulations, Mr Quinn; you are now the proud owner of an endowment policy to pay off your newly acquired mortgage!”
I was slightly confused as I shook the unindependent financial advisor’s hand, not least in part because my surname is not Quinn, and it would still be some years before I would decide to adopt that moniker for my online shenanigans. How was I to know that she would call me by my future pseudonym to ease the telling of this story? Still, my confusion was as nothing compared to the apprehension I felt at buying a house and taking on an accompanying twenty-five year mortgage single-handedly; but I had done my sums, I thought I could afford it, and unless I wanted to live with my parents for the rest of my natural it was something that just had to be done.

There was a sharp knock at the door which then opened. A fresh-faced member of staff stuck his head into the room and blurted breathlessly,

“Stop selling endowment policies. This minute. We’ve just found out…they’re crap.”

The unindependent advisor’s face changed from the beam of financial wizard who had just earned a bundle of commission to the scowl of a cheap conjurer who had realised she had been rumbled.

“Get out…GET OUT!” she screamed, as I was ushered from the room.

And so it was that I became the last person in Britain to take possession of an endowment mortgage.

But you know, things didn’t turn out too badly for me. A few years later I sold that house and moved in with my then girlfriend. The equity on the house paid for all of our wedding and half of the purple Rover 200 that still adorns our drive. And even though I’d flogged that house and rid myself of that mortgage, I still kept on paying into the endowment policy as an investment, anticipating a tidy lump sum in the eventual future. If I had taken out a repayment mortgage rather than an endowment then on selling the house I wouldn’t have had much to show for it, having done little more than to have paid off a few years worth of interest on a mortgage for a house that was no longer mine.

Over the years the name of the company that runs my endowment policy has changed as often as that of a firm of dodgy builders you may see on an edition of Rogue Traders; from Black Horse, to Lloyds TSB, to Scottish Widows. The name has changed, but what has stayed the same has been the nature of the regular letters I’ve received from them, reporting on their progress in investing my cash is a way that should – in theory – earn me a sum of money capable of covering the cost of the mortgage they still believe I possess. Despite the many fluctuations in the economic outlook over the past decade, my provider has consistently warned me that they are failing to earn a sufficient return on their investments to meet the price of my old house (minus deposit). Since there would have been no such concerns if I had taken out a repayment mortgage, then another way of putting it could be that I have been paying money to some so-called financial experts in the hope that they would invest it wisely, but the return on that investment currently seems to have failed to match – or has in fact been outperformed by – the returns on a simple repayment loan set at an extremely low level of interest.

So what to do? Well, nothing, basically. After all, as I said, even if my endowment policy doesn’t cover the cost of my mortgage when it matures, that mortgage and house are long gone as far as I am concerned, and so any shortfall is irrelevant in that regard. But recently there has been a change of tone in Black Horse Lloyds TSB Scottish Widows’ correspondence. Sure, they are still admitting that they’re not going to get anywhere near hitting their nominal target, but now it seems the time for prevaricating is over: action is needed, and needed NOW! I concur of course; if they are failing in their job then they really should take action to sort things out. Yet strangely, rather than detail the actions they are taking to put things right, instead the letter informs me of the sort of actions I should be taking; rather than it being a case of them getting their act together, instead it seems that I am the one who needs to pull up my socks and make arrangements to cover this shortfall that they have created (although apologies and an acknowledgement that it is their failures that have led to this shortfall, there are none).

They are nothing if not helpful, though, my endowment policy provider, whatever it is they’re called today. They haven’t just abandoned me to try to find my own way out of this crisis. Oh no; their letter runs through a number of options I can take so to aid me in my plight. They suggest I could change part of my mortgage to a repayment loan (not feasible in my case, since I don’t have that mortgage any more), I could set up an additional savings scheme (to pay for a house I no longer own) or I could vary my endowment plan by increasing my payments into it (or, in other words, they are saying “look, I know we’re not on track to get anywhere near to earning you the lump sum we said we would do, but you could always bung us a load more money to see if we can get it right this time, eh?”) None of these options seem to me to be worthwhile, tempting, or in some cases physically possible.

But Scottish Widows hasn’t finished yet. They’ve clearly read up on Nudge, and want to help me to make the right choice. For them. So they say that all they require is a simple signature on a piece of paper and in a trice they are willing to authorise an increase in my payments into the policy by some 25%, and that should solve all my shortfall problems. Perhaps. Well, at least until the next set of circumstances conspire against them and their smart investing ways. Oh yes, and smuggled away in the small print it mentions in passing that if I refuse to give them any more money they will in turn refuse to “lifestyle” my endowment policy; in other words, in the closing years of my policy they will no longer transfer some of my units into lower risk investments, so to protect against sudden drops in the stock market in my policy’s final days. Which is nice of them.

Now, giving these folk another wedge of my cash is the last thing I want to do, frankly, but I would quite like to keep that lifestyling bit if you don’t mind. A conundrum then. Which options should I choose? I need a second opinion. Fortunately Scottish Widows are also forced to include a leaflet from the FSA with their correspondence, and that leaflet also handily goes through all the options I can take to deal with my theoretical shortfall, indicating the pros and cons for each choice by a selection of ticks, crosses and question marks. Repaying my mortgage early by paying a lump sum or overpaying each month, for example, earns two ticks ( “this will reduce the amount you owe…” and “it may be better value that saving up separately…”) and two question marks ( “you should check whether your lender will make an early repayment charge…” and “you should check when your lender will give you the benefit from extra payments…”). So, converting part of the mortgage to a repayment loan earns 3 ticks; converting the whole mortgage to a repayment, 2 ticks, 1 cross and a question mark. Starting an additional cash savings plan gets another 3 ticks, while doing the same with a stocks and shares ISA gets 1 tick, 2 crosses and a question mark. As for altering the endowment policy: extending the term gets just 1 tick, 3 crosses and 2 question marks, while bringing up the rear with 3 crosses, 2 question marks and not a single tick is the option to pay more into my existing endowment policy. Even though I could suggest a fourth cross I feel the FSA has omitted there – that “it’s probably not a great idea to shovel yet more money to the people whose investments have created your shortfall in the first place” – this is still the option the FSA feels is the worst possible available, and it is also the option that Scottish Widows wants to bully me into taking. And indeed will punish me if I don’t take it.

As I say, this isn’t a major problem for me as my endowment policy is designed to pay for a house that is now owned by other people (although as my wife’s endowment policy is also currently going south we may need mine to swing into action to pay for the house we do live in.) Still, it will be pretty annoying if my continued investment suffers due to a lack of lifestyling should my endowment policy happen to mature the day after a Lehman Brothers-type bankruptcy and accompanying stock market collapse. More annoying is the principle; that Scottish Widows feels it can just request I pay more money into an endowment policy that by the very nature of the request they admit is to some degree failing, and unilaterally alter the terms and conditions on that policy should I refuse to comply.

All of which is a rather roundabout way of saying that I really must get around to digging out the helpline number and giving the FSA a ring. What do you reckon? It’s not as if they have any more pressing matters to deal with at the moment.

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Thursday 2nd April 2009

Another Week On Twitter

Shortly I will get around to posting something here other than a weekly Twitter digest. But in the meanwhile…

  • Tory internet sensation Dan “The Man” Hannan’s had a rough life, hasn’t he? 37 years old you say? Yeah, right. And the rest! [#]
  • Driving through the Cotswolds while listening to Fleet Foxes. [#]
  • Just witnessed a dramatic harris hawk rescue at Warwick Castle in the blazing sunshine. [#]
  • One of my WordPress plug-ins has a new version out. Hopefully I’ll remember how I hacked the old one *before* I install it this time. [#]
  • My daughter has just spurned an own-brand Custard Cream in favour of a McVitie’s Jaffa Cake. Oh dear. It’s started. [#]
  • Why was the bench still warm? Who had been there? [#]
  • Chased after a woman to return her dropped baby sock, all the while fearful that as I reach her she may spray me with mace out of shock. [#]
  • First mention of “passionate” that I’ve spotted in #apprentice. [#]
  • You know, I’m not sure these anti-histamines are doing a damned thing. But then the pills do look disturbingly homeopathic. [#]
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Thursday 26th March 2009

A Week On Twitter

  • @hackneye Great stuff. I’ve got “Kingdom Of Rust” going around on a constant loop in my brain. in reply to hackneye [#]
  • The “Hoover”. The “Thermos”. What the hell is it about the word “vacuum” that means we run to the safety and comfort of the generic name? [#]
  • God I hate card shops, and I’ve just spent a small fortune in one. [#]
  • @michael_dennis Too true. Its my wife’s birthday *and* Mothers Day this weekend, so I need a flowchart to ensure I’ve covered all the bases. in reply to michael_dennis [#]
  • We all have our irrational prejudices. One of mine is an instinctive distrust of anyone who likes Rugby Union. I hope to get over it in time [#]
  • I think my addiction to Dime/Daim bars has returned, something I thought I had beaten, and which has lain dormant for some twenty years. [#]
  • Unless “Piers Morgan On…” does an edition called “…Fire”, I’m not interested. [#]
  • @gezd Agreed. I like Stewart Lee, but that skit was too long, and Richard Herring seems to have gone from comedy partner to imaginary friend in reply to gezd [#]
  • Cheese-on-toast for lunch. Again. Sometimes my lack of imagination actually frightens me. [#]
  • First mention of 110% on #apprentice. So soon! [#]
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Thursday 19th March 2009

That Week On Twitter

  • I’ve had some amazing observations recently that I haven’t been able to whittle down to 140 characters. Honest. Oh well, your loss. [#]
  • Listening to Radio 1 is hilarious. You can play “Name That Tune”; which tune has this “new” song mercilessly ripped off. [#]
  • Not sure which is worse; Delingpole condoning torture or his praising Jeremy Vine as being among the best of the BBC http://bit.ly/RPLoj [#]
  • @michael_dennis Cheers. Their being idiots I can handle. But even by their lowly standards that editorial seemed especially muddle headed. in reply to michael_dennis [#]
  • Muller Little Stars Raspberry Fromage Frais actually tastes of raspberry, rather than being some “vaguely red fruit” flavour. Delicious. [#]
  • It’s official. I’m the #1 Twitterer in Cheadle! Go me! http://is.gd/nUS7 [#]
  • For the sun, for the beer garden, for the pint of Stella, for the newspaper and for the sleeping daughter in the pushchair: Thank You. [#]
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Wednesday 18th March 2009

If I Can’t Change Your Mind

It takes a lot of courage to perform a public volte-face, and so the Daily Telegraph deserves much credit for its leading article this weekend on the heated matter of global warming.

But it is time to acknowledge that, for whatever combination of reasons, temperatures are rising. We do not know by how much they will rise in the next few years: that, in itself, is one of the worst problems. A 4°C rise could turn large parts of southern Europe into desert. European politicians have tied themselves to a 2°C target, but the scientists think this will be exceeded. One extremely worrying development is the fact that sea levels seem to be rising twice as fast as had been forecast by the United Nations only two years ago. Already, the Thames Barrier is being raised more often to protect London from flooding.

Conceding that global warming is a reality is quite a reversal for the Telegraph, so one would expect the editorial line to be one of contrition, to offer some sense of humility, to include a graceful acceptance that the newspaper has previously been wrong on this issue; no? Well, er, no. Not really.

The British instinctively mistrust zealotry, and the debate over climate change has for too long been dominated by self-righteous, finger-wagging puritans who present the challenge of rising temperatures as primarily a moral issue. Most scientists believe that the acceleration of the rate of rising temperatures can be explained only by economic activity; yet this consensus is obscured, not illuminated, by the way that the minority of scientists who believe that we are pulling naturally out of an Ice Age are shouted down as heretics.

Ah. So the blame for the Telegraph taking so long to see the light on climate change lies with those who have been right all along, because they cruelly pointed out that those who are wrong are wrong. I see. Now personally I could never say categorically that anthropomorphic global warming is a fact, because I am not a scientist; but for the very reason that I am not a scientist I have always felt it prudent to give credence to the overwhelming majority of scientific opinion on the matter, that man-made climate change is a genuine concern. The Daily Telegraph, on the other hand, seems to have instinctively taken against the messenger and so the message, as have many others. But while it is certainly true that some environmentalists can be too shrill in their propagandising, and indeed some may even be the watermelons of legend, you could easily say the same about any argument; that there will always exist some zealous, unreasonable clique who will be only too happy to denounce and demonise their opponents. This fact applies as equally to those who have criticised the concept of global warming and who have readily ridiculed and condemned its proponents; and many of those critics have found a comfortable home within the pages of the Daily Telegraph itself. After all, it is not exactly illuminating debate for the Telegraph to characterise environmentalists and mainstream climatologists as “self-righteous, finger-wagging puritans”, even as they have begun to accept their findings. As grown-ups, shouldn’t we all by now have learned to look at the substance of someone’s argument rather than to engage in ad-hominem dismissals of any uncomfortable theories?

Anyway, while now accepting the problem, the Telegraph is somewhat shakier on working out a solution.

For too long, issue of global warming has been hijacked by the bossiest people in society: politicians, lobbyists and clergy who are trying to micro-manage our behaviour. The idea that Western householders can contribute to the lowering of global temperatures by “buying food with less packaging” and “driving at a lower speed” (to quote two tips from the climate change fanatics at the BBC) is palpable nonsense.

[…]

Temperatures may respond to a drastic cut in carbon emissions from the major economies. We must pray that they do. How that cut can be achieved is one of the most difficult questions facing political leaders. There is no consensus, but one must be found: 

Damn those politicians for trying to sort out the problem by telling us what to do. Instead they should…er…reach a consensus and sort out the problem, just like that! One problem the Telegraph has is that in having just arrived late – huffing and puffing – to the party, they are playing catch-up and trying to adjust to the new reality while still hanging on to their cherished beliefs. Perhaps they could take lessons from those who did an about-turn on global warming a wee while ago when they discovered that there was a delicious irony in the fact that nuclear power, many an environmentalist’s bete-noire, could be seen as a saviour in the battle against rising sea levels. For the Telegraph their world has been shifting as they have agreed that it is warming, and they need to cling to something; and in this case it is the belief that their beloved capitalism is ace and that governments are foolish. Ergo the title of the Telegraph’s leader, “Capitalism can lead the way on climate change”.

There is probably no alternative to an internationally co-ordinated effort to reduce carbon emissions. But that does not mean that the engine of change will be driven by civil servants. Capitalism accelerated the rise in global temperatures; capitalism should slow it down, by developing the energy-efficient technology that we are going to need in any case in order to reduce dependence on fossil fuels.

Now, there is much to agree with here; the world economy is, by and large, built on a capitalistic market model and so it makes sense to utilise it and the immense power inherent in it; but will it really happen without those dratted civil servants? For example, profit maximisation surely suggests using the cheapest method available for generating power, which in a truly free market often means burning coal, just about the most carbony fuel going. Only by governments taxing carbon or introducing a cap-and-trade system can cleaner technologies be made nominally cheaper and so more cost effective for companies and power generators to employ. Despite the Telegraph’s ire this demands effective government and skilled civil servants to set up a workable system that does not simply create damagingly skewed incentives and disastrous unforeseen consequences. For the very reason that the Telegraph lauds the easy workings of the free market and denounces the nightmare of a planned economy, so the job of those berated bureaucrats to create a system that disincentives the use of fossil fuels while still leaving a functioning and efficient market is a hellish tricky one. A bit of gratitude for those civil servants wouldn’t go amiss you would think, but then perhaps the Telegraph doesn’t know what the hell it is talking about. After all…

This is a time for innovation not nagging. Global warming is a challenge for governments, scientists and, above all, businesses. It is not the responsibility of householders, who should be able retire for the night leaving their televisions on standby with a clear conscience. Planet Earth will not notice.

As a proud defender of capitalism’s honour it would be nice to think the Daily Telegraph has even an inkling about how the system works, and why it can be such a boon. Capitalists will not overwhelmingly take the actions the Telegraph now wishes out of some sense of altruism or philanthropy, they will do so only if such actions make a profitable return. Capitalism works not because producers’ and consumers’ wants align, but when the fruits of the self-interest of the former happen to coincide with the desires of the latter, or as Adam Smith so famously said, “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. So, if households don’t try to play their part in reducing their own CO2 emissions, and in doing so request “green” electricity, low-energy fridges and – yes – televisions with a more efficient standby button (or preferably even an off switch), then where is the demand going to come from for these potentially planet-saving products? And if there is no demand for such low-carbon goods and services, why the hell will those noble capitalists waste their time and money on producing them?

The Shorter Daily Telegraph leading article then reads as follows: we need to acknowledge that global warming is a reality while somehow maintaining our ideological stance; but while we’ve changed our tune we still don’t have a fucking clue.

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