It is no surprise that the Bank of England had not understood the depth and severity of the economic problems and how deep the current financial crisis was.

The Bank of England admitted in an interview with Panorama that the bank thought the problem was less serious that it has turned out. Also, Sir John Gieve has told the BBC “that the Bank knew “crazy borrowing” was taking place and the price of houses and other assets was rising unsustainably”

It turns out that the Bank of England admits that it relies too heavily on interest rates to control the economy, but in reality this is all that they have at present. The problem with adjusting interest rates, both up and down, is that they affect the whole economy when in fact there might be other controls or adjustments needed.

It seems to me that the Bank of England need to keep a closer eye and control over the method of lending both between the banks themselves and with their customers. Lending has quite clearing got out of control and the World has become credit dependent, so something needs to change and with the present crisis this will probably happen.

One of the problems that the Bank of England needs to address, in my opinion, is how the banks have been falling over themselves to lend more and more on credit cards. With low and zero rate deals to entice customers to switch balances customers are finding that they end up paying the higher rates when the introductory rate ends.

Talks are being held in Iceland to persuade the country’s trade unions to repatriate a sizeable portion of their foreign-invested pension funds.

To help stabilise Iceland’s troubled economy, they are also being urged to agree wage restraint, despite the country’s inflation rate of 14%.

But in return, the unions want Iceland to apply for EU membership – a move it has resisted for decades.

The government nationalised Iceland’s third largest bank, Glitnir, last week.

This sent the national currency, the Krona, plummeting. It lost a fifth of its value against the dollar by Friday.

Also, the nationalisation led ratings agencies to downgrade Iceland’s credit rating, and many analysts have said they doubt that Iceland can afford to bail out its other banks, which are also in trouble.

There’s pressure for a deal before markets open, on Monday, to prevent further turmoil.

By Ray Furlong BBC News, Reykjavik

News reported by The BBC

Bombardier Aerospace is investing half a billion pounds in Northern Ireland, which will sustain over 800 jobs.

A total of £519.4m will be used to design and manufacture wings for their 110 to 130 seat C-Series aircraft at the Shorts factory in east Belfast.

It is the largest single investment in Northern Ireland by any company.

Northern Ireland First Minister Peter Robinson said: “I don’t believe this would have happened if it hadn’t been for devolution.”

He added: “I just know, without giving away too many of the commercial issues involved, that this simply would not have happened if there had not been devolved institutions in Northern Ireland.”

Mr Robinson said he and Deputy First Minister Martin McGuinness had been working on the deal “almost on a daily basis for these past months”.

The government has also agreed to provide £52m to the project at Bombardier’s east Belfast plant as part of a wider £155m government investment package in the Canadian firm.

Bombardier C-Series

Costs US$46.7m each
Seats 110 to 130 passengers
Expected to enter service in 2013
“Greenest aircraft in its class,” Bombardier says
Wings manufactured in Belfast

Mr McGuinness said: “The investment will also see the development of state of the art technology as well as developing the manufacturing and engineering skills of our workforce that will benefit our economy for years to come.”

Economy Minister Arlene Foster said: “Undoubtedly, the expertise in advanced design and innovative composite materials which Bombardier has developed in Belfast has been instrumental to today’s decision.”

Northern Ireland Secretary Shaun Woodward said the decision was proof that “devolution is winning for Northern Ireland”.

Announcing the investment on the eve of the Farnborough air show, Bombardier said greener fuel-efficient technology used in the C-Series would “revolutionise” the 100 to 149 seater market.

The long-running project was dropped two years ago, but the Canadian aerospace firm resurrected it last year amid amid rising fuel costs globally.

Lufthansa has provisionally ordered 30 planes with an option for 30 more.

News reported by BBC

TOKYO (Reuters) – Japan has relaxed its tax code so foreign asset managers and hedge funds can avoid dual taxation, as part of Tokyo’s push to revive itself as a global finance centre.

In a two-step process that began in April with the revision of a cabinet order and finished on Friday, the government has retooled tax rules so offshore funds can avoid being classified as having a “permanent establishment” in Japan.

Commonly referred to as a “PE” in tax law, the classification would force offshore funds — which already pay taxes in their home countries — to pay domestic taxes on any returns made in Japan.

Faced with sluggish growth and a rapidly shrinking population, the world’s second-largest economy is desperate for foreign investment and is especially keen to woo hedge funds, which have an estimated worth of $2 trillion (1 trillion pounds) globally.

Until now many of the loosely regulated funds have been forced to set up shop as “investment advisory firms” in order to avoid the double tax bill.

“We must admit that Tokyo’s presence in international finance has been in decline for some years,” an official at the regulatory Financial Services Agency told reporters.

Data from the FSA shows that while the number of investment advisory companies has nearly doubled to more than 800 in the past four years, the number of investment management firms has languished at around 100 for two decades.

The difference is not insignificant, the FSA reckons, as full investment management firms would draw more people and capital into the market.

The legal change allows local entities to avoid being regarded as having a permanent establishment if they are seen as sufficiently independent of the overseas entity.

Critically, the local entity must bear some entrepreneurial risk, such as receiving pay corresponding to returns on the investment.

That means the Tokyo arm of a U.S. hedge would bear entrepreneurial risk if managers were paid based on the performance of their Japan fund.

If the hedge fund met some other criteria it would be deemed an “independent agent” and not subject to dual taxation.

The tax change also underscores Japan’s regulatory shift in recent years.

Regulators are increasingly worried that the world’s second-largest economy will lag in financial services, losing out to more flexible Asian centres such as Hong Kong and Singapore.

While famous for churning out cutting-edge gadgets, Japan has also become synonymous among foreign investors for hidebound regulation and burdensome taxation.

Restrictions between banks, brokerages and insurance firms were relaxed under a bill passed by Japan’s parliament earlier this month, making it easier for companies to market products across divisions.

News reported by Reuters

Global stock markets have suffered a sell-off sparked by concerns about the global economy and crude oil prices which have hit a new record.

New York’s Dow Jones closed down 0.93%, or 106.9 points, at 11,346.51 as the cost of oil rose to a fresh high above $142 a barrel.

Losses were mirrored across the Atlantic, as share indexes in Paris and Frankfurt ended about 0.6% lower.

But London’s FTSE shrugged off earlier losses to register a 0.2% rise.

Stock markets across Asia fell – earlier China’s benchmark Shanghai index dropped by 5.3%, while India’s Sensex index declined by 4.3%.

Indexes in Japan, Taiwan and South Korea all shed more than 2%.

Crude oil surged to a record, as Brent crude jumped to $142.13 a barrel, while New York light crude climbed as high as $142.26, on concerns about supply.

The global stock market downturn began in New York on Thursday, when the Dow fell more than 3% to a two-year low.

The fear on Wall Street is that rising prices and tighter finances will force Americans to curb spending and push the economy into recession.

Consumer concerns

Traders brushed aside positive news about US consumers on Friday.

The US economic stimulus package, which will hand out $107bn to Americans this year, boosted household budgets and helped consumer spending rise 0.8% last month.

But analysts are not convinced May’s feelgood factor will last.

“We have had very strong consumer spending, but most of the tax rebates went into savings, which might mean they are going to stay there,” said Pierre Ellis, an economist at Decision Economics in NewYork.

Investors also reacted to a string of bad news about key sectors of the US economy, while worries remain about the credit crunch and sub-prime fallout.

News reported by BBC