10/30/07

Always a relevant and ever-important topic to our economics class, an article within today's Guardian stated that the crisis has struck again. UBS, Europe's largest bank, announced a third-quarter pre-tax loss of £300m and issued a warning to investors that it could face further write-downs of assets due to the subprime mortgage crisis.

Title of Article: UBS posts £300m loss
Source: The Guardian
Date: 10/30/07

Higher than the market expected, the £300m loss comes as UBS's first blow in five years. Although the bank expected to end with profitability in the fourth quarter of this turbulent year, they are now expecting to suffer further losses in the final quarter. The banking sector of UBS, already shocked by Merrill Lynch's £4.35bn write down report and the departure of its chief executive Stan O'Neal, received further shock when news of the loss and further write downs hit. Fears that future returns would be significantly less than the recent past has caused UBS shares to fall by more than 1%.

Marcel Rohner, UBS's new CEO, said that the range of possible outcomes as a result of the write-downs was widening. Marco Suter, successor to Clive Standish, group chief financial officer (who was fired by Rohner in the wake of the crisis), said that it was "highly unlikely" that the scale of the write-downs in the fourth quarter would be as high as in the third quarter when the sub-prime crisis fully erupted. This would in turn force US and European central banks to pour billions into the financial markets.

UBS, which ended with profit in the corresponding quarter of 2006, said that it had reduced its exposure on residential mortgage-backed securities as well as collateral debt obligations in attempts to ameliorate their standings and decrease the potential for further losses in the fourth quarter. Rohner said that while their results for the third quarter were disappointing, he insisted that the bank was dealing with their weaknesses by making changes such as the ones listed above and are also making management changes and developing sharper risk assessments. Other banks such as Deutsche Bank and Credit Suisse are due to report their third quarter results on Wednesday but are promising investors that their exposure to the crisis is relatively under control and assurred them to not expect any results such as those endured by UBS.

When will it ever end?!? Day after day we receive more bad news as a result of the subprime crisis; who will it not effect? Already it's tarnished the image and ruined the standings of many major economic cooperations, and now it has hit Europe's largest bank. £300 million is not a light burden to carry; I wonder how UBS is going to get back out on top after this. The potential to deal the continent's largest bank its first loss in five years obvioulsy displays the power and seriousness this crisis contains. Some officials expect further losses in the fourth quarter while others claim that the write downs will not be as high as they were in the third quarter: only time will tell who is right. As for now, all we can do is hope that this awful crisis will just go away already and pray that UBS along with the other affected companies will regain their strength and prosperity.

National Railway Museum

On the 18th of October, the Bucknell in London group travelled to York and visited, among other things, the National Railway Museum. This extremely large building was filled with several important artifacts from the past pertaining to the railway industry such as replicas and restorations of historic locomotives who broke records and revolutionized railway transportation. It also had many different exhibitions; one of which was entitled "British Rail -- a Moving Story." This exhibition told the story of the company that ran the UK rail network for half a century. Several aspects were covered within this exhibition, but I was particularly interested in the topic that discussed journey times and ticket costs for a trip from London to Edinburgh as well the average weekly income of workers from 1948 to 1995. As I explored the exhibition and found information on this topic, I found it very interesting to compare the statistics between the years and see how economic conditions had changed from decade to decade.

In 1948, the journey time from London to Edinburgh was seven hours and fifty minutes. The cost of a first class single ticket was £4.30 and that of a standard single ticket was £2.57. The average weekly income of a worker was £5.75.

The travel time from London to Edinburgh surprisingly increased by four minutes in 1951 when it took seven hours and fifty-four minutes, but the prices for tickets as well as the average weekly income increased. The price for a first class single ticket had increased to £6.61 and it cost £4.01 for a standard single ticket. The average weekly income in 1951 was £9, a rather significant increase from 1948.

In 1960 the travel time from London to Edinburgh decreased to just over seven hours (7 hours, 2 minutes). The interesting statistic of 1960 as compared to 1951, however, lies in the ticket prices; they actually decreased. The price of a first class single ticket was £5.31 and a standard single ticket was £3.50. I cannot explain exactly why this decrease in ticket prices happened; I can only guess that the prices dropped to perhaps influence more people to use the train as their mode of transportation. There could be several reasons as to why this drop occurred; I however am unaware of the exact and correct reason. The average weekly income again raised substantially compared to earlier years as it was around £16.50.

The journey time from London to Edinburgh in 1970 decreased by a great amount as it took five hours and forty-one minutes. The ticket prices, however, increased since 1960. A first class single ticket was around £8.61 and a standard single ticket was around £5.61. The average weekly income also increased greatly to £32.35.

In 1985, it actually took a minute longer to travel to Edinburgh from London (5 hours, 42 minutes). However, there was a great increase in ticket costs and average weekly income. Tickets prices rose to £61.00 for a first class single ticket and £40.50 for a standard single ticket. The average weekly income rose to £171.00.

The last available information on this topic in the exhibition was for 1995. During this time, it took four hours and twelve minutes to travel from London to Edinburgh, and cost £92.00 for a first class single ticket and £63.00 for a standard single ticket. The average weekly income increased to £336.30.

The general decrease in journey time and increase in ticket prices and average weekly incomes (with the exception of a few key statistics in the years listed above) reflects the traditional economic tendencies of society. As time goes on, the efficiency of modes of transportation increase which causes travel time to decrease, and prices of tickets and incomes rise in turn as the standards of living increase and the price of other goods and services increase in quality. It was very interesting to tour the "British Rail -- a Moving Story" exhibition and gain more insight on how economic conditions have changed over a period of almost fifty years.

10/17/07

After a very relaxing fall break, it's time to get back into the swing of things and update myself on what's happening in the UK economic world.

In addition to the most popular stories such as the growing disappointment with Brown and the continuing turmoil of Northern Rock, there is, surprisingly, (since the above topics seem to be the only things any newspaper talks about) other news in the UK which is of interest. One particular article in today's Guardian caught my attention. This article discusses a study that revealed that migrant workers within the UK are more skilled, reliable and hardworking than their British co-workers and are fueling the country's economic growth.

Title of Article: Migrants are a boon to UK economy, says study
Date: 10/17/07

An official study published just yesterday reported that migrant workers within the UK are fueling the country's economic growth by about £6 billion a year. Along with this finding the study also reported that these migrants, usually of Polish or other eastern European descent, are more hardworking and reliable than British workers. No discernable impact on unemployment and only a "modest dampening of wage growth" for British workers on the lower rungs of the income ladder has occurred as well. With the emergence of these findings, a forum is scheduled to meet today to discuss the findings and decide whether or not the restrictions on Romanian and Bulgarian migrants into Britian should be lifted.

Despite the advantages of migrant workers, some problems have indeed risen becuase of the massive influx of foreigners. (The net amount of migrants within Britian for this year is around 189,000; this number is down 28% when compared to last years figure which was around 262,000.) Due to migration, seven out of eight regions in England have reported pressure with housing situations and five out of eight regions have reported problems with crime and education. David Davis, the shadow home secretary, also made the comment that Labor ministers are ignoring the fact that relying on immigration to boost the economy is only a short-term answer.

Even with these major problems, the significant advantages of migrants in the UK are speculated to outweigh the disadvantages caused by their immigration. Immigration minister Liam Byrne insists that Britian is better off with the migrants than without them as displayed by their diligence and aid in stimulating Britain's economic growth. In attempts to deal with the disadvantages, however, Byrne suggested that Britain needs to have a "new balance" in immigration policy so that communities without a history of taking in large amounts of people can better deal with the migrants moving into them.

I chose to discuss this article becuase I have a personal connection to it. Back in the States, my family employs many migrants, particularly Hispanics, to work on our orchards. With this, I whole-heartedly agree with the study in that these workers are extremely hard working and diligent; they may not be as reliable as their American co-workers (I believe the only American workers on our orchards are my uncles and my cousins, and maybe a few others that I am unsure of), but they still are a very important part of my family's business operation and success. I can totally see how it has been determined that they are the main constituents in the UK's economic growth, and I can only assume that they play a major part in the growth of the US economy as well. Many British workers (and American workers as well) are fighting to keep migrants out of the country with complaints that migrants take their jobs away from them and create more problems than benefits, but what these "native" workers need to realize is that migrants are helping to boost the economy so that British people can enjoy the lifestyles that they do (and take for granted). Yes, some migrant workers do end up replacing British workers, but that is only because they are more qualified for the position. If another British worker was more qualified, the same situation would happen. The article also stated that migrants on average earn more and so pay more tax than UK workers, so I really do not understand why so many British people are so adamant about getting rid of immigrants. I do think that there needs to be a balance in immigration policy so that the problems can be solved, but I definitely do not think that all immigrants should be forced to leave Britain. As Liam Byrne said, the British economy is better off with the migrants than without them.

10/2/07

Although not very related to any class topics, this article interested me for personal reasons. Being so far away from home for months at a time poses problems when it comes to communication with one's family. Skype, a free telephone service via one's computer, solves this problem. This service is so easy to use and allows me to keep in touch with loved ones I left behind at home. Despite its success and prosperity, the internet auction website eBay is now admitting that it paid too much for the company when it bought the business in September 2005.

Title: EBay says it paid almost $1bn too much for Skype
Source: The Guardian (10/2/07)

Paying approximately $2.6bn, eBay is now coming out with a statement that it paid $1.43bn too much for the internet telephone company Skype. Along with this debt, it also has to pay $530m to former shareholders, one of which being Niklas Zennstrom, the founder of Skype and former chief executive. While $530m is quite a lot of money, if Skype had hit its target for revenue, profits and user numbers, eBay would have had to pay shareholders $1.7bn.

eBay had bought Skype with the intention of integrating Skype's telephone services with its auction site so that buyers and sellers could use Skype to contact eBay customer services. This could have boosted Skype's sales in that more people would be using its services, but with the recent news of eBay's overpayment, it looks like it didn't.

I am frankly surprised by this news. I know many people who rely on Skype as their means of communication with family and friends, including myself, so I would have figured that eBay would have been getting Skype for a great deal by paying what they did. This is perhaps showing my ignorance in the principles of economics, but eBay's overpayment it just doesn't make sense to me. Despite their overpayment, at least eBay doesn't have to pay shareholders nearly $2bn like they would have if Skype had reached its target prices. Maybe that's the only good news eBay has right now.