Thursday 30 September 2010

Saint David and Red Ed

The rush by the right-wing media to canonise the defeated David Miliband is nauseating. They love him so much, they've even shelved the infamous banana picture. Today's Times front page headline is "Labour's Lost Leader", with a large picture showing Mili-D and his wife outside their home, looking (in Leonard Cohen's words) "like their father or their dog just died".

If I were a Labour Party member, the fact that the Murdochs and the Barclay brothers had been urging me all thorugh the campaign to vote for Mili-D would have seemed like the best possible reason to vote for just about anyone else.

Meantime, the campaign of vilification against "Red" Ed Miliband is already at fever pitch, with little regard for consistency. According to the Times, he's not showing leadership qualities, but at the same time he's been ruthless in imposing his own choice of Chief Whip. Meanwhile, over at the Telegraph, he's an unreconstructed lefty, but at the same time he's a liar because he's already backing away from the socialistic promises he made to get elected.

Are these papers really surprised that Labour picked a left-leaning candidate? After what the economy's been put through in the past few years in the name of "free market principles", the big surprise is surely that they didn't make a much sharper lurch to the left. It wouldn't be a big surprise if they took a chunk of the electorate along with them, either. Given the rush to trash "Red Ed", that may well be exactly what the Times and Torygraph are afraid of.

Wednesday 22 September 2010

What'cha gonna do about it?

Vince Cable, preaching to the choir at the LibDem conference in Liverpool:

“I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow (the RMT union leader) could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer. There is much public anger about banks and it is well deserved.”

Cue predictable shock/horror reaction, led on this occasion by the Telegraph. Here Damian Reece:

Open debate is crucial but Cable is in Government not opposition. Is he trying to do what's best for business, as he should, or what's best for his fringe supporters in the Lib Dems?....Where is his sense of collective responsibility? If he doesn't discover it soon he should resign.

And here the perennially angry Janet Daley:

...as everybody and his wife has pointed out, Mr Cable’s wildly over-briefed speech is saying little about the dangers of monopolistic capitalism that is not already accepted by the most successful capitalist countries: the US has stricter anti-monopoly, anti-trust legislation than most European social democracies precisely because it genuinely believes that markets can only function properly if they are free from cartels and price-fixing scams. It has, in other words, a more robust commitment to the principles of capitalism than the lazy, corporatist governments of Europe which are happy to sink into complacent conspiracies with monopolistic interests – so long as those corporations go on producing the tax revenue to fund infinite welfare programmes.

Not just a pretty face, that Janet. In fact, not a pretty face at all, but let that pass. What's surprising right now is how so many participants in the debate over the future role of banking (though not Janet and Vince, obviously) seem to be changing sides. This week we've seen Lord Turner, the FSA chief, saying that it's time to move beyond beating up overpaid traders, and focus on devising an appropriate regulatory framework. Just a few weeks ago, the selfsame Lord Turner was regaling a conference with his scathing views on the uselessness of most financial "innovation".

Flipping at least somewhat in the opposite direction is London mayor Boris Johnson. Long an opponent of doing anything that might weaken the City, BoJo is now warning that bankers should voluntarily curb their bonuses this year, or else risk a public backlash and a possible crackdown by politicians.

The problem is, none of this is leading anywhere. Last week a grim-faced Robert Peston was one of the first journalists to report the Basle III capital requirements for the banks, describing the required increase on his BBC blog thus: "The 7% minimum represents a dramatic increase on the current minimum of 2%". The banks duly chimed in with warnings that the new rules meant that the days of cheap credit were gone forever. And next day...bank stocks rose sharply, as investors realised something that Pesto should have known: that UK banks already had more than the required cushion, and even for banks elsewhere in the world that might be less well protected, the new rules would not come into force until 2019.

The new capital rules may be largely meaningless, but at least they exist, which is more than can be said about the promised global regulatory regime. The US has gone the furthest, but the UK, mindful of the scarcely-veiled threat by the big banks to up stakes and run to Geneva if they see anything they don't like, seems paralysed. The urgency seems to have gone out of the issue, as the 2019 deadline for the Basle III rules serves to underline. Vince Cable may be righteously angry, but there's no sign that the government of which he's part is planning to do very much about it. Which will be welcome news for Janet Daley, but maybe not for the rest of us.

Tuesday 21 September 2010

UK budget data: more than meets the eye

Today's UK budget data for August look like a bit of a disappointment. Net borrowing for the month was a record £15.9 billion, compared to £14.1 billion in August 2009. (The report, jointly produced by the ONS and HM Treasury, is here).

There doesn't seem to be anything wrong on the revenue side, which is no surprise considering the reasonable momentum in the overall economy. Current receipts have risen smartly both for the month and the fiscal year to date. (There are also growing signs of the government, or rather the taxpayer, starting to make a return on the bank bailout, but that's a story for another time).

The problem seems to be on the spending side, with current outlays £4.9 billion higher than in August 2009. With a deft steer from the Treasury, most of the media commentary has focused on one element of this: debt interest rose from £1.3 bn in August 2009 to £3.8 bn this year. This is attributed to the rise in inflation over the past year, which has boosted interest payments on index-linked government debt.

That's not the whole story, though -- a quick glance at the data in the preceding paragraph will show that only about half of the rise in spending was a result of debt interest. Other categories of current spending also rose in the year, with social programme outlays rising by £0.8 bn and other forms of spending up £1.7 bn.

Given the fanfare with which Osborne et al announced their emergency spending cuts in the first days of the new government, these figures might be seen as a bit of a blow, so it's not surprising that the Treasury wanted to see more attention paid to the debt interest. And looking forward, just how loud will the howls of pain become when actual spending cuts begin, given how much outrage we have already heard when nothing significant has actually happened yet?

The official Treasury line on today's numbers includes a couple of odd statements:

"Although broadly in line with the Office for Budget Responsibility's budget forecast, today's borrowing figures demonstrate just why the government needs to tackle the deficit," said a Treasury spokesman. "If the government had not announced decisive action to bring borrowing down, debt interest would have been over £65bn by 2014-15, more than is spent on schools or defence."

As to the first of those, you could argue that the figures show why the government needs to encourage the Bank of England to keep inflation down. All that lovely index-linked debt, so cheap to service when price pressures are low, could look like more of a mixed blessing unless CPI gets back toward the target level. And as to the second, words fail me: before the spending cuts or tax hikes even take effect, and before their impact on growth and inflation is known, how can it possibly make sense to make an assertion like that, especially in response to data that could easily be interpreted as showing that reducing the deficit may not be as straightforward as all that?

Friday 17 September 2010

New horror film announced

Unfortunately, I'm not making this up. The loathsome and overrated Sacha Baron Cohen is to play the awful and overrated Freddie Mercury in a new film about Queen. The only thing that could make this worse would be hiring Michael Winner to direct it.

Wednesday 15 September 2010

Who'd want to be King?

Bank of England Governor Mervyn King spoke in Manchester this morning to the TUC conference -- or at least to most of it. Bob Crow and his colleagues from the RMT (motto: Nemo nos amat, nobis non cura est) boycotted the speech, with Crow saying that he had no wish to hear from someone he blamed for causing the current economic difficulties.

If Bob and his buddies had seen fit to show up, they would have heard the Governor plead guilty as charged. Key quotes from the speech (full text here) include:

We let it slip – we, that is, in the financial sector and as policy-makers – not your members nor the many businesses and organisations around the country which employ them.

and...

There was nothing fair about the financial crisis. It was caused not by problems in the real economy; it came out of the financial sector. But it was the real economy that suffered and the banks that were bailed out. Your members, and indeed the businesses which employ them, are entitled to be angry.

and...

In 2008, banks were bailed out not to protect them but to protect the rest of the economy from the banks. That may not seem fair – and it isn’t – when other companies, such as Jaguar, had to stand on their own feet or go to the wall.

The brothers and sisters were probably mollified by this, though as Gov. King's line on the banks still seems much harsher than than the coalition government's, they may find that not too many of these worthy sentiments get translated into policy. They were probably less happy with the Governor's insistence that fiscal tightening cannot be delayed, though TUC general secretary Brendan Barber chose to focus on his admission that there was room for debate about how the tightening should be achieved.

There were only two passing references to inflation in the speech. This may reflect an accurate assessment of the interests of this particular audience, but it is to be hoped that it does not represent the Governor's priorities. It was reported on Tuesday that the CPI rose 3.1% in the year to August, the same rate as in July and well above the 2% target. With cotton and wheat prices soaring, VAT set to rise in January and Sterling still on the weak side, there is little prospect of a return to the target level any time soon. Most media commentary on the latest data suggested the Bank would "look through" one-off factors like these. However, you sort of sensed that the commentators' hearts weren't really in it: the Bank seems to have been "looking through" supposedly one-time factors for quite a few months now.

Even if you don't go all the way with the Friedmanite proposition that "inflation is always and everywhere a monetary phenomenon", there seems to be ample cause for concern. One-time factors like rising wheat prices or VAT hikes can indeed be "looked through" as long as monetary policy is positioned to prevent them from metamorphosing into a nasty trend. Right now, however, monetary policy remains as loose as it has ever been, and apart from the regular dissenter Andrew Sentance, nobody at the Bank of England seems inclined to change that.

With the impact of the promised fiscal tightening still to be felt, putting an end to monetary accommodation would surely be premature. But in effect, the Governor must be assuming that the fiscal tightening will help to ease inflationary pressures, particularly by curbing wage demands on the part of his friends at the TUC. If that doesn't happen, he surely knows that he will have to start raising rates before too long. Now THAT would have been a brave message to take to the TUC, and it probably wouldn't only have been Bob Crow that walked out on it.

Sunday 12 September 2010

The Prince and the plonker

The Murdoch press has been cutting a bit of a swathe through the rich and famous in the last couple of weeks. First came the News of the World's tawdry revelations about Wayne Rooney's sex life; then, very much at the other end of the scale, we learned from The Times how Prince Charles's wish to save a Scottish stately home "for the nation" had blown a big hole in his charitable enterprises. Only one of these stories is really newsworthy, and it doesn't concern football.

There's something that Rooney and HRH have in common, and it helps to explain how they've each got into these scrapes. Like many professional footballers (heirs to the throne), Wayne (Charles) has a prodigious amount of money, but not much to do. Every little need is taken care of by Manchester United (a retinue of servants and advisors). Playing football and training (cutting ribbons and shaking hands) don't take up a whole lot of time. Result: a dangerous combination of entitlement, boredom and underdeveloped decision-making skills (a dangerous combination of entitlement, boredom and underdeveloped decision-making skills).

For Wayne Rooney, as for so many sportsmen in the past (and no doubt in the future), the combination of time on his hands and money to burn inevitably led to sexual indiscretions. This has happened so many times (there are two other well-known footballing names cowering behind press injunctions right now) that it's surprising that it still titillates the tabloids and their readers. For all his money, Rooney is a man of no real power or importance, and in an ideal world his marital shenanigans would be a purely private matter between him and his missus.

Some of Prince Charles's forebears, stuck waiting for the throne to become vacant, have also whiled away their time in the beds of assorted floozies. Charles has avoided that (sort of); in casting around for something to do, he long ago settled on becoming a major philanthropist, which is all very commendable. The problem is that he hasn't been satisfied just to make donations from his prodigious personal wealth. Instead, he has tried to fund his giving by setting up a series of enterprises designed to generate profits that can then be used for eleemosynary purposes.

The problem is that Charles is, not entirely surprisingly, not much of a businessman. This is, after all, a man who famously failed to recognise a five-pound note when it was waved at him by a reporter many years ago. His flagship business, Duchy Originals, is losing millions of pounds a year trying to peddle the world's most overpriced sausages and marmalade. It's just had to be rescued by the John Lewis Partnership.

And now there's the stately home, in Dumfries. The former owner, the vaguely raffish Earl of Bute, wanted shot of the place. Up stepped Charles with a £20 million cheque, committed with almost no due diligence and backed by the funds in his charitable foundations. The plan, supposedly, was to pay back the money by carving up some of the lands that came with the mansion for development purposes, but the economy and the credit crunch have put a stop to that. Although the home, with its Chippendale furniture, is now open for viewing by a grateful nation, Charles's charities are financially holed below the water line, with no rescue in sight.

Where were Charles's retinue of advisors when all this was going on? They're lining up now to blame it all on the recession, but here's a flavour of the kind of advice the Prince may have been getting.

Charles's main source of income is the vast Duchy of Cornwall. The Duchy owns Highgrove House, Charles's favourite residence. Charles pays a handsome rent to the Duchy for the house (in excess of £300,000 per year) but of course, since he is the only beneficiary of the Duchy's income, he is actually paying rent to himself. Even so, the Duchy likes to claim that Charles's willingness to pay rent contributes substantially to the Duchy's financial viability. Presumably if he were to pay £1 million a year in rent, or what the heck, a million a month, the Duchy would be in even peachier shape.

If this is the quality of advice that his advisors provided when he was looking into the Dumfries property, it's no wonder the whole thing has gone pear-shaped. Thing is, living in his little cocoon of wealth and luxury, Charles is in no position to sort out the good advice from the bad. And when the heir to the throne is showing all the financial acumen of a five-year-old, and using charitable money to boot, that's surely a much more serious national issue than the sex lives of the potato-faced.

Tuesday 7 September 2010

Shine on you crazy Barclays

Is it possible that Barclays Bank wants the UK government to break up the banking system? Based on the bank's decision to appoint Bob Diamond as its new CEO, you have to wonder. According to Robert Peston on the BBC website, the immediate reaction of "a senior member of the Government" (does Pesto talk to any other kind??) was "bank taken over by casino".

Diamond is a career investment banker. He is currently head of the bank's Barclays Capital unit, which has grown exponentially in terms of assets and profitability since Diamond picked up the ruins of Lehman Brothers' fixed income business in the depths of the financial crisis. Based on how much Diamond earns -- his new job will involve a pay cut to £11.5 mil' per year! -- Barclays obviously think he's good at what he does.

Which is what, exactly? The heady growth of investment banking in the two decades or so before the 2007/8 crash was fed partly by loopy deregulation, especially in the US and the UK, but even more by the ultra-lax monetary policies pursued by the major central banks in that period. Low interest rates triggered investor demand for new ways of boosting returns, a demand that investment bankers, armed with the massive computing power of the PC, were happy to meet n increasingly abstruse ways. Low rates also led to the underpricing of risk, something that was further encouraged by the evident willingness of central banks to cut rates whenever trouble loomed -- the so-called "Greenspan put".

And what exactly did all of this financial innovation do for us? It's not necessary to be quite as sceptical as Paul Volcker ("the only beneficial financial innovation has been the ATM") to think that the answer is "not very much". In the UK, for example, the growth in securitisation allowed banks to increase mortgage availability, massively boosting house prices. Yet this did very little to finance the construction of new homes; rather, it provided existing homeowners with a new means of financing consumption. Or, to put it another way, it resulted in a transfer of wealth from the young to the baby boom generation, a development which is almost entirely negative from a societal viewpoint.

Diamond's appointment suggests that Barclays, at least, thinks that the key lesson of the financial crisis was not the fact that Lehman was allowed to fail, but the fact that almost every other major financial institution was bailed out by the taxpayer. Barclays can, of course, point out that it was one of the few banks in the UK (HSBC was another) not to receive a direct capital injection from the government. But it has benefited enormously from the cheap, indeed almost free funding provided under the auspices of the Bank of England since the crisis. With spreads between funding costs and lending rates at record levels, it's not surprising that well-run Barclays has seen a surge in profits in recent quarters. Then again, former basket cases like RBS have also posted a dizzying turnaround, so you might be entitled to wonder whether all the credit (and the big bonuses) should really accrue to Diamond and his management buddies.

The quid pro quo for taxpayer support was always supposed to be that the banks would (a) rebuild their balance sheets and (b) step up their lending activities in support of the economic recovery. Balance sheets are in much better shape, but lending remains subdued. The banks argue that loan demand remains weak, which may be true. Still, you can't help thinking that Diamond's elevation is a signal of how Barclays intends to deploy its rebuilt balance sheet. It doesn't look as if iit will be doing anything to reward the taxpayers who have been subsidising it for the past two years.

Hey, Vince Cable! Still want to separate "casino" banking from utility banking? Barclays just made the case for you.

Friday 3 September 2010

Hawking up the wrong tree

So Stephen Hawking has apparently convinced himself that something called "M-theory" explains the origins of the universe, without any need for intervention by God. It's a pity he didn't tell us this before all that money was wasted on the Large Hadron Collider. Who would have thought that all we needed was a pencil and paper, a very large brain, and the brass balls to peddle an embryonic collection of untestable ideas as a "theory of everything"?

Hawking's thesis has not exactly attracted widespread support -- and I'm not just referring to the inevitable rebuttals from religious leaders (of which Rabbi Jonathan Sacks's is, predictably, the best). Some of Hawking's theoretical physicist peers are fairly scathing too, with one speculating that the M in M-theory stands for "myth".

Some years ago, it was reported that one of Hawking's Cambridge colleagues was asked how it felt to work with the best physicist in the world. The response: "Best in the world? He's not even the best physicist in the college". I'm in no position to judge the truth of that, but it might be worth keeping it in mind as the hype, not unrelated to the publication of Hawking's new book next week, swirls on.

Wednesday 1 September 2010

"Che" Blair

I haven't read Tony Blair's abysmally titled memoirs, "A Journey" (been watching too much reality TV, Tone?), but I've already come across the most gobsmacking claim in recent literature: "my soul is and always will be that of a rebel.”

Well, now it really does all fall into place: the mooched holidays in edgy Barbados with the infamously seditious social activist Cliff Richard; the mooched holidays in Tuscany with the ultra progressive Silvio Berlusconi; the attempts to get the taxpayer to buy him a jet (Blair Force One) to ferry him about the place; the accumulation of a large property portfolio; the pro bono post-retirement work with progressive financial institutions like JP Morgan and Zurich Insurance; the hobnobbing with the famously enlightened rulers of the Middle East. How did we ever fail to recognise over the years that we were in the presence of a modern-day Oliver Cromwell, a Che Guevara for the new millennium?

Blair may be more self-deluded than Jedward, but at least he's brought us one of the great headlines of this or any other year, courtesy of a Times sub who knows how to wield a colon. The print edition's front page today leads with "Blair: why Labour lost". He sure was.