Collective Mortgage Negotiations

Dear all Mortgagees, 

The problem we have with government and the banks is that they move too slow. Meanwhile we are all suffering with high risk whilst we wait for those with power to do something. So the obvious solution is to put the position of power in to our own hands. We are the most motivated to get results quickly so we should take the lead.

But individually we are weak. The banks will terminate us one by one if we do not collectively renegotiate our mortgages. There are many of us that would like to repay our loans by making payments to the best of our financial abilities. The banks are too willing to not let this happen. It is almost as if the banks have implemented processes to force failure.

We the people of this world are the market that the banks operate in. Therefore, the banks must be more careful how they deal with us. I ask you all now to simply write this idea everywhere you can. Reply to this blog. Get journalists to report that this movement is starting and growing. If banks do not treat us fairly and with integrity - considering the extraordinary economic reality of today -  then we will collectively default on our mortgages until we get an adequate solution.

Ainars Slesers Transport Minister for Latvia finally has a voice for benefit of the people

Ainars Slesers has long been a favourite Minsiter of mine. However, for some reason the people of Latvia think he is corrupt for doing things like appointing his Chauffeur's son to the Board of the State Run National Railway with a salary of 4000 lvl a month!

Mr Slesers is the first in government to suggest something be done to stop the Swedish banks profiteering on the economic crisis at the expense of Latvians. You would have thought this would have been done long before now - but better late than not at all. Each month 100's of families default on their mortgages so time can not be wasted.

With a very large protest in Riga this week against the incompetence of the government you would think that Ainars suggestion will be followed through by the government. But don't hold your breath as leaders in Latvia seem to be going for the Biggest Fools In The History Of Latvia award.

Mr Slesers seriously has instigated some good business policies for the benefit of Latvia. Freeing up the passenger port and substantial development and air links at the Riga Airport are his biggest successes so far.

Gas in Latvia and the Balance of Trade

City supplied central heating in Latvia is as good as compulsory and mostly generated by expensive gas. One reason for this is that decision makers are given monetary incentive to keep the gas connected and not use low cost inexpensive wood chips or pellets.

Latvia exports 95% of the wood chips and pellets created in Latvia so there is an abundance of it making gas imports not necessary. Considering the lack of regulation with the forrestry industry one can easily see that tighter regulation would facilitate the sourcing of pellets within Latvia that would not decrease exports of pellets and ensure tax income from the bulk of the forrestry industry is collected by government.

in 2009 the EU is allocating funds so that 30 to 50% of the conversion costs can be obtained to move boilers from gas to bio mass. Latvian councils just need to apply for the funds.

As an example saw-dust pellets cost around 1/2 as much as gas for a Mega Watt Hour (mwh).
gas costs 34 euro mw plus carbon tax of 20 euro tonne. This money goes out of Latvia and is as good as burning hard earn't money coming in to Latvia from exports.

Many arguments as to why the Lat can not be depreciated are based on the supposed increase in the cost of heating. Whereas, in reality already people are refusing to pay their heating bill because they can not afford it. In one of my businesses the heating costs have gone up 300% within 5 years which is the equivalent of 3 staff salaries. I have fired 5 staff as of the start of 2009 the other 2 staff can be contributed to fewer tourists travelling to Latvia.

The gas price Latvia pays is linked to the oil price and can be paid from the IMF euros. Therefore, a depreciation in the lat would have no impact on the cost to Latvia for the gas in the short run. With a conversion to bio mass pellets that have no carbon tax the cash flow for Latvia would not be exported and can be partially used to repay the IMF loan as Latvia would not be sending hard currency outside of Latvia to pay for gas.

Latvia has acccepted an IMF loan because the leaders of Latvia did not make sensible and obvious decisions in previous years. Now further poor decisions will just delay the inevitable devaluation of the lat.

IMF Bailout for Latvia a serious mistake

The devauation of the Lat would assist Latvia remain competitive through exports.

The UK pound has lost around 30% of it's value while Latvia's Real Effective Exchange Rate of the Latvian lat shows that the Lat if not pegged would have depreciated around 40%.

Here is the best detailed analysis I have found http://fistfulofeuros.net/afoe/economics-and-demography/why-the-imfs-decision-to-agree-a-lavian-bailout-programme-without-devaluation-is-a-mistake/#comment-23006

My answers to the above are following:

What loan defaults? The banks are not so concerned about defaults.

1. The central bank in Latvia charges 3 x higher Rigibor interest on Lat loans versus Euribor loans so they are encouraging a move to euros.

2.The Latvian branches of Scandinavian banks are charging at least 3 x times higher base rates on euro loan restructuring. So if families are supposedly hurting, then banks don’t agree, or they are taking advantage of people in distress.

3. Scandinavian banks have already accounted and budgeted for defaults in Latvia. so for them the risk has passed.

The IMF is culpable as many Latvians expected the Lat to depreciate and salted away funds to get through the adjustment. Now with a high lat making Latvia uncompetitive these saved funds will be drawn on until depleted.

I have substantial euro loans and I want the Lat to depreciate. A depreciation in line with the UK and Poland etc would keep Latvia competitive and me in business. But now the IMF idea will cause Latvia to go in to a depression.

Having loans in euros and not lats means more than the theory of having favourable exchange rates. Being subjected to eurowide professional policy is the advantage and not the exchange rate. A pegged rate never did provide any exchange rate advantage.

The IMF debt has to be denominated in Lats so that repayment is in lats. I for one will protest an IMF expecting a euro repaymant when the lat finally crashes.

How could there be inflation in Latvia when PVN is going up 16% for my businesses?

The problem has always been that the Latvian government has done next to nothing to improve exports. The Foreign Investors Council in Latvia has a Board member that openly stated that they do not want to go to the effort to attract any members that export as their objective is to feather their own nests.

The IMF should force policy that makes Latvia competitive and stop with the silly theory about loans in euros.

Tips for the Latvian Government for Recession Busting

Latvia has the advantage of being a small country that can be easily disected so that targetted segments of the economy can be stimulated. Larger economies generally impliment broad sweeping policies.
1. Latvia can pass legislation to restrict banks from applying too high interest rates and fees on financially stressed families seeking to restructure their loan.
Loans can then be refinanced in to Latvian Lats if people believe the Lat will depreciate.
2. The Lat should be depreciated only after management issues like in 1 are taken care of. The recent sales tax increase for Hostels and Hotels from 5 to 21% suggests this is the intention of goverment.
3. Salary tax and Social tax should be decreased by at least 5% during this downturn and then when the economy has recovered these taxes can be revesed 1% a year so that an additional 5% is placed on top of today's rate and then slowly brought back to todays rate.
4. Provide incentives to Councils to modernise city heating from Gas or oil to wood Pellets or wood chips so as to decrease the amount of capital departing Latvia.
5. Provide incentives to households to improve energy efficiency so that they spend to decrease the drain on their cashflow and concurrently stimulate retail demand in the economy.
6. Seek the donation to Latvia of equipment made redundant by city councils and hospitals in Scandinavia and Old Europe.

Global Financial Crisis - Solutions

The UK, EU and the US have received their ideas on how to correct the global financial crisis from Australia. It was the Australian government that first allocated money for banks to give them funds to issue loans. Then Gordon Brown in the UK did the same claiming to own the maveric idea which then led on to the EU to follow.

What Gordon Brown and other countries now fail to do is to complete the package so as to provide a solution and not just a bandaid.

Australia had moved on to give a Christmas bonus to all Pensioners of $10 billion that was announced well in advance of issue so that the money would be wisely spent by pensioners.

Then the Australian Government met with 100 local councils to hear their innovative ideas to stimulate growth and spent $100 million supporting them.

For families with children they get $1000 per child as a one off payment o boost support.

Now on Nov 29th the Australian Government has announced a $15 Billion spend that will create 133,000 jobs. The Prime minister Kevin Rudd said “It will drive a reform agenda in health, education, as well as housing and businesses deregulation.”

These actions are yet another example of good leadership and how a small country can be an example to other countries worldwide. Latvia being a smaller country than Australia has a bigger opportunity to be an example for others with good leadership.

All sectors of the economy have to be targetted with sustained hits. I am sure there are more stimulating ideas soon to be deployed by the Austalian Government.

48 hours for a Patriot how much for the occupant of a leadership position?

The 48 hours detention of some that have an opinion about the strength of the economy and the Lat is an incredible injustice. We all know that to have a strong economy the country has to have strong exports as this supports the demand for the Lat required to buy these manufactured goods.

There are many clear paths towards improving exports and the most obvious are not being used for Latvia. I wrote to the Latvian President some months ago to initiate the obvious that requires the involvement of the Latvian President as it is a method used by Presidents of other small countries assisted by Prof Michael Porter. The President palmed me off to the Ministry of Economy which in turn did not reply regardless that the Latvian President instructed them to. The opportunity lost from Latvia because of the Ministry of Economy's inaction is that one of Australia's largest international business universities along with Professor Michael E Porter of Harvard University in the USA will not be coming to Latvia. A big loss for Latvia so I wrote a second time to the Latvian President and was informed to chase the Ministry of Economy myself.

My objective was twisted by the Presidents Office so they could avoid having to do something.

Along with the loss above went the involvement of medical teachers and medical processes that would improve the health system in Latvia!

6 or so years ago I was aware that the Foreign Investor Council in Latvia did not have a member that was manufacturing in Latvia to export. So I applied to Direct FICIL to attract to Latvia such an investor. But the excuse I was given was the old 'need to speak Russian and Latvian story.' 6 years later they only have a foreign manufacture member that sells to the local economy.

I soon after started Directing the Business Development Lab at the Stockholm School of Economics and during the three years I worked there it was very clear that the Latvian government did not want to invest any money on business development. Regardless that it can be proven that every $1 invested by the government would return over $10 taxable dollars for the Latvian economy.

So if someone can be locked up for saying that they think the Latvian Lat will depreciate then how long should the people be locked up that have the responsibility to do something to strengthen the lat but do nothing? The do nothing policy surely will do more to depreciate the Latvian Lat than the opinions of a few common folk.