A Christmas Carol

Ebenezer Scrooge, the Section 151 Officer at Marley District Council, was huddled in his dark and dusty office on Christmas Eve, putting the final touches to next year’s budget. “Hmmm, shaving another 45 seconds each week from every worker’s pay packet should save another thousand pounds,” he muttered to himself. “And I’m sure we can turn the heating down another degree. Double degrees Centigrade is a bit decadent in these hard times. Those moaners who think 9°C is cold don’t know what austerity is.”

His eyes glanced briefly at the budgets for interest payable and investment income. He’d heard rumours of other councils meddling with their treasury management strategies to save some money. But not at Marley DC and not on Ebenezer’s watch. They had always borrowed 50 year loans from the PWLB to fund capital expenditure and they always would. Except when 70 year LOBOs were available of course. And there were still a couple of banks left in town whose names were familiar and so counted as “safe”, even if those pesky Icelanders had reneged on their promises the other year. No, better to look for some even thinner paper for the stationery cupboard than investigate savings in the arcane world of treasury management.

While wondering whether staff could be made to supply their own office chairs, a great tiredness came upon Scrooge. He had been working non-stop for six months after making the rest of the back office staff redundant, so he laid his head down to snatch thirty-nine winks. But no sooner had his eyes closed, when he woke with a start. All the candles had blown out, and there was this strange rattling noise coming from the one remaining filing cabinet in the corner of the room. He nervously approached the cabinet and opened the top drawer to peek inside, when out of the folder labelled “Impairments” there appeared an apparition of an Eskimo.

“I am the Ghost of Treasury Past,” wailed the spirit, “and I come to show you the error of your ways.” The scene inside the filing cabinet changed to a vision of a young council clerk with a telephone to each ear. Into one receiver he was saying “I want to borrow a million pounds at the cheapest rate possible”, and into the other “I want to invest a million pounds at the highest rate possible”. Paperwork built up on both sides of the desk, as the phone calls continued. Then a chill wind blew through the office as the igloo reappeared, and all the investments were swept up into the wind and sucked into a black hole in the ice. “Why did you borrow so much money when you already had the cash in hand?” asked the ghost. “Why did you have so much money invested in one small country? Didn’t you know about credit risk management?” The young clerk said nothing, he just picked the nameplate off the desk and brushed off the frost to reveal the letters “E Scrooge”. The wind swirled again, the cabinet drawer slammed shut, and Ebenezer found himself asleep at his desk once more.

A few minutes later he awoke again to hear the middle drawer of the filing cabinet rattling. The drawer opened and the folder labelled “Bank of England base rate” dissolved into a new scene. A friendly looking older man with white hair and round glasses, maybe a few months from retirement, sat at a big leather desk in an oak panelled room. “I am the Ghost of Treasury Present” boomed the dismembered voice, “and I come to show you the real effect of your current strategy”. A cycle of events played out in the drawer before Ebenezer’s eyes. Each time nine men round the table voted for a cut in interest rates, the figure for investment income in Scrooge’s ledger got smaller, while the figure for interest payable remained stubbornly high, and the residents of Marley were denied access to yet another public service. First the library closed, then the children’s playground, then the day care centre. “Why don’t you spend the money” intoned the spirit, “instead of trying to save it at ever lower interest rates? Our loose monetary policy should be encouraging capital expenditure, not cutting revenue. And why are all your liabilities stuck at fixed rates, while your financial assets are variable? Don’t you know about interest rate risk management?”

“We borrow at fixed rates for certainty of cost,” stammered Scrooge, “but we like to keep all our investments short, just in case, well, you know. Anyway, we are hopeful that rates will go up soon,” he said, but realised that he didn’t even believe that himself anymore.  The old man at the table just shook his head in despair while the rubbish bins were left to overflow waiting for the next monthly refuse collection.

As Ebenezer fell asleep again, the middle drawer closed and strange noises could be heard from the bottom of the filing cabinet. Scrooge jumped out of his chair. “I must find out what the Ghost of Treasury Future knows,” he exclaimed. “Will he warn me before the next bank goes bust? Maybe he knows for certain what interest rates are going to do. We’ll be rich!” Without waiting for a ghost to appear this time, Ebenezer ran over to the cabinet and tried to prise open the bottom drawer. It would hardly move though, just enough to allow the distant sounds of Spanish guitars, castanets and howling wolves to escape.  Scrooge squinted through the gap, desperate for a glance of the future, but saw nothing.  “What treasury mistake will haunt the Council in the years to come,” he wondered.  “And why can I only hear Spanish wolves?  What is the Spanish word for wolf, anyway?”  He consulted his trusty European dictionary, but when he came to the section on animals, he threw the book down in horror.  The next ghost to haunt Ebenezer Scrooge and his interest budget?  El lobo.

Merry Christmas to you all.  Don’t let the Ghosts of Treasury keep you awake at night!

David Green is Client Director at Arlingclose Limited.  This is the writer’s personal opinion and does not constitute investment advice.