Something evil's lurking in the dark

I can't help thinking that the Christian Brothers must bitterly regret the fact that they didn't invent the Moonwalk.

Your bonus for 10 (million)

My late father-in-law was a professional man (an architect) but was never quite clear on the concept of paying for services rendered -- except, of course, when he was the one getting paid. He had a particular blind spot when it came to financial advice. I once suggested to him that if a broker could guarantee to make him $100 richer, and in the process the broker became $500 richer himself, that would still be a deal worth doing. He simply could not get to grips with that idea.

Urged on by the media, politicians seem to have adopted the same mindset when it comes to bankers' bonuses. There's no doubt that before the credit crunch, a lot of bonuses were paid out on the basis of dubious mark-to-market estimates of future profits. But what does that have to do with the package that's just been announced for Stephen Hester, CEO of Royal Bank of Scotland? Sure, it's a lumpy package -- the base salary is £1.2 million, for a start. But to earn the rest of it, Hester is going to have to meet some pretty tough performance targets, which is as it should be.

Hester gets £1.6 million in RBS sub debt, vested over a number of years. This can be clawed back if the bank performs badly, so George Osborne's complaint that the package is "a one-way bet" is simply wrong. For the longer term, Hester can get a further £6.4 million in equity and options if the bank's share price doubles from its current level. Just to make that more difficult, some of the Government's pref shares in the bank can be converted to common at a price just below the threshold for Hester to receive the maximum payout, so in effect the Government can dilute him out of a portion of his bonus.

If the RBS share price hits the 70p level that earns Hester the full £10 million whack, the taxpayer stands to make £7 billion profit on its stake in the bank. Would you pay £10 million to someone who earned you £7 billion? My father-in-law wouldn't, and apparently neither would George Osborne, but I'm pretty sure I would.

Black books

Reading frothy books is a time-honoured part of the celebration of summer. There are many bestselling authors who probably wouldn't have sold a tenth as many books as they have, were it not for the tradition of stuffing a couple of brightly-covered pieces of trash in the old beach bag. For instance, were any copies of the Worst Book Ever Written (aka The DaVinci Code) sold anywhere apart from airport bookshops? I almost ruined a holiday in Italy a few years ago by taking that wretched piece of garbage along with me, and I'm still not sure I've fully forgiven the person who recommended it to me. (You know who you are!)

Since then I've tended to stay away from the "holiday reading" sections at the local Waterstone's, but this year I may have gone a bit too far in the opposite direction. For the past few weeks I've been pounding my way through "GB84" by David Peace, and "Homicide" by David Simon, the bloke who wrote The Wire. I've made it though without slitting my wrists, but it's been a close-run thing at times.

I've mentioned David Peace here before, as the author of The Damned United and a still-in-progress trilogy about post-war Tokyo. GB84, published about 5 years ago, is about the UK miners' strike of 1984, that epic test of strength between the Thatcher government and the Arthur Scargill-led NUM. As always with Peace, there's a blending of real and fictional people and events. At the start of each chapter, there's a single page of what appear to be reminiscences by actual miners -- the guys who did the picketing, got harassed by the police, lost their homes and families as the dispute dragged on. The chapters themselves focus more on the people pulling the strings -- Scargill and his union executive on the one side, and a government-hired provocateur named Stephen Sweet (mainly referred to as "the Jew", for no obvious reason) on the other. Throw in petty criminals, hitmen and assorted floozies, and you've got a powerful mix.

It's not exactly history -- Peace himself uses the term "occult" to describe his work -- but it succeeds powerfully in evoking the whole fraught period. Aside from finishing his Tokyo trilogy, Peace claims to be writing a book about Geoffrey Boycott. I have a feeling Boycs won't want his legendary granny to read it.

David Simon's "Homicide" recounts a year in the life of the homicide squad of the Baltimore Police Department. Baltimore experiences about 230 murders a year, and Simon managed to get himself attached to the squad for a full 12 months, working alongside the police and, evidently, taking very detailed notes. The year in question is 1988, so this precedes "The Wire" by more than a decade, though you can already identify many of the themes that Simon developed in the television series. Simon is a good writer and allows the lurid and sometimes tragic stories to unfold at their own pace. He brilliantly works little essays on key topics -- Miranda rights, how to perform an autopsy, how juries work -- into the story without losing momentum. At times it's a tough read -- the autopsy stuff is particularly gruesome -- but there's plenty of humour and suspense. At 630 pages, it seems all too short.

Good as these two books are, I think it's time for some light relief. Up next: a book about the legendary Fleet Street reporter and bon viveur, Bill Deedes.

He's doing his job

An overweight, Millwall-supporting skinhead, Bob Crow is a hard man to love at the best of times. When he and his RMT union colleagues shut down the London underground, as has happened for the past two days, he effortlessly becomes the most hated man in London. And nobody hates him more than the Times: yesterday, the first day of the latest tube strike, it ran not one but two anti-Crow diatribes.

The Times's view seems to be that, at a time when people all over the UK are losing their jobs, or taking pay cuts to preserve them, the RMT has no right to ask for more money or to insist that there should be no compulsory redundancies. I can't say I understand this logic at all: because the workers at LDV Vans have lost their jobs, Crow and his union are supposed to be more willing to allow their own members to get laid off? Crow's a militant trade unionist: that's not how he thinks. His job is to defend the interests of his members in bad times as well as good.

It's interesting that the Times is only looking for behaviour modification on the union side. I haven't seen any editorials calling for, oh, I don't know, Rupert Murdoch to rein in his capitalist predations in order to serve the general good. In fact, Murdoch is in the process of sinking one of his UK competitors, Setanta, at this very moment, without a whiff of hostility from the Times.

The Times's most ludicrous suggestion was that RMT members would serve their own interests best by getting rid of Crow. Oh yeah, ditch the guy whose efforts have won tube drivers £40,000 a year wages -- that'll happen for sure.

Good news on economy -- see page 45

Remember Alastair Darling's budget? Yes, I know, what with Damian McBride and dodgy expenses and leadership crises and all, it seems like a long time ago, but it was actually only April 22. There were criticisms from all sides, but on one thing just about everyone was agreed: Darling was every kind of imbecile and liar for daring to suggest that the UK economy might start to grow again before year end. Vince Cable even went so far as to suggest that the Treasury had reverse engineered its economic forecasts to match its borrowing projections, a ludicrous idea when you consider how dire the borrowing projections were. I blogged about this at the time, suggesting that the Treasury's unshabby forecasting record perhaps entitled it to a bit more respect.

Well, guess what? The NIESR said yesterday that it thinks the UK recession might already be over. It estimates that real GDP grew in each of the past two months. This seems to be supported by the unexpected increase in industrial production, cautiously positive trend in retail sales, signs of improvement in the housing market (oh joy, gazumping is back in parts of London) and so on. The economy isn't out of the ditch yet; there's a possibility of a "W-shaped" recovery, with the current positive signs giving way to a fresh slowdown, if credit remains tight. For now, though, it's performing much more in line with the forecasts of Darling and his team than those of the mass media and the political opposition. I'm sure we won't have to wait long for Vince Cable et al to apologise to the Chancellor.

Wembley (No) Way

The new national football stadium at Wembley is a magnificent edifice, as it well should be, at a cost not far short of a billion pounds. But it's in an awful location, stuck in a netherworld of warehouses and retail outlets near the chaotic North Circular Road.

When plans to rebuild the stadium were under discussion, there were suggestions that it be moved to somewhere nearer the centre of the UK -- Birmingham, for example. (There were also suggestions that we could do without a national stadium altogether, as many other countries do, but that's another story). The Football Association insisted on going ahead with Wembley, partly on the grounds that it has such good public transport links: two Tube lines and two railway lines within reasonable walking distance. So confident were they about this that they deliberately excluded any improvements in road access or parking from the scheme. Vehicular access to the stadium area is via a baffling maze of unimproved streets, jammed with traffic heading to the nearby Ikea and Tesco. There are about 500 parking spaces available for public use at the Wembley Arena, but these are reserved for VIP parking when the stadium itself is in use.

This evening England play Andorra at Wembley. The tube lines are closed, or at best operating a very restricted service, thanks to a strike. No worries though: the surface trains are still operating....but wait! Both of the train operators are suspending services to the Wembley stations -- starting eight hours ahead of the game in one case! -- because of concerns about overcrowding. You or I might think that privately-run businesses, which these train operators are, would see this as an opportunity to make some extra money by running as many extra trains as they can get their hands on. That's what British Rail used to do in the old days. But it's not how the industry works any more. These days they only run extra trains if someone promises a bigger subsidy.

The FA has had to promise refunds to anyone with a ticket to this evening's game who can't get there because of the transport mess. If 30,000 people stay home, that could cost the FA a million pounds, cash which it desperately needs to pay off its Wembley-related debts. Maybe Birmingham wasn't such a bad idea after all.

And as Education Minister, Carol Vorderman

Has it really come to this? Gordon Brown is tapping up Sir Alan Sugar as "enterprise czar", and will nominate him for a seat in the House of Lords. Sir Alan is an old friend of Brown's, though he rather bizarrely refers to the PM as "this fellow" in an interview on the BBC website!

Maybe their friendship has led Brown to overlook the fact that Sir Alan's entrepreneurial successes are fast receding into the mists of time. Most of his money now is made from property dealing. Given some of the revelations during the expenses scandal, you wouldn't think that was a skill set that was particularly lacking in the Brown team, although I guess the departure of Hazel Blears has altered the balance a bit.

At least most people have heard of him, which is more than you can say about most of the Cabinet. Even so, Sir Alan is really an entrepreneur only in the eyes of the same kind of people who think Stephen Fry is an intellectual.

Couldn't have said it better

".... the notion that the market is telling us something — anything — ultimately rests on the erroneous assumption that financial markets represent the collective wisdom of rational actors processing information efficiently. There are plenty of cool-minded forward-thinking investors in the markets. But there are also a lot of lunatics, fools, sharks, widows and orphans, government actors with ulterior motives, algorithmic traders, greedy speculators, and whack jobs. The markets resemble the Star Wars bar scene more than they do the economics faculty lounge at Princeton."

This is from a piece by the excellent Daniel Gross on Slate, discussing divergent views about what the rise in US bond yields signifies (inflation fears? incipient recovery?). The whole article is worth reading, but this quote is worth framing.