Weathering the storm
Someone who I know slightly through work is feeling a bit hard done by financially. Most of his shares were in Northern Rock (and various other turkeys) and his savings are with Icesave. He has been on the phone rather a lot today to the FSA and the words “Chocolate Teapot” spring to mind- He will probably get refunded up to £50,000 provided that he qualifies to do so but they can’t tell him the timescales. Besides which, the Bank aren’t actually insolvent, they have just slammed the virtual doors shut.
Now I have worked in Insurance before for my sins and in many ways Insurance is a high class version of William Hills- it is a sort of bet, but the outcomes are the other way round, i.e. winning is not losing. As with the turf, the bookie always wins unless they get the odds wrong. (This is why actuaries are so highly paid).
The other thing about insurance is that to contain costs, customer validation is generally carried out at the point of a claim, rather than at the point of policy issue. In laymans terms, this is often perceived as the bastards are looking for reasons to wriggle out of it.
Now, how competent are we to expect the FSA to be? I imagine that they will sort it out in the end but in the meantime, hundreds of thousands of people will find their cashflow disrupted somewhat. The words fund of last resort rings bells with me that they aren’t going to be sending the cheques out by the end of the day.
So, how can me batten down the hatches and weather the storm? Well I imagine the smart people with independent wealth will have invested in Krugerrands and a safety deposit box (or perhaps steel window bars and assorted weaponry) but what is the average Joe to do?
I’ve been thinking about this for a few days and have a few suggestions, I’m not a financial adviser of course, so they are worth what you have paid for them.
- You could bank hop to one that is looking less shaky, or maybe hope to be in the first wave of collapses in particularly dodgy ones, but opening a bank account these days is rather a lot of jumping through hoops because of the money laundering regulations and they are bound to cock it up anyway. Perhaps it is best to sight tight with the devil you know for your main checking account.
- Similarly with mortgages, the offers are scarce so sit tight, you’ll only have to pay silly fees to move anyway.
- Get your credit card debt down, preferably to zero. Even if you pay off your balance every month, don’t expect a payment holiday just because you can’t temporarily access your money.
- Use your debit card in preference to credit cards- but keep enough of a balance to compensate for this.
- Don’t cut up your credit cards- you might need them in a crisis if your liquidity dries up.
- Move a chunk of savings to another banking group as a financial buffer and if you are lucky enough to have more than £50k (£100k for joint finances) then don’t fall into the trap of having the money in the same banking group.
- Find out what your household insurance covers you for on cash in the house- and get that much cash in the house. Don’t put it under the mattress or in a pretend tin of beans in the cupboard.
- If you have an offset mortgage of £100k and savings of £50k, that £50k is not protected by the FSCS Scheme. Instead, if the bank goes to the wall, you find yourself in the rather good position of now only having a £50k mortgage instead, so you will be able to pay it off much more quickly. On the down side though, you haven’t got any money. At all. Your current and savings account balances are at zero. Ouch.
- Start buying slightly more long life foodstuffs (tinned food & rice).
- Resist the temptation to buy new books, CDs and magazines- you probably have a load of them you never got round to reading or listening to anyway. Now is a good time to tighten your belt.
- Get a small generator- they are quite cheap from the likes of ALDI. If the leccy goes off (and it is probably going to go off this winter anyway) you probably need power to keep the central heating boiler working. There WILL be power cuts in the future, I am sure of it.
- Get an explosion-safe jerry can for petrol.
- If you are into negative equity and you are max-ed out on your cards, be prepared to kiss your lifestyle goodbye.
- Get yourself a copy of Farnham’s Freehold, lots of ideas of how to survive in a crisis.
- Don’t believe any cak about more regulation being needed, it is regulation that got us into this mess, along with successive Governments who have eroded the Gold Standard and forced socialistic policies onto the markets.
- Take stock about how the 1983 Labour Party Manifesto is being implemented in adversity and Vote Libertarian at the next election, or better still, join the Libertarian Party. Even in these cash strapped times, it is an excellent investment of your Tenner.
