Has there ever been anyone so convinced of his own rectitude than Tony Blair? I mean, even Joe Stalin or Pol Pot may have had twinges of doubt or even remorse from time to time, but there's no sign of any such thing from Blair. His amazing weekend interview with Fern Britton shows he is totally unrepentant over his decision to lie to Parliament and the British public about the case for the Iraq war. He doesn't seem particularly bothered by the fact that thousands of "coalition" troops and hundreds of thousands of innocent Iraqis have died as a result.
In any case, why has Blair suddenly decided to do a TV interview on the subject; and why with Fern Britton rather than with someone with more gravitas? (Actually, the answer to that last one isn't hard to guess). He's going to face questioning on the whole issue when he goes before the Chilcot inquiry in January, but it seems that a lot of his testimony will be taken in private. Is his lust for public attention so great that he feels a compelling urge to put his side of the story in front of the public anyway? I can't see any other explanation, because his side of the story turns out to be as bad or worse than the suspicions of his fiercest critics.
Many years ago my firm hired a new boss from outside the company. On his first morning with the firm, he called all of the senior staff together and said that anyone caught trying to conceal loss-making trades would be fired. No second chances, because "if you'd do it once, you'd do it again". All those people paying Blair serious money (JPM, Zurich Insurance, the publishers of his autobiography, whoever is paying for his pointless role in the Middle East) might do well to keep that in mind.
Monday, 14 December 2009
Wednesday, 9 December 2009
The Moody's Blues
Back in the summer some folks in the UK media experienced a brief frisson of interest in Canada. For reasons that were never entirely clear, the idea got around that Canada cut public spending sharply to deal with a fiscal crisis in the early 1990s, and that this was some kind of example for the UK to follow. As I wrote at the time (on 7 July for example), this was a total crock. Canada hardly cut spending at all back then, and escaped from the fiscal mire largely thanks to low interest rates and solid growth in the US.
We haven't heard much about "the Canadian example" lately, so maybe the Tories, who seemed quite taken with it, have taken the trouble to check the facts, and realised they were being sold a bill of goods. However, as I pointed out at the time, there was one element of the Canadian experience that UK policymakers should take note of. Setting ambitious long-term goals is pointless, or even counterproductive; the key to fiscal success is to set achievable short-term goals -- no more than a year or two ahead -- and then roll them forward in successive budgets until you get to where you want to be. This worked in Canada. The decade or so that it took wasn't exactly pleasant for Canadians, but the process was reasonably pain-free and surprisingly well-accepted by the voters. Canada's AAA credit rating, lost in the 1990s, was restored a decade later.
So what has Alastair Darling given us in the much-awaited Pre-Budget Report? Well, he's sticking by the goal of reducing the budget deficit by 50% in the next four years, which is meaningless, inadequate or both, depending on who you ask, and he's going ahead with measures announced previously (VAT back to 17.5%, new higher-rate income tax bracket and so on). Apart from that and the token tax on bank bonuses, though, almost everything he's announced today won't take effect until 2011 or later.
The individual measures planned at that point are nothing out of the ordinary -- a 1% cap on public sector wage increases, strict limits on programme spending, another hike in NI contributions -- but the key thing about them is that they won't have any effect at all until after the general election. If Labour wins that election it can change its mind; if the Tories win, no doubt they'll do something altogether different. Either way, the real decisions that everyone accepts will have to be made are nowhere in sight.
Moody's made a few threatening noises about the UK's credit rating just a day before the PBR was tabled. Messrs Darling and Brown had better hope they aren't thinking too seriously about cutting it, because there's almost nothing in the PBR to deter them.
We haven't heard much about "the Canadian example" lately, so maybe the Tories, who seemed quite taken with it, have taken the trouble to check the facts, and realised they were being sold a bill of goods. However, as I pointed out at the time, there was one element of the Canadian experience that UK policymakers should take note of. Setting ambitious long-term goals is pointless, or even counterproductive; the key to fiscal success is to set achievable short-term goals -- no more than a year or two ahead -- and then roll them forward in successive budgets until you get to where you want to be. This worked in Canada. The decade or so that it took wasn't exactly pleasant for Canadians, but the process was reasonably pain-free and surprisingly well-accepted by the voters. Canada's AAA credit rating, lost in the 1990s, was restored a decade later.
So what has Alastair Darling given us in the much-awaited Pre-Budget Report? Well, he's sticking by the goal of reducing the budget deficit by 50% in the next four years, which is meaningless, inadequate or both, depending on who you ask, and he's going ahead with measures announced previously (VAT back to 17.5%, new higher-rate income tax bracket and so on). Apart from that and the token tax on bank bonuses, though, almost everything he's announced today won't take effect until 2011 or later.
The individual measures planned at that point are nothing out of the ordinary -- a 1% cap on public sector wage increases, strict limits on programme spending, another hike in NI contributions -- but the key thing about them is that they won't have any effect at all until after the general election. If Labour wins that election it can change its mind; if the Tories win, no doubt they'll do something altogether different. Either way, the real decisions that everyone accepts will have to be made are nowhere in sight.
Moody's made a few threatening noises about the UK's credit rating just a day before the PBR was tabled. Messrs Darling and Brown had better hope they aren't thinking too seriously about cutting it, because there's almost nothing in the PBR to deter them.
Tuesday, 8 December 2009
And if my granny had wings, she'd be an Airbus
So, the government's poodle, sorry, watchdog, the Committee on Climate Change, says that a third runway can be built at Heathrow, the world's worst-located major airport, without breaching the UK's carbon reduction targets....but only if (and I'm not making any of this up) aircraft become more efficient, the price of flying is sharply increased, a high-speed rail network gets built, other sectors reduce their carbon emissions by 90%, and my granny starts flying non-stop to Sydney in an all-economy configuration. (OK, I am making the last one up).
Shockingly, The Times has declared the committee's findings to be "good news" for the UK. I suppose they are, if you're one of those people (a minority, I'm guessing) who are prepared to live in the dark and go everywhere by bike just to preserve the right to keep using the developed world's least popular airport. Most of us, though, will continue to do almost anything, even flying out of the glorified bus station that is Luton airport, to avoid going anywhere near the wretched place.
Shockingly, The Times has declared the committee's findings to be "good news" for the UK. I suppose they are, if you're one of those people (a minority, I'm guessing) who are prepared to live in the dark and go everywhere by bike just to preserve the right to keep using the developed world's least popular airport. Most of us, though, will continue to do almost anything, even flying out of the glorified bus station that is Luton airport, to avoid going anywhere near the wretched place.
Monday, 7 December 2009
It wasn't me, says Gordon
Ahead of Wednesday's pre-budget report, Gordon Brown is giving us a few clues about Labour's platform for the general election. This morning he announced that the government would be able to save £3 billion a year by operating more efficiently. He also extended his "politics of envy" theme into his own backyard, condemning a "culture of excess" in the public sector and vowing to name and shame those earning salaries above £150,000.
I know Gordon isn't exactly a bag of laughs, but even he must find it difficult to make these points with a straight face, he being a man who has been in the most senior positions of government for better than a decade. I read somewhere recently that Alastair Campbell is back in the inner circle as the election approaches. If this is the best he can do, he's obviously lost it (whatever it was that he had in the first place).
I know Gordon isn't exactly a bag of laughs, but even he must find it difficult to make these points with a straight face, he being a man who has been in the most senior positions of government for better than a decade. I read somewhere recently that Alastair Campbell is back in the inner circle as the election approaches. If this is the best he can do, he's obviously lost it (whatever it was that he had in the first place).
Thursday, 3 December 2009
The Woody Allen bonus
The UK government's approach to the financial crisis has been riven with contradictions from the outset. After bailing out several of the biggest institutions, the government made it clear that it wanted a return to "normal" lending activities -- but at the same time stressed that it wanted banks to reduce their risk profiles and rebuild their balance sheets. It has talked incessantly about getting tough with the bankers, but is now terrified of the possibility that the EU, in the person of its new French economic commissioner, might actually do so.
Now the government is tying itself in knots over bonuses at one of the bailed-out (and currently 70% taxpayer-owned) banks, RBS. Reportedly, the Treasury has warned RBS not to increase bonus payments significantly beyond last year's level. In response, the RBS board has, also reportedly, threatened to quit en masse if the government (or the bank's largest shareholder and biggest creditor, as we might also call it) intervenes in its payout plans. The board supposedly believes that it needs to pay "competitive" bonuses in order to prevent a haemorrhage of staff to its competitors.
Vince Cable, a man whose powers of reasoning seem to have shrunk as the financial crisis has dragged on, wants the government to call the directors' bluff. It doesn't seem to occur to Vince that in the still-febrile atmosphere of global financial markets, investors might not react well to seeing one of the UK's biggest banks left leaderless. Still less does it occur to him that the directors might be right about the risks posed by a mass exodus.
Leaving Vince Cable aside, there are two possible arguments to be made in favour of the government muscling in on RBS's bonus policy: the populist argument, and the valid argument. Let's take them in order.
The populist argument is simple: RBS and several other UK banks are only still alive because the taxpayer put huge amounts of money into them just over a year ago. Until all that money is paid back, the bankers have no right to any bonuses at all. With the economy still on its back and unemployment rising, it's perfectly understandable that a lot of people feel this way. The problem is that it's a shortsighted approach. The more money RBS et al make, the sooner they can be sold back to the private sector, getting the taxpayers their money back (and with luck a bit extra for their trouble). If the directors are right to fear an exodus of big producers, curbing this year's bonus payouts would be against taxpayers' real interests, hard though it might be to convince them of that. There are enough signs of bankers moving from firm to firm in clusters (what the City refers to as "desk moves", i.e. your whole trading desk ups and leaves for a competitor) to suggest that this is a real risk at RBS.
Then there's the valid argument, which is based on the way the banks have returned to profit this year. Despite the government's lavish injection of funds and continuous jawboning, loans are hard to get, especially for small business. This is not entirely the fault of the banks. The departure of the Reyjavik cowboys and others left a gap in the market, but the UK banks have been very slow indeed to step into the breach. This year's profits have mainly come from "carry". Banks' funding costs have fallen sharply (checked your savings account lately??) and it's literally a no-brainer to invest in low risk assets and watch the money roll in month by month. You don't need traders with PhDs and copulas and algorithms to figure that out -- Jedward could probably manage it. This makes it awfully hard to see the banks' record trading profits as any kind of justification for big bonuses.
The government seems dimly aware of this. The City minister, Lord Myners, said today that banks should recognise that this year's return to profit owed more to the very benign trading conditions resulting from government policy than to any inherent genius within the banks themselves. The problem the government has now is that it appears to be making a scapegoat of RBS. It should have made it much clearer to all the banks (even those like HSBC and Barclays that were never directly bailed out)that a return to the old bonus free-for-all should wait for another year or two.
Woody Allen once commented that something like 90% of the key to success in show business was just showing up. The banks seem to be using more or less the same logic in setting this year's bonuses. It's not surprising that the government feels the need to step in, but it's a shame that they're not making their case more coherently.
Now the government is tying itself in knots over bonuses at one of the bailed-out (and currently 70% taxpayer-owned) banks, RBS. Reportedly, the Treasury has warned RBS not to increase bonus payments significantly beyond last year's level. In response, the RBS board has, also reportedly, threatened to quit en masse if the government (or the bank's largest shareholder and biggest creditor, as we might also call it) intervenes in its payout plans. The board supposedly believes that it needs to pay "competitive" bonuses in order to prevent a haemorrhage of staff to its competitors.
Vince Cable, a man whose powers of reasoning seem to have shrunk as the financial crisis has dragged on, wants the government to call the directors' bluff. It doesn't seem to occur to Vince that in the still-febrile atmosphere of global financial markets, investors might not react well to seeing one of the UK's biggest banks left leaderless. Still less does it occur to him that the directors might be right about the risks posed by a mass exodus.
Leaving Vince Cable aside, there are two possible arguments to be made in favour of the government muscling in on RBS's bonus policy: the populist argument, and the valid argument. Let's take them in order.
The populist argument is simple: RBS and several other UK banks are only still alive because the taxpayer put huge amounts of money into them just over a year ago. Until all that money is paid back, the bankers have no right to any bonuses at all. With the economy still on its back and unemployment rising, it's perfectly understandable that a lot of people feel this way. The problem is that it's a shortsighted approach. The more money RBS et al make, the sooner they can be sold back to the private sector, getting the taxpayers their money back (and with luck a bit extra for their trouble). If the directors are right to fear an exodus of big producers, curbing this year's bonus payouts would be against taxpayers' real interests, hard though it might be to convince them of that. There are enough signs of bankers moving from firm to firm in clusters (what the City refers to as "desk moves", i.e. your whole trading desk ups and leaves for a competitor) to suggest that this is a real risk at RBS.
Then there's the valid argument, which is based on the way the banks have returned to profit this year. Despite the government's lavish injection of funds and continuous jawboning, loans are hard to get, especially for small business. This is not entirely the fault of the banks. The departure of the Reyjavik cowboys and others left a gap in the market, but the UK banks have been very slow indeed to step into the breach. This year's profits have mainly come from "carry". Banks' funding costs have fallen sharply (checked your savings account lately??) and it's literally a no-brainer to invest in low risk assets and watch the money roll in month by month. You don't need traders with PhDs and copulas and algorithms to figure that out -- Jedward could probably manage it. This makes it awfully hard to see the banks' record trading profits as any kind of justification for big bonuses.
The government seems dimly aware of this. The City minister, Lord Myners, said today that banks should recognise that this year's return to profit owed more to the very benign trading conditions resulting from government policy than to any inherent genius within the banks themselves. The problem the government has now is that it appears to be making a scapegoat of RBS. It should have made it much clearer to all the banks (even those like HSBC and Barclays that were never directly bailed out)that a return to the old bonus free-for-all should wait for another year or two.
Woody Allen once commented that something like 90% of the key to success in show business was just showing up. The banks seem to be using more or less the same logic in setting this year's bonuses. It's not surprising that the government feels the need to step in, but it's a shame that they're not making their case more coherently.
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