"Worthwhile Canadian initiative"

So you're actually reading this, are you? That's a relief, but also a bit of a surprise. A good number of years ago, The New Republic ran a contest to find the dullest newspaper headline, the one least likely to induce you to read the associated article, and the winner was, yes, "Worthwhile Canadian initiative".

Maybe it's time for TNR to re-run the contest, because the last few weeks have produced some Quite Interesting Canada-related stories, not all of them reflecting well on the Great White North. The appalling riots that took place after the Vancouver Canucks lost a hockey match have already been done to death, so let's start with the business pages. (Just as an aside, though, what sort of team nickname is "Canucks"? It's like calling a team "Manchester Limeys" or "Paris Froggies").

Anyway, yesterday the London Stock Exchange (LSX) abandoned its friendly takeover bid for the Toronto/Montreal equivalent, TMX, in a move that appears to confirm Canada's chosen role as the most xenophobic country, business-wise, in the developed world. The bid had prompted a group of Canadian financial institutions to wrap themselves in the gaudy national flag as "Maple Group" and launch a counter offer, muttering darkly about the threat to Canada's financial sovereignty. The shamelessness of this beggars belief. The Canadian banks backing Maple Group have all been enthusiastically expanding in the US; Canadian pension funds, also behind the Maple bid, have been acquiring all sorts of assets in Europe, notably in the UK, without any impediment.

Although TMX management had accepted the LSX bid, it had become evident that the necessary two-thirds approval by existing shareholders would not be forthcoming, so LSX has swallowed its pride and walked away. It's not clear what will happen next to TMX. It has never been keen on the Maple Group deal, and local regulators have started to express concerns over its competitive implications, as it would control 80% of equities dealing within Canada. Most likely a deal will get done, however; with global bourses in a consolidation mode, failure to do the deal now might well bring to the table another foreign suitor, one that might be even less palatable to delicate Canadian sensibilities than LSX.

Poor old LSX was scared off without the Ottawa government even getting involved, but of course, just last year the government did stir itself to torpedo the planned acquisition of Potash Corp. by the multinational BHP Billiton. The Canadian media seem remarkably relaxed about all this, and the usual justification is being trotted out: that Canada needs to safeguard its sovereignty in the face of its noisy and assertive southern neighbour. Well maybe, but it's hard to see how that applies in dealing with approaches by the LONDON Stock Exchange or BHP Billiton, whose long-standing nickname is "Big Australian".

And here's an interesting thought. Maple Group has hinted that if it gets control of TMX, it might look at some acquisitions of its own. There's not a lot out there, so what price a cheeky bid for LSX? If it happens, one can only hope that the UK offers the traditional Canadian welcome, best expressed by the long-defunct comedy duo Bob and Doug Mackenzie: "Take off, ya hosers!"

Another hoser who may also get told to "take off" is our old buddy, Conrad Black, now back in the hoosegow after being resentenced in a Chicago courtroom. He's to serve a further thirteen months, and immediately he's released he will be expelled from the US as a foreign felon. Apparently he'd like to return to Canada, which is where he was born and has lived for almost all his life. But there's a problem: Black renounced his Canadian citizenship in order to accept a British peerage, so Canada has no obligation to take him back. In fact, it would be a breach of current Canadian immigration rules to let him into the country, given his criminal record.

So Black may be forced to up stakes and move to the UK, though there'd be another problem if he did that. As a convicted felon, he would surely risk being stripped of his precious peerage. You could argue that it couldn't happen to a nicer guy, but hey, cut Conrad a break -- he's always good value on a slow news day.

Riots! Rampant xenophobia! Displaced and disgraced peers! Still think Canada's boring? Well, take off, ya hoser!

You don't know, Jack!

The former Labour cabinet minister, Jack Straw, is in the papers today (The Times, behind the paywall) with a shocking revelation: bogus personal injury claims are driving up the cost of car insurance in the UK. Who knew? Well, actually, who didn't know? But still, Jack has uncovered a couple of interesting tidbits. Apparently treatment of "whiplash" costs the NHS £8 million per year, yet car insurers pay out £2 billion a year to crash victims claiming to be suffering from it. Straw has also found out that insurers pass details of accidents along to ambulance-chasing lawyers, even though they know that the inevitable result will be a much higher, and quite possibly fraudulent, insurance claim. The "referral fees" that insurers receive from doing this are apparently now the major source of profit for the insurers.

I didn't know this, and like Jack Straw I'm appalled by it, but I can't say I'm really surprised. The UK insurance sector seems to break just about every rule in the business handbook. To take just one obvious example, any normal (i.e. non-insurance) businessperson will tell you that your existing clients are like gold dust. It's much cheaper and easier to hang on to your present clients than it is to find new ones.

Not in the insurance business though. Massive churning of the customer base, through the astounding technique of always offering new customers a better deal than existing ones, seems to be the modus operandi of the entire industry. If you'll do something that perverse, there's no reason to think you won't do something else equally dumb, like driving up your claims expenses by selling data to unscrupulous lawyers.

Jack Straw wants something done about the whole referrals game, and no sensible (i.e. non-insurance) person could disagree. However, I'm not sure that he's got to the bottom of it. He quotes a constituent who had been in an accident and received a text message from an ambulance chaser that began "Our records show that you may be entitled to £3,450 compensation for the accident you had". I've had several texts with exactly the same wording and even the same strangely specific amount. And I haven't even had an accident.*

* UPDATE, June 29: A doctor wrote to the papers today to say that she had received one of these messages too. Not only had she not had an accident, she had never even owned a car!

Whistling past the graveyard

While you were fretting about the crisis in Greece (dubbed “Acropolis Now” by the Toronto Globe and Mail)…..

Terminal 5, Heathrow Airport, Sunday afternoon. Crowds milling about, every seat in the departure “lounge” taken. Queues to buy fancily-priced wraps from Pret a Manger. A woman with a Mulberry necklace and a Prada bag, pecking out messages on her I-Phone.

The BA flight to Milan, packed to the gunwales with Italians heading home after a weekend break in London and Brits fleeing south to the Lakes.

The autostrada out of Malpensa, clogged with Milanesi heading home for the start of the new work week.

The car parks along Lake Maggiore, filled with cars from France, Germany, the Netherlands, Russia alongside those of the Italians. The VW Tiguan seems like a popular choice, though there‘s also a four-door Porsche with an elegant fiordilatte paint job.

The crowded restaurants in the main piazza, filled with the families from all those Tiguans, plus Brits, Americans, Aussies, Israelis, even a group of Barbadians.

Sure, it‘s all anecdotal. But the story is an important one. People are still going about their business, still spending money, ignoring the torrent of doom and gloom from the world’s media. If they ever start taking notice of it, we really are in trouble.

Summer reading list, 2011

Lago Maggiore beckons. My holiday reading is all loaded onto my Kindle (see below), but here are some of the things I've read over the past few months that might interest you.

The Big Short by Michael Lewis. When this book first appeared, it was hailed as witty and wise, which it is, but also as a sort of layman's guide to what really triggered the financial crisis. As a former financial industry professional I can't entirely judge that, but it seems to me that most "lay" readers will find some of the technical explanations quite hard going, despite Lewis's fluent prose style.

Lewis chooses to tell the story by focusing on three or four eccentrically geeky investors, all of whom made big money by shorting asset-backed bonds. This adds to the amusement, but tends to create the misleading impression that it was only misfits and outsiders that foresaw saw the crisis. Most bankers knew it would end in tears, but as the chairman of Citi said, "as long as the music's playing, you gotta keep dancing". Still, Lewis's book is a lot more fun, and a lot less self serving, than anything by Alan Greenspan.

The Rational Optimist, by Matt Ridley. Ridley argues that mankind has always feared for the future, yet for the most part, things have got steadily better. Therefore, he believes, current gloom about the environment or climate change or peak oil or whatever else is bothering you is also likely to be overblown. According to Ridley, what separates man from the beasts, and successful societies from unsuccessful ones, is the free market. His enthusiasm for markets at times makes Ayn Rand look like Chairman Mao. Even so, once you've read this, you may never feel quite the same about renewable energy or organic food again.

Not interested in business? Well, how about Contested Will, by James Shapiro. Shapiro gently but firmly puts down the many people, past and present, who have questioned whether William Shakespeare actually wrote the plays attributed to him. Also recommended by the same author, 1599 , a fascinating account of a particularly pivotal year in the Bard's career.

I notice that London: the Biography by Peter Ackroyd has been re-issued. It isn't really a biography, because it's thematic rather than strictly chronological; and it's not systematic enough to be an encyclopedia, though it contains all the information about London you are ever likely to want. Aykroyd's prose can veer towards the purple, and he has a habit of looking a bit too deep for themes -- the phrase "it is as if" seems to crop up on almost every page. (Sample: "It is almost as if it were itself a spectral city, so filled with intimations of its past that it haunts its own inhabitants".) But there's no other book about London that compares to it. Word up though: at 800 pages it could trigger excess baggage charges, especially if you have the ill-fortune to be travelling with Ryanair.

As for that Kindle of mine, it's loaded up with the latest from Dominic Sandbrook, State of Emergency, about the UK in the early 1970s, as well as Union Atlantic, by Adam Haslett, a novel about, er, banking. I'm also taking full advantage of all the free fiction available online. Oddball freebie recommendation: The Life and Opinions of Tristram Shandy, Gentleman, by Lawrence Sterne -- just about the only place aside from "Hamlet" where you'll encounter the obsolete word "fardel", meaning burden.

Back soon!

Breaking up UK banks: necessary but not sufficient

UK Chancellor George Osborne says the government will move forward with plans to force banks to "ringfence" their retail operations from their investment activities, in the hope of reducing the need for future taxpayer bailouts. Bankers and others contemplating a rearguard action against these plans will have to explain away an awkward historical fact. For decades after WWII, when the US banking system was strictly split between retail and investment activities, under the so-called Glass-Steagall rules, stability was the order of the day. When these regulations began to be loosened, in response to lobbying by the banks (and with the explicit encouragement of the world's worst central banker, Alan Greenspan), two consequences soon followed. There was rapid consolidation in the US financial sector, and financial bubbles started to pop up with remarkable regularity, culminating in the crisis of 2007-08. At the height of that crisis, we witnessed the offensive spectacle of investment banks hastily converting themselves into commercial banks in order to benefit from government (i.e. taxpayer) assistance.

But if separating retail from investment banking seems in principle to be the right thing to do, getting the split right in practice is likely to prove tricky. This is reflected in the wide variety of reactions to Osborne's announcement, and it's striking to see that the divisions are not along standard left/right lines. For example, the right-wing economist Andrew Lilico wrote on the Daily Telegraph website that ringfencing retail banking would guarantee more rather than fewer bailouts, on the grounds that it would impel retail bankers to take greater risks. (His logic is a bit bizarre for my taste, so take a look for yourself if you want to give him a fair hearing). In contrast, over on the "old" right, former Chancellor Nigel Lawson thinks only a full separation of retail from investment banking will suffice, because any firewall will never be impermeable enough.

Lawson seems closer to the mark here, but even a clean break would pose problems. We have a very current example to instruct us: Greek debt. When Greece's bondholders take the inevitable haircut, a lot of banks (especially in France and Germany) are going to feel the pain. But if you had been charged with divvying up the assets of large banks into retail and investment buckets a couple of years ago, where would you have put sovereign bonds, including those of Greece? Strong credit ratings, Euro-denominated: are you sure you wouldn't have put them on the retail side, as the kind of assets you'd want retail banks to invest in so as to keep their depositors' funds safe? Wrong choice, it now seems, but it might not have looked that way at the time.

These are presumably the kinds of issues that the Independent Banking Commission will be wrestling with over the summer months, so that Osborne can announce firm plans some time in October. Good luck with that. In the meantime, it's worth recalling that the 2007-08 crisis, and the rolling Eurozone debt crisis, were not just caused by irresponsible investment bankers. The truly underlying cause was the systematic underpricing of risk resulting from the irresponsible policy stance of the Greenspan Fed. For this reason, it's worrisome that the "emergency" lending rates put in place by the Fed and the Bank of England after the crisis hit are still in place, three years on. Even as the world economic outlook falters, those rates are contributing directly to yet another tech bubble, as well as to record rises in commodity prices. Economists constantly warn that "there is no such thing as a free lunch". In the longer term, there may be no such thing as "cheap money" either.

Grayling fade

I stuck a paragraph about AC Grayling's little vanity project, the New College for the Humanities (NCH) on the end of an earlier post. As the story has generated so much heat over the past week, it seems to merit a posting of its own. Grayling, his academic backers and his rather limited band of supporters haven't had a good week, but some of the criticism he has received seems a bit over the top too.

Let's start with some of the critics. First up, the leftist academic Terry Eagleton, who was quick to go all Marxist on Grayling's ass, through the pages of (where else?) The Guardian. Here's a brief sample:

...why should anyone be surprised at the prospect of academics signing on for a cushy job at 25% more than the average university salary, with shares in the enterprise to boot?

What would prevent most of us from doing so is the nausea which wells to the throat at the thought of this disgustingly elitist outfit. British universities, plundered of resources by the bankers and financiers they educated, are not best served by a bunch of prima donnas jumping ship and creaming off the bright and loaded.... Grayling and his friends are taking advantage of a crumbling university system to rake off money from the rich. As such, they are betraying all those academics who have been fighting the cuts for the sake of their students.

And there's a lot more -- a whole lot more -- where that came from. Grayling was moved to point out, very politely in the circumstances, that Eagleton, normally resident at the University of Lancaster, has a wildly lucrative annual gig at the hugely expensive, private Notre Dame University in the USA. It's hard not to join Grayling in seeing just a whiff of hypocrisy here.

There was a different whiff in the air at an event last Tuesday at Foyle's bookshop in London, where Grayling was fulfilling a previously-arranged speaking engagement. The proceedings were interrupted by students throwing smokebombs to protest against the NCH proposal. These protesters see NCH as the thin end of a wedge that will eventually spell the end of "free" higher education. This is a meaning of the word "free" that you may not find in your dictionary. It means "paid for by taxpayers, most of whom will never make as much money as university graduates do".

Grayling's response to this is that he too favours free higher education, and setting up the UK's most expensive college is his way of moving the debate in that direction. Perhaps you need to be an Oxford educated philosopher to figure out how that works. But at least Grayling knows how he'd pay for the "free" education: he'd raise the top income tax rate (which, for the information of readers outside the UK, is already 50%). No word on how the private equity types who are putting £10 million into NCH feel about that, but then again, they're apparently from Switzerland, so why should they care?

So much for the opponents. What about Grayling and his pals? Something that has become apparent over the course of the week is that Grayling has wildly oversold the project. It isn't really a university at all; it will be offering a syllabus identical to that available to non-resident students at the University of London, a point which was only acknowledged when Royal Holloway College complained that its prospectuses were being reproduced wholesale on the NCH website. NCH really looks more like a higher education version of those A-level cram colleges that you often find located above shops in the more rundown parts of town.

Attempts by Grayling and others to compare NCH to Ivy League schools in the US are preposterous. Harvard, Princeton and the rest are academic and research powerhouses with a track record stretching back over generations. That may be Grayling's eventual goal, but NCH will have no research capability and (as the name suggests) no science teaching of any kind. It will be a small limpet attached to the vast body of the University of London, many of whose existing institutions (notably Imperial College) are already eminent in a global academic context, and may well resent the slurs to the contrary that are implicit in NCH's foundation.

NCH may not even have the academic firepower that Grayling is trying to claim. One of the supposed leading lights, Richard Dawkins, was quick to sense which way the wind was blowing, and made it clear that NCH was Grayling's baby; he had simply agreed to do a modest spot of teaching. Some of the other luminaries who are notionally on board are scarcely even committing to that much. The historian David Cannadine, prominently listed in the early publicity, has apparently agreed to teach for one hour....per year! The Oxbridge-style one-on-one teaching that NCH promises will be carried out almost exclusively by regular academics, rather than the distinguished types that Grayling is attempting to festoon the thing with. Nothing against regular academics, of course, but here's Terry Eagleton again:

As a kind of Oxbridge by the Thames, the New College of the Humanities will offer students weekly one-on-one tutorials. For that kind of money, I would demand a team of live-in, round-the-clock tutors, ready to fill me in about Renaissance art or logical positivism at the snap of a finger. I would also expect them to iron my socks and polish my boots.

While The Guardian has taken the lead in the anti-NCH campaign, the Murdoch media have cast themselves as cheerleaders. The day after the story broke, The Times gave part of its op-ed page to a paean to NCH by the Headmistress of St Paul's School. The paper only revealed the next day, and then only by publishing a letter to the editor from a diligent reader, that this lady is a member of NCH's fledgling advisory board.

Not to be outdone, The Sunday Times published a truly dire story on Grayling by Camilla Long, who paid considerably more attention to his admittedly spectacular hair than to the story at hand. Alas, the story is behind the Murdoch paywall, but I can't resist bringing you the opening few words:

Someone once introduced me to AC Grayling as “the most boring man in the universe”,

Wow, Camilla, I always thought you were boring, but I really had no idea you were a bloke.

Anyway, probably the main thing you need to know about NCH is that the original plan was to call it Grayling Hall. As it's probably brought Grayling more publicity than he's ever known, he may well feel that all the opprobrium is worth it, even if NCH never actually gets off the ground.

If you still have an appetite for more about NCH, there is an excellent piece on the OpenDemocracy website by Anthony Barnett, who had the opportunity to discuss NCH with Grayling (but still thinks it's a lousy idea).

And finally, let me just refer you back to the title of this post. You did pick up on the fact that it's a Spoonerism, I hope.

Blair's presidential ambitions

Tony Blair has a book to sell: the paperback edition of his bizarre memoir, A Journey. To help promote it he's given an "exclusive" interview to The Times, which has of course been picked up by the rest of the papers. A lot of it is about the Arab Spring, and I'm sure we'd all agree that the man who collaborated in the invasion of Iraq and tried to bring Colonel Gadhafi in from the cold should be given a respectful hearing on that topic. (No tittering at the back, there!) However, Tony also has a few thoughts on the future of Europe. This is from The Guardian's report:

Blair also calls for an elected European president who would have a mandate for far-reaching reforms including collaborating on taxes.

In an interview in the Times he says such an office would give Europe "strong, collective leadership and direction". But he accepts that the idea has "no chance of being accepted at the present time".

I obviously can't speak for the other 360 million voters in Europe, but I would venture to suggest that if Blair really wants to see a European presidency, the most important contribution he can make is to declare in the strongest possible terms that he will never be a candidate for the job.

The future of UK higher education: pay more, get less

Over the past few months there have been several student demonstrations in the UK to protest against the Government's plans to reform university funding. Next time one of these is held, there may well be taxpayers marching alongside the students, because it looks as if the reforms will result in fewer people going to university, but at a higher overall cost to the public purse.

The essence of the government's plan is to allow universities to charge much more for their courses -- up to a maximum of £9000 a year, versus £3000 currently -- and to establish a system whereby students receive a loan to pay their fees, with the loan repayable once their income after graduation passes a certain level. This is perhaps not as malign a proposal as its opponents (students, the Labour Party and others) have claimed. No student would be denied a place because he/she could not afford to pay for tuition in advance, and loans would be forgiven if a graduate's income failed to reach the prescribed level. However, the government has done a very poor job of selling its proposals, which have been widely portrayed as excluding some people fron higher education altogether, and saddling those who do go to university with a lifetime of crippling debt.

It's now apparent that the scheme is set to have very perverse set of consequences, mainly because the government misjudged how the universities would choose to set their fees. The working assumption in Whitehall was that the average fee would be set at £7500 a year, which the government would pay upfront, to be recouped as the related loans became repayable. The education budget was set on this basis. Most universities have now announced their fees for 2012, when the new scheme kicks in, and almost all have set them at the maximum £9000, blowing that budget out of the water.

It was always assumed that the older and more prestigious universities would opt for the higher fee -- Oxbridge plus the so-called Russell Group were in this category. However, ministers seem to have assumed that lesser academic lights would opt for some sort of fee competition to attract candidates, keeping the overall average down. Very few have done this; even some of the newest universities, the converted polytechnics, are going for the highest permissible fee. Motivations for this seem to vary: for some, setting a lower fee might be interpreted as an admission of inferiority, while for others, charging the maximum fee may have appeared to be the only possible way of ofsetting an assumed drop in student numbers.

It's a fiasco in the making, and there doesn't appear to be a Plan B. Today the House of Commons Public Accounts Committee has warned that the higher-than-expected upfront cost of the scheme will force the government either to ration places in higher education, or to make offsetting cuts elsewhere. The continued existence of as many as ten universities could be placed at risk: there are reportedly seven already considered to be at severe financial risk, though the names have not been disclosed.

In the meantime, a group of academics, led by comically coiffed philosopher AC Grayling, are proposing to set up a new, independent college of the humanities in London, charging fees of £18000 a year. With Richard Dawkins joining Grayling at the helm, it's a fair bet that theology won't be on the course list, but some rather odd things will. For example, every student will be required to learn how to read a balance sheet! Today another London college (Royal Holloway) has accused Grayling and his elitist pals of lifting some of their course prospectuses wholesale from the University of London website, which might not be what you would expect to get for your 18 large a year. The best comment by far has come from London mayor Boris Johnson, who claimed in the Daily Telegraph that he had a similar idea many years ago, which he dubbed "Rejects College" because it would have been aimed at students who had failed to get into Oxbridge! The way the government's reforms are going, there should be no shortage of candidates.

The oxymoron that is private equity

The private equity business is in the spotlight again in the UK, and as usual not in a good way. Care home operator Southern Cross was owned by Stephen Schwarzman's Blackstone Group, one of the oldest and best-regarded private equity firms, for a few years during the Noughties. Now it's struggling for survival. In the usual private equity way, Blackstone loaded the company up with debt by means of a sale-and-leaseback of Southern Cross's entire property estate, then exited via a public flotation in 2006, pocketing a huge profit: Blackstone admits that it put in £500 million and took out £1.5 billion.

The business model, if you can call it that, worked fine as long as revenues held up. However, as local authorities and private insurers look to cut their spending on care for the elderly, Southern Cross's revenues are falling far short of the sums it needs to meet its massive rental obligations. Its survival depends on convincing its landlords to accept a 30% cut in payments. Since the properties were sold to about eighty landlords in order to maximise (Blackstone's) revenues, it's going to take a Herculean effort to stop it all from blowing up. A collapse would inevitably leave the taxpayer to pick up the pieces, since it's inconceivable that the government could allow thousands of seniors to be pitched onto the streets.

The key characteristic of private equity is this: there's almost no equity in it, or at any rate no more than smallest amount, for the shortest time, that the owners can get away with. Private equity makes its money by leaving businesses with a dangerously thin equity cushion and a whole lot of debt, then moving on to the next opportunity. As soon as something goes wrong in the underlying business, the balance sheet proves unequal to the strain. Southern Cross is a good example. In an ageing society, elder care looks like a sure-fire cash cow. However, the business model imposed by Blackstone relied on the company keeping virtually all its beds occupied all the time, and on local authorities and insurers paying fees that rose in line with inflation. Now that those conditions are not being met, the company has been brought to its knees.

It's not just private equity that's loaded everything up with debt, of course. In fact, thanks to the tsunami of cheap money unleashed by central banks, it's been one of the underlying themes of the past two decades. NINJA mortgages in the US*, no-down-payment home loans in the UK, ghost estates in Ireland, overdevelopment on the Costa del Sol -- they're all symptoms of a world in which go-go bank lending replaced the discipline of people actually having to put some of their own money at risk in order to get rich.

This has all sorts of implications for public policy. Consider the banks, now being forced into keeping much larger capital reserves. A key reason for this is that they will, until the balance between debt and equity in the overall economy is restored to more normal levels, be carrying equity risks that would be more appropriately carried by their borrowers.

Or consider the planned health care reforms in the UK. The hope is that private providers will begin to compete more actively with the NHS for taxpayers' funds. This is exactly the kind of business that the private equity sector loves -- quasi-utility business, predictable and growing cash flows. Just like Southern Cross used to be, in fact. If the reforms go ahead -- a big IF, perhaps, but who knows? -- the government is going to have to be very careful who it deals with.

* Here's a useful phrase, picked up from the Elmore Leonard-inspired US series "Justified", to keep in mind as the UK housing market stagnates. A mortgage in excess of the value of the underlying property is "upside-down". Much more expressive than "negative equity" -- thanks, Elmore!

The housing conundrum

Almost four years on from the onset of the financial crisis, the US housing market remains deeply depressed, as The Independent reported this week:

The ailing US housing market passed a grim milestone in the first quarter of this year, posting a further deterioration that means the fall in house prices is now greater than that suffered during the Great Depression.

The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.

There are calls from all sides for the Fed to start raising interest rates from the "emergency" levels adopted in response to the crisis, and to refrain from any more quantitative easing. Realistically, though, what prospect is there of that, when the housing market, the key to so many Americans' wealth, is so chronically weak?

Here in the UK, the housing market is also making life difficult for policy makers, though the problem is more nuanced than in the US. House prices fell in the immediate aftermath of the financial crisis, but by nothing like as much as in the US. Moreover, the decline has already been reversed in London and the South-East of England, but prices in other parts of the country remain depressed. The media never tire of warning the Bank of England that any attempt to raise interest rates would cripple the large proportion of UK homeowners with floating rate mortgages, pushing the economy back into recession. As a result, while inflation heads towards 5%, the Bank continues to sit on its hands, praying that the relentless price pressures will prove transitory.

Surprisingly, the relative resilience of UK house prices, at least compared to the US (and Spain and Ireland) is not a sign of a healthy market. There is widespread concern that the market remains closed to new buyers, who find it difficult to raise the much larger down-payments that lenders, once eager to provide 95% of the cost of a property, are now demanding. Stories about a new "Generation Rent" fill the tabloids, and in a country as property-obsessed as the UK, there could be no greater stigma.

The real problem, one that the tabloids and the media generally will only whisper for fear of causing their readers in the shires to expire over their cornflakes, is that house prices in the UK are still too high. Years of exuberant lending pushed prices to unprecedented levels. Now that the banks have returned to more prudent lending criteria, the affordability of homes at the bottom end of the market is historically low.

What to do? Middle England (and Wales and Scotland) would rebel if any steps were taken to bring prices down. So a way has to be found to get new buyers onto the housing ladder (or treadmill, if you prefer). The latest proposal is that homebuilders should contribute to a fund to help young adults to meet the downpayments that lenders are now demanding. You probably don't need a PhD in economics (which is just as well, since I don't have one) to figure out that the homebuilders will simply raise their prices in order to meet the costs of this downpayment fund, so the proposal will fail to improve the overall affordability of housing in a sustainable way. It will also tend to bias first-time buyers toward new-build rather than existing homes. This may suit the building trades, but will distort the market, seriously hurting homeowners thinking of moving up from their starter homes.

There is no easy answer here. There never will be, as long as Brits insist on seeing housing as a failsafe investment, and no government has the courage to tell them they're deluding themselves.

The Devil you know

You're going to have to forgive me. Some bloggers use a lot of rude words, but I try to avoid that as much as possible here. However, the latest developments at FIFA leave me no choice but to use two words that really have no place in polite company. Ready? Here goes then: Henry Kissinger.

Yes, loveable old tyrant-hugger Hank is being tapped up by FIFA and Sepp Blatter to provide advice on transparency and justice, as part of the alleged reform of the organisation. Henry Kissinger, a man who recently published a doorstopper on China that somehow contrived to skate over all that unpleasantness in Tienanmen Square. Henry Kissinger, convincingly indicted as a war criminal in 2002 in Christopher Hitchens's polemic, The Trial of Henry Kissinger. Hitch still has the bit between his teeth, too: as recently as December 2010 he contributed an article to Slate on the latest ghastly revelations about the Kissinger-Nixon era. (I blogged about that at the time, but you're much better off reading Hitchens).

From the BBC website, we learn that When Henry Kissinger won the Nobel Peace Prize in 1973, the distinguished musical satirist Tom Lehrer decided that he could no longer perform. "It was at that moment that satire died," says Lehrer, "There was nothing more to say after that."

Thankfully, Lehrer didn't actually stop performing then. Unfortunately, neither did Kissinger. Power addict and friend of tyrants everywhere -- no wonder Blatter wants him on board.