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back to article Insolvency levels show upturn in downturn

UK insolvencies have risen sharply in the past quarter as the recession starts to hit small businesses. But the headline figure is distorted by one group that accounted for 729 separate managed services businesses that all went into administration. There were 4,607 compulsory liquidations and creditors' voluntary liquidations in …

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Unhappy

Not suprising

When some accountants try and charge a grand (inc. VAT (wot, more tax!)) for a bit of adding up (no liability if they get it wrong of course), the tax man taking his more than ample cut, professional insurance, NI "contributions" etc. etc. it's no wonder contractors and SME's are giving up. At one time you could charge enough to cover this and the times (as a 'sole trader') when you had no contract. Today we're up against the Indian and Chinese who are driving down prices and the bankers who want all you've got to fill up the black hole. Time to shut down and go on the dole. Ooops, sorry, I cannot survive on 60 quid a week. Shelf stacking here I come!

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Anonymous Coward

The money supply

That reminds me, the UK money supply number:

http://www.bankofengland.co.uk/statistics/m4/2008/dec/m4SA.GIF

I saw an economist say that "quantitative easing"* is not that different from what banks do when they lend money... yeh right, in the sense that positive numbers are just negative numbers without the minus sign... None of that growth in money supply is backed by growth in the UK, hence this:

http://www.x-rates.com/d/GBP/EUR/graph120.html

All of those crappy failing companies the UK Government and Bank of England are helping out, will fail anyway. Only difference is that the management gets to extract a lot of bonuses from all this easy "no strings" money they are getting.

And don't think the drop in the pound helps because you import more than you export even in good times, so the increase in prices will come through as a later wave of inflation.

* Quantitative Easing, buying crap assets using freshly printed money at premium prices and pretending they're good assets bought at market value as a loan.

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Alert

Well it depends you see

Imports

If one imports at 5c with local equivalent at 15c and sell both at 500c it doesn't really matter to the taxman or the banks. It matters to the local people but it will not reduce returns to people that make decisions.

SMEs

Going on the dole might be one thing but if my observations are 'owt to go by then very few people will choose to exist as honorably poor or decent poor and try to make income up by indecent means (watch the crime figures for the timeline instance when credit folly became a pained experience). This is also a folly of the Tories as they usually do not cost in consequences elsewhere in society and usually attempt to balance things out by a "purge on crime" that really is more about balancing the books because of systematic oversights and errors of base assumptions.

Why? Speculation 1

Company 1 is approaching its year end with anticipated losses of 250c.

Company 1 borrows 750c in month 11

Company 1 now produces a year end with 500c profit rather than 250c loss as loans are not factored in

The great and the wise in Company 1 decide they must have made a mistake about 250c loss as the books definitely show a 500c profit so spend part or all of the 500c profit.

Later on Company 1 discovers it's projected 250c loss was indeed accurate but now it has increased to 750c loss as, in fact, the loan of 750c has been spent twice.

Why? Speculation 2

1 - Joe places 10c with his bank in a savings account

2 - Bank takes joe's 10c and hands it over to its hedge fund managers

3 - Hedge fund managers invest Joe's 10c

4 - Hedge fund managers are approached by another hedge fund manager for short term loan at agreed interest rate so lend Joe's 10c to this new bunch of hedge fund managers.

5 - repeat stteps 3 and 4 a few times remembering accounting anomalies in Spec 1 above.

6 - some time later Joe says "Hey! I want by 10c!" But the bank and it's hedge fund managers have used Joe's 10c 50 times and none has been paid off (might have made a loss, a small return or broke even but these have been offset because hedge fund managers extract a percentage of this for merely handling Joe's 10c)

7 - the bank loses 700c because Joe asked for his 10c back

Now that is probably the reason the whole of the western world is reeling. That or somethings like it. It ain't the public. it is wholly the finance sector.

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not so bad

If only one in 150 companies liquidated in 2008, that means companies have an MTBF of 150 years. Given that 90% or companies will be obsolete in 50 years, that's not so bad, is it?

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Anonymous Coward

@Speculation & IP goods

"If one imports at 5c with local equivalent at 15c and sell both at 500c it doesn't really matter to the taxman or the banks."

Well, except the UK as a whole ran at a trade deficit, doing what it did required more imports than it exported. Now fair enough, a lot of those imports will fall away if they become too expensive, but where/what are British exports and how much imports do they take to sustain? Are they importing £1000 worth of imports to make the £900 of exports?

(Also loans don't show on the Profit and Loss sheet like that without some fraud being involved).

Another point, IP goods:

The big white hope was to be the IP market, UK would buy and sell IP goods, music rights, trademarks rights etc.. However, as they found out with corporate taxes and trademarks, Corps move the rights to the IP goods to the cheapest tax haven and price it up.

Corporations don't pay much tax because they 'license' the use of their trademarks from offshore subsidiaries at inflated prices. So pushing their IP rights to the cheapest tax haven and using them to reduce taxes in high tax areas (UK included).

So IP goods won't be UK saviour. The more IP goods they create the less taxes corporations will pay as the right is shifted offshore and the license fee reduces the UK income!

Oh the stuff Brown has done, the increased export guarantees seems good. The rest just seems like wasted money. Of the stuff Obama has done, some of the infrastructure/energy/insulation stuff seems good, but the rest?

It's all just the belief that you can make free money to substitute for the money that was lost in bad/fraudulent trading and somehow everything magically comes back. To me, I'm playing wait and see, till this spending stupidity ends.

I don't think Cameron has any magic fixes either, the only plus for him is he isn't on a wild spending spree prior to an election. He's the second worst candidate which makes him the first best candidate in a field of 2 runners.

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ian
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Black Helicopters

Expect the insolvency rate to increase

The average household's debt to income ratio in the UK is 170%, in the US it is 140%. The housing market in the US has collapsed and families are being evicted from their homes in increasing numbers. It can be argued that many of those families ought never to have purchased those homes in the first place, but it is undeniable that inability to pay their debts is the cause. And that is in the US with "only" 140% debt to income ratio.

As the current depression deepens, we can expect to see similar (and perhaps greater) difficulties in the UK. I'm sure the politicos can see the writing on the wall, and are preparing for the day when the enraged populace turns against them.

I've grown accustomed to the sound of the black helicopters.

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