SUBMISSION TO NORTH SOMERSET DISTRICT COUNCIL
Relating to the potential loss of £3 million of public funds in the
Icelandic Bank, Landsbanki
South West and South Wales Branch
We would like to record with thanks the help and assistance provided by Mr Phil Hall in providing information relating to this particular investment by North Somerset District Council. His timely responses on behalf of North Somerset District Council to queries raised are to be commended as a model of open local government. Other Local Authorities regrettably have been less forthcoming, even considering the greater losses suffered by them.
The Libertarian Party is a registered political party within the meaning of the Electoral Administration Act. 2006
This submission is being made in the name of the Libertarian Party who have as members,taxpayers in North Somerset.
a) That the District Council invested £3 million in an investment scheme in a country that is not a member of the European Union that promised high returns that has subsequently failed.
b) The funds were invested on May 27th 2008 despite warnings having been made going back as far as August 2006 as to the dependence of Icelandic Banks on the ‘ carry trade’ defined as.
A trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose(and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occured, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher.
The FSA gave a public warning on March 3rd 2008, that was subject to a peak time report on the risks to savings on Channel Four.
c) The total reliance of North Somerset on the optimistic ratings given by Fitch, when other rating agencies were already downgrading, shows that there was a lack of independent risk analysis and management by those responsible for £100 Million of short term investments ‘in house’. Do those persons responsible have the necessary training and expertise to make these sort of informed decisions ? Indeed do the relevant Councillors profess to understand that the investment was indeed a high risk option in view of market sentiment that was in the public domain ?
d) The Treasury Management Strategy is required under the liberalisation of April 2004 to adhere to Guidance notes issued by HMG. North Somerset’s Strategy (6.8) is in conflict with the Guidance sec 20 and 21 which calls for both High Liquidity and High Security. (See Attached)
Specified Investments of up to one year are allowed in North Somerset’s strategy.
However the £3M was locked in for a fixed six months term, and was not accessible, therefore the investment could not be deemed of ‘High Liquidity’- We would determine this to be convertible at no more than seven days notice. Clearly there was no security involved in this investment. Section 7.3 of North Somerset’s policy is clearly not in line with Government Guidance using the word ‘ appropriate’ in describing the level of security and liquidity. In the Authority’s strategy this should have been replaced with the word ‘High’
The following are responsible for investing funds that belong to the people of North Somerset, the collection of these funds are enforceable by the power of the Law, and is not option for members of the public to able to opt out. Therefore there is a greater test of accountability.
The ‘In House’ team
Morley Fund Management Fund
To date we are concerned that there has been ‘news management’ of what can only be described as a scandal by the Local Government Association where £1 Bn of taxpayers money has been put at risk and or lost. The LGA has no legal authority to speak on behalf of North Somerset, and the blanket assurance that there has been no reckless behaviour does not sit with the facts.
There have been no offers of resignations by the officers and Members of North Somerset District Council, and the attitude appears to be business as usual, and the Taxpayer will pick up the difference.
We cannot even take this matter to the District Auditor as they have been reckless with £10 M of Public Funds and cannot be deemed untainted
This has been an unmitigated disaster, any losses on this scale in private industry would be subject to sackings and if it had lead to insolvency, there would be no taxpayer to run to, and the Insolvency Service would be holding an inquiry into the behaviour of those responsible.
We would be grateful if you could enter this into the public record as a public submission for the meeting of the 28th October 2008, and furnish a copy of the report in due course.
This was the submission made by the Libertarian Party to North Somerset District Council, a similar report was made to the District Auditor (but unfortunately they had disbarred themselves by doing exactly the same thing in investing in Iceland)
They were not up for anybody addressing the members, we could attend but not speak. This apparently is local democracy
The Conservative,Labour and Lib Dem Members tried to shuffle this into a corner covering each other, the Members blamed the Officials, the officials blamed the Members, the bottom line is nobody got sacked, the money was not recovered from Iceland, now they want you to vote for them again.
North Somerset have put the rates up again this year without mentioning anything about this farce or the faintest blush.
Please help yourself whatever you party allegiance, change the authority name and the amount they lost of your money through greed and incompetence. Ask who resigned over it and who was sacked, when they come round for your vote.