Casper Economic and Political blog

I watched BBC Panaroma  Credit Where It’s Due and wanna laugh seeing the Dragon Den, multi millionaire turned TV star presenting the program. I suspect his Finance director must be laughing as well.

http://news.bbc.co.uk/panorama/hi/front_page/newsid_7902000/7902189.stm

Item 1 - The florist being charged an overdraft interest of 12%, up from 5%.  Her Bank must have been extremely kind to give her 5% interest during the past few years.  Small business overdraft rates normally runs into lower double digit plus a commission/fee.  Ryman group might be ablt to borrow at significantly better terms, but that is Ryman group…not small businesses..

Given the climate and probability of default running into maybe 20% or so, (as an ex Insurance man, Theo should known better) that 5% unsecured rates just isn’t going to work (unless the overdraft is secured against a property).

Item2 - PDQ payment taking 5 days (working days?) is a bit long but 2 days is pretty common. Doesn’t Theo looked at his Ryman receipts - has those card taking ever been instant/same day?  The acquiring process basically involve :

(a) The PDQ authorising/capturing the payment  (Day1)
(b) The bank computer dialling in at the end of the day (or PDQ dial out) to submit the daily file (day2)
(c) Bank batch process the daily file
(d) Send credit via BACS network / or if same bank, its own bulk payment system
(e) Day 3, money showing up.

Instant? He got to be joking.

Capitalistic society dictates that if the bank are charging too high prices, than other competitors will move in. Perhaps Bank Of Ryman should be established to save us all soon giving out 5% overdraft?

Theo seemed to downplay the effect of exceeding overdraft limits several time. For bigger businesses, that is called a breach of the convenances and the results is often severe.  If a bank every does that, it goes bust straight away.

There is a serious issue of trust now - not just with the banks. The fact that the program highlighted that suppliers are demanding post dated cheque means that no one is trusting anyone. The lax UK insolvency law clearly does not help that either (Creditor voluntary liquidation, then phoenix the business and creditor’s lost out).

Warren Buffet said that those living on credits are relying on the kindness of strangers and that no one is obliged to lend anyone money.  Perhaps debt, in bad time, is weapon of mass destructions after all..

I certainly don’t see Theo giving away money easily on Dragon Den. I suppose at least the banks are not demanding for 50% equity with their cash !