I'll be taking a short break here, so you'll be needing something to read. May I recommend...
Wolf Hall, by Hilary Mantel. Every bit as good as the critics say it is. Think of the Godfather, only with Thomas Cromwell as the consigliere and the Tudors as the Corleones. If you don't like this book, you need to find someone who can help you to unlearn how to read, because literacy is wasted on you.
Hackney, That Rose-red Empire, by Iain Sinclair. Sinclair may well be a bit nuts, in the nicest possible way. This paean to his home of the last forty years may or may not be factual -- "where it needs to be true, it is", Sinclair tells us. True or not, it's a wildly entertaining look at an eccentric part of London, with particular scorn for politicians who wilfully destroy local heritage, and special venom for everything to do with the London Olympics.
I'm only away for two weeks, and those books total well over a thosuand pages, so that should be enough to be going on with.
Saturday, 29 May 2010
Forecasting the past
Economics is the only profession where you get paid for forecasting what already happened. Within the economics department of any financial institution, there will be one or more people whose job it is to predict what the economic data releases will be. So they "forecast" what the US non-farm payrolls release will be, or to put it another way, they try to predict what happened last month. Or they "forecast" the UK quarterly GDP number, or rather, they predict what the economy was doing three or four months ago.
This wouldn't make much sense, and it certainly wouldn't make sense to pay people serious money to do it, except for one thing: markets react to this stuff. If you can "predict" the non-farm payrolls number better than your opposite numbers at other firms, you can give your company a big trading advantage. Sometimes this advantage lasts no more than a few seconds after the data are released, but that can be enough to make a lot of money at the expense of the less skillful (or the poorer guessers).
This is a long introduction to a brief comment on the reaction to Friday's downgrade of Spain's sovereign debt ratings by Fitch. Everyone knew the extent of Spain's problems, and earlier in the week there was a brief sigh of relief when the Government squeezed through measures to address them. But Wall Street still tanked after the ratings cut. The objective facts about Spain didn't change either for the better or for the worse: like the economists I rattled on about earlier, Fitch was talking about the past. The only piece of new information was the ratings cut itself, but that was enough to trigger a swoon among investors.
For me, ratings agencies have always been a long way down the food chain within the financial sector. They do a job that nobody really needs; in fact, things would almost certainly be better if investors had to make their own credit judgments, rather than relying on the agencies. And they don't even do the job well: telling you what you already know is very much their stock in trade. Their credibility seemed to be pretty much shot after the sub-prime crisis, where they never seemed to get up with the game, let alone ahead of it. Yet as Fitch has just shown, they're still around to cause mayhem. Forgotten but not gone, more's the pity.
This wouldn't make much sense, and it certainly wouldn't make sense to pay people serious money to do it, except for one thing: markets react to this stuff. If you can "predict" the non-farm payrolls number better than your opposite numbers at other firms, you can give your company a big trading advantage. Sometimes this advantage lasts no more than a few seconds after the data are released, but that can be enough to make a lot of money at the expense of the less skillful (or the poorer guessers).
This is a long introduction to a brief comment on the reaction to Friday's downgrade of Spain's sovereign debt ratings by Fitch. Everyone knew the extent of Spain's problems, and earlier in the week there was a brief sigh of relief when the Government squeezed through measures to address them. But Wall Street still tanked after the ratings cut. The objective facts about Spain didn't change either for the better or for the worse: like the economists I rattled on about earlier, Fitch was talking about the past. The only piece of new information was the ratings cut itself, but that was enough to trigger a swoon among investors.
For me, ratings agencies have always been a long way down the food chain within the financial sector. They do a job that nobody really needs; in fact, things would almost certainly be better if investors had to make their own credit judgments, rather than relying on the agencies. And they don't even do the job well: telling you what you already know is very much their stock in trade. Their credibility seemed to be pretty much shot after the sub-prime crisis, where they never seemed to get up with the game, let alone ahead of it. Yet as Fitch has just shown, they're still around to cause mayhem. Forgotten but not gone, more's the pity.
Wednesday, 26 May 2010
EU's half-baked bank levy plans
I'm all in favour of the taxpayer never again having to pick up the costs of a bank bailout, but...Maybe I'm just having a bad day, but I can't make head or tail of the EU's new proposals for a bank levy.
According to the BBC website,
A network of national funds should be introduced so the cost of bank failures are not met by the taxpayer, the EU internal market commissioner has said.
Michel Barnier said such funds would provide part of a broader system aimed at preventing future financial crises.
Banks would be required to pay a levy into the funds which would not be used to bail out failing banks, but manage failures in "an orderly way".
And later:
Mr Barnier said the financial sector should pay the cost of banking crises in future.
"That is why I believe that banks should be asked to contribute to a fund designed to manage bank failure, protect financial stability and limit contagion - but which is not a bail-out fund."
I really have no idea what this means. It seems to imply that, for example, Northern Rock would not have been rescued if this plan were in place, but the funds would have been used for....what, exactly? Injecting into other threatened banks to prevent contagion? Paying restructuring costs to allow Northern Rock to be split up and sold?
Then there's the question of how the funds are managed between crises. Here's the BBC story again:
The proceeds of funds would remain within national borders, but there are some national disagreements about whether the money should go into a special ringfenced fund or wider national coffers.
Germany wants to ringfence the funds, but how practical is that? What will they do with the money? Put it in the bank, or maybe invest it in Greek sovereign debt? On the other hand, the UK and France want to put the money into general revenues, so it's just a new source of tax for them to spend. How that is supposed to protect the taxpayer if/when another crisis hits, I really don't know.
For once I find myself agreeing with Angela Knight of the British Bankers' Association:
she proposes that each country should strengthen its regulation and supervision, with a national intervention authority, being the Bank of England in the UK.
"And each country needs to put in place arrangements so that if intervention is required, then this is paid for by the industry and depositors are protected," she added.
It would be nice if the BBA would advance some specific proposals, but the general thinking behind this is correct. As for the EU, it will provide more details on its plans at the G20 summit next month. Right now I'd say they have a lot of work to do.
According to the BBC website,
A network of national funds should be introduced so the cost of bank failures are not met by the taxpayer, the EU internal market commissioner has said.
Michel Barnier said such funds would provide part of a broader system aimed at preventing future financial crises.
Banks would be required to pay a levy into the funds which would not be used to bail out failing banks, but manage failures in "an orderly way".
And later:
Mr Barnier said the financial sector should pay the cost of banking crises in future.
"That is why I believe that banks should be asked to contribute to a fund designed to manage bank failure, protect financial stability and limit contagion - but which is not a bail-out fund."
I really have no idea what this means. It seems to imply that, for example, Northern Rock would not have been rescued if this plan were in place, but the funds would have been used for....what, exactly? Injecting into other threatened banks to prevent contagion? Paying restructuring costs to allow Northern Rock to be split up and sold?
Then there's the question of how the funds are managed between crises. Here's the BBC story again:
The proceeds of funds would remain within national borders, but there are some national disagreements about whether the money should go into a special ringfenced fund or wider national coffers.
Germany wants to ringfence the funds, but how practical is that? What will they do with the money? Put it in the bank, or maybe invest it in Greek sovereign debt? On the other hand, the UK and France want to put the money into general revenues, so it's just a new source of tax for them to spend. How that is supposed to protect the taxpayer if/when another crisis hits, I really don't know.
For once I find myself agreeing with Angela Knight of the British Bankers' Association:
she proposes that each country should strengthen its regulation and supervision, with a national intervention authority, being the Bank of England in the UK.
"And each country needs to put in place arrangements so that if intervention is required, then this is paid for by the industry and depositors are protected," she added.
It would be nice if the BBA would advance some specific proposals, but the general thinking behind this is correct. As for the EU, it will provide more details on its plans at the G20 summit next month. Right now I'd say they have a lot of work to do.
Thursday, 20 May 2010
Short shrift
Chancellor Merkel's decision to ban "naked" short-selling in Germany has come under attack from the usual quarters. Traders have ridiculed the measure, pointing out that there is nothing to stop them shorting German debt out of London or Paris or elsewhere. The right-wing press in the UK has also piled in; see, for example, Tracy Corrigan's May 19 blog posting on the Telegraph website. Tracy excoriates Merkel's action on the grounds that: it won't work; the French are upset; EU officials are upset; and anyway there is no evidence that short-selling has anything to do with the problems in Greece.
While much of this is true, there is a case for restricting short-selling, especially of the so-called "naked" variety. In fuddy-duddy, old fashioned short selling, the seller had to borrow the securities that were to be sold short. This never made much sense to me -- why would I lend a stock to a short seller if I knew his plan was to try to pulverise the value of my asset? -- but at least it limited the activity. With naked short-selling, the seller doesn't have to borrow the securities. This makes it riskier (because it may be impossible to get hold of the stock when the time comes to cover the short) but also more lucrative (because borrowing the securities costs money). The US already bans naked short-selling, and those who can remember back as far as the start of the credit crisis will recall that the US, UK and other jurisdictions moved quickly to ban all types of short-selling in an attempt to stem the decline in markets. In fact, this happens in just about every financial crisis, which is an odd thing to happen if short-selling is such a good thing.
According to Ms Corrigan and other defenders of shorting, short-selling is a useful tool in markets because it helps to reduce the likelihood of speculative bubbles. Oh yeah? I struggle to recall any headlines over the past decade or so on the lines of "Short sellers prevent tech stock bubble", or "Shorts head off credit crunch", but there have been countless stories of short sellers ganging up on perceived weaker credits and driving them into the ground. Although it's true that Greece's problems, and those of the banks that have loaned money to Greece, are entirely of their own making, it's hard to see any rationale for allowing short sellers to wade in and make money by impeding efforts to clean up the mess.
Some time ago (September 2008) I wrote that short sellers were like the kid in school who ratted out his fellow students when they did something naughty. Nobody likes that kid, and very few people like short sellers, maybe aside from Tracy Corrigan. The fact that this kind of thing is tolerated illustrates the extent to which the financial sector has managed to place itself on a different moral and even legal footing from other businesses: as master, instead of servant. There's nothing new about this, of course: the Medicis were quite convinced that it was in their remit to appoint Popes. Even though Frau Merkel's actions looked panicky and may prove ineffective, it would be good to see more politicians standing up to today's Medicis.
While much of this is true, there is a case for restricting short-selling, especially of the so-called "naked" variety. In fuddy-duddy, old fashioned short selling, the seller had to borrow the securities that were to be sold short. This never made much sense to me -- why would I lend a stock to a short seller if I knew his plan was to try to pulverise the value of my asset? -- but at least it limited the activity. With naked short-selling, the seller doesn't have to borrow the securities. This makes it riskier (because it may be impossible to get hold of the stock when the time comes to cover the short) but also more lucrative (because borrowing the securities costs money). The US already bans naked short-selling, and those who can remember back as far as the start of the credit crisis will recall that the US, UK and other jurisdictions moved quickly to ban all types of short-selling in an attempt to stem the decline in markets. In fact, this happens in just about every financial crisis, which is an odd thing to happen if short-selling is such a good thing.
According to Ms Corrigan and other defenders of shorting, short-selling is a useful tool in markets because it helps to reduce the likelihood of speculative bubbles. Oh yeah? I struggle to recall any headlines over the past decade or so on the lines of "Short sellers prevent tech stock bubble", or "Shorts head off credit crunch", but there have been countless stories of short sellers ganging up on perceived weaker credits and driving them into the ground. Although it's true that Greece's problems, and those of the banks that have loaned money to Greece, are entirely of their own making, it's hard to see any rationale for allowing short sellers to wade in and make money by impeding efforts to clean up the mess.
Some time ago (September 2008) I wrote that short sellers were like the kid in school who ratted out his fellow students when they did something naughty. Nobody likes that kid, and very few people like short sellers, maybe aside from Tracy Corrigan. The fact that this kind of thing is tolerated illustrates the extent to which the financial sector has managed to place itself on a different moral and even legal footing from other businesses: as master, instead of servant. There's nothing new about this, of course: the Medicis were quite convinced that it was in their remit to appoint Popes. Even though Frau Merkel's actions looked panicky and may prove ineffective, it would be good to see more politicians standing up to today's Medicis.
Tuesday, 18 May 2010
An empty gesture, by George
George Osborne has announced that the Treasury will stop making economic forecasts, with the task passing to a new Office of Budget Responsibility. This will supposedly make it impossible for future governments to base their budget projections on phoney economic forecasts. Osborne described it as "a rod for my back".
I have at least three problems with this.
First, and I suppose least important, I'm pretty sure that the Tories came to office planning some kind of a "bonfire of the quangos", yet here's George setting up a new one.
Second, despite what Osborne appears to believe, the Treasury's forecasting record was consistently better than that of most private sector experts throughout the decade leading up to the credit crunch. It's simply not true to suggest that the Treasury connived with politicians to cook the books in order to facilitate irresponsible spending decisions. Nobody's forecasting record looks too clever over the past three years or so, but the Treasury's is still as good as anyone's.
Third, the Treasury bends over backwards to make it easy for even the laziest analysts to compare its forecasts with those of private sector experts. It collates a wide range of private sector forecasts in a monthly report on its website, alongside its own projections. I'm not aware of any comparable agency elsewhere in the world that does this so meticulously. Not, you'd think, the behaviour of someone surreptitiously fiddling the figures.
There's work to be done, George. Don't sweat the small stuff.
I have at least three problems with this.
First, and I suppose least important, I'm pretty sure that the Tories came to office planning some kind of a "bonfire of the quangos", yet here's George setting up a new one.
Second, despite what Osborne appears to believe, the Treasury's forecasting record was consistently better than that of most private sector experts throughout the decade leading up to the credit crunch. It's simply not true to suggest that the Treasury connived with politicians to cook the books in order to facilitate irresponsible spending decisions. Nobody's forecasting record looks too clever over the past three years or so, but the Treasury's is still as good as anyone's.
Third, the Treasury bends over backwards to make it easy for even the laziest analysts to compare its forecasts with those of private sector experts. It collates a wide range of private sector forecasts in a monthly report on its website, alongside its own projections. I'm not aware of any comparable agency elsewhere in the world that does this so meticulously. Not, you'd think, the behaviour of someone surreptitiously fiddling the figures.
There's work to be done, George. Don't sweat the small stuff.
Wednesday, 12 May 2010
Who's in charge here?
It was fascinating to watch the network coverage of Gordon Brown's departure and David Cameron's arrival at 10 Downing Street last evening. When I was working in Whitehall, back in the early 1970s, you used to be able to walk down the street. The IRA's rocket launcher put a stop to all that, and now it looks like a not very elaborate movie set, a Potemkin village.
Sky News had deployed its helicopter to Portcullis House to track David Cameron's drive to Buckingham Palace to meet with the Queen. It was a bit surprising (but also encouraging in its own way) to find that no special police procedures had been set up to speed his journey. His three-car procession was stuck in traffic along with everyone else. At one point, close to Buckingham Palace, he was lodged behind someone taking a driving lesson.
Sky reporters assured us that motorcycle outriders would be in evidence for his return journey as Prime Minister. Wrong-oh! Once again it was out into the evening traffic for the three cars, with no escort and no special help from the police. Bicycle couriers were weaving in and out of the procession, which had to wait for pedestrians at the end of St James's Park. The motorcade (can three cars be called that?) then scrupulously avoided using the bus lanes on Whitehall before turning into Downing Street. Evidently, in London it's still Boris Johnson who sets the rules.
Sky News had deployed its helicopter to Portcullis House to track David Cameron's drive to Buckingham Palace to meet with the Queen. It was a bit surprising (but also encouraging in its own way) to find that no special police procedures had been set up to speed his journey. His three-car procession was stuck in traffic along with everyone else. At one point, close to Buckingham Palace, he was lodged behind someone taking a driving lesson.
Sky reporters assured us that motorcycle outriders would be in evidence for his return journey as Prime Minister. Wrong-oh! Once again it was out into the evening traffic for the three cars, with no escort and no special help from the police. Bicycle couriers were weaving in and out of the procession, which had to wait for pedestrians at the end of St James's Park. The motorcade (can three cars be called that?) then scrupulously avoided using the bus lanes on Whitehall before turning into Downing Street. Evidently, in London it's still Boris Johnson who sets the rules.
Coalition deal: who wins?
Details of the Con-Dem coalition agreement are now emerging. It looks at first blush as if the LibDems got themselves a pretty good deal -- and, in my judgement, so did the country. Here's a summary from the BBC website, with a comment or two from your obedient scribe:
* There will be a "significant acceleration" of efforts to reduce the budget deficit - including £6bn of spending reductions this year. An emergency Budget will take place within 50 days. A win for the Tories. Although the recovery is still in its early stages, it's tempting to think that the confidence-boosting effects of this will more than offset any mild deflationary impact. Just hope they don't raise VAT before I take delivery of my new car!
* Plans for five-year, fixed-term parliaments, meaning the next election would not take place until May 2015. Proposals for a "wholly or mainly elected" House of Lords on the basis of proportional representation will be brought forward. Win for the LibDems, but no real sacrifice for the Tories. It's not clear what the implications of a fixed-term Parliament will be if the coalition collapses -- another area in which we have no constitutional precedents.
* The Lib Dems have agreed to drop plans for a "mansion tax" on properties costing more than £2m, while the Conservatives have agreed to shelve their plans to raise the inheritance tax threshold. A trade-off; as ever, I am happy to see the Tory obsession with protecting inheritances knocked back.
* Instead there will be a "substantial increase" in the personal tax allowance from April 2011, with further steps to raise it to £10,000 as a "longer term objective". This was a LibDem election pledge, but as it is one of the few popular things that the new Government will be able to do, the Tories will be happy to put their names to it.
* The Lib Dem policy of taxing planes, rather than passengers, has been adopted and there is a commitment to a new tax or levy on banks as well as a pledge of "robust action to tackle unacceptable bonuses in the financial services sector". No strong opinion on the first of these, and both parties had been keen to look tough on bankers during the campaign, so this can't have been very difficult to agree.
* The new administration will scrap part of Labour's planned rise in National Insurance. Tory win, though it may turn out to be a very small "part" that gets scrapped!
* A pledge to have a referendum on any further transfer of powers to the EU and a commitment from the Lib Dems not to adopt the euro for the lifetime of the next Parliament. Tory win, though given recent events in Europe, the LibDems can hardly have been chafing at the bit to join the Euro anyway.
* The Lib Dems have agreed to Tory proposals for a cap on non-EU migration. Semi-unfortunate Tory win; I'm liberal on immigration, but the country is obviously becoming less so. It won't keep out all the East Europeans that Mrs Duffy (remember her?) was worried about, though.
* The Conservatives will recognise marriage in the tax system, but LibDems will abstain in Commons vote. No agreement on this, obviously. Hard to see it as a short-term priority anyway.
* The Lib Dems will drop opposition to a replacement for Britain's Trident nuclear missiles but the programme will be scrutinised for value for money. VERY unfortunate Tory win. This total waste of money would have been first on my list of things to chop.
* There will be a referendum on moving to the Alternative Vote system and enhanced "pupil premium" for deprived children as Lib Dems demanded. LibDem wins, sort of: AV isn't really proportional representation.
A couple of other items have emerged from other sources. The third runway at Heathrow has been scrapped (hallelujah!) but the FSA, which the Tories wanted to abolish, is to remain in existence, according to the FT. It will be interesting to see whether Mervyn King offers any thoughts on this.
Overall, I quite like it. Put it this way, had any of the parties run on this platform last week, they'd certainly have got my vote.
* There will be a "significant acceleration" of efforts to reduce the budget deficit - including £6bn of spending reductions this year. An emergency Budget will take place within 50 days. A win for the Tories. Although the recovery is still in its early stages, it's tempting to think that the confidence-boosting effects of this will more than offset any mild deflationary impact. Just hope they don't raise VAT before I take delivery of my new car!
* Plans for five-year, fixed-term parliaments, meaning the next election would not take place until May 2015. Proposals for a "wholly or mainly elected" House of Lords on the basis of proportional representation will be brought forward. Win for the LibDems, but no real sacrifice for the Tories. It's not clear what the implications of a fixed-term Parliament will be if the coalition collapses -- another area in which we have no constitutional precedents.
* The Lib Dems have agreed to drop plans for a "mansion tax" on properties costing more than £2m, while the Conservatives have agreed to shelve their plans to raise the inheritance tax threshold. A trade-off; as ever, I am happy to see the Tory obsession with protecting inheritances knocked back.
* Instead there will be a "substantial increase" in the personal tax allowance from April 2011, with further steps to raise it to £10,000 as a "longer term objective". This was a LibDem election pledge, but as it is one of the few popular things that the new Government will be able to do, the Tories will be happy to put their names to it.
* The Lib Dem policy of taxing planes, rather than passengers, has been adopted and there is a commitment to a new tax or levy on banks as well as a pledge of "robust action to tackle unacceptable bonuses in the financial services sector". No strong opinion on the first of these, and both parties had been keen to look tough on bankers during the campaign, so this can't have been very difficult to agree.
* The new administration will scrap part of Labour's planned rise in National Insurance. Tory win, though it may turn out to be a very small "part" that gets scrapped!
* A pledge to have a referendum on any further transfer of powers to the EU and a commitment from the Lib Dems not to adopt the euro for the lifetime of the next Parliament. Tory win, though given recent events in Europe, the LibDems can hardly have been chafing at the bit to join the Euro anyway.
* The Lib Dems have agreed to Tory proposals for a cap on non-EU migration. Semi-unfortunate Tory win; I'm liberal on immigration, but the country is obviously becoming less so. It won't keep out all the East Europeans that Mrs Duffy (remember her?) was worried about, though.
* The Conservatives will recognise marriage in the tax system, but LibDems will abstain in Commons vote. No agreement on this, obviously. Hard to see it as a short-term priority anyway.
* The Lib Dems will drop opposition to a replacement for Britain's Trident nuclear missiles but the programme will be scrutinised for value for money. VERY unfortunate Tory win. This total waste of money would have been first on my list of things to chop.
* There will be a referendum on moving to the Alternative Vote system and enhanced "pupil premium" for deprived children as Lib Dems demanded. LibDem wins, sort of: AV isn't really proportional representation.
A couple of other items have emerged from other sources. The third runway at Heathrow has been scrapped (hallelujah!) but the FSA, which the Tories wanted to abolish, is to remain in existence, according to the FT. It will be interesting to see whether Mervyn King offers any thoughts on this.
Overall, I quite like it. Put it this way, had any of the parties run on this platform last week, they'd certainly have got my vote.
Friday, 7 May 2010
No stitch-ups, please
Within minutes of the close of polling on election night, the BBC unveiled its exit poll (which has turned out to be stunningly accurate), and the Labour grandees went to work. Both Lord Mandelson, with his best shit-eating grin, and Harriet Harman, with her scary scowl, made it perfectly clear that Labour would offer the LibDems a referendum on electoral reform, in exchange for a deal that would keep Gordon Brown in No 10 and the Tories out of power. Apparently it's something they are suddenly strongly committed to, after ignoring it completely for thirteen years.
The LibDem leader, Nick Clegg, to his great credit said this morning that the Tories, with the most votes and the most seats, should have the first shot a forming a government. Maybe, unlike Mandelson and Harman, he's taken a glance at the arithmetic. The LibDems and Labour together would have more seats than the Tories, but would still be well short of a majority. So any such coalition would, no less than the Tories, be dependent on securing votes from the minority parties (the usual collection of about 30 nationalists and unionists, plus for the first time one Green) in order to get legislation passed. Since the Tories gained seats while both Labour and the LibDems lost them, the moral arguments seem perfectly clear.
Based on David Cameron's statement this afternoon, it looks as if we are going to wind up with some sort of Tory-LibDem coalition. I hope so, not because I have any love for the Tories, but because the prospect of Gordon Brown starting a second term as PM without winning even one election would be an even greater scandal than all the sleaze we went through in the last Parliament.
One unequivocal piece of good news: the awful LibDem candidate in my constituency lost. Maybe he can try running in his own hometown next time, and leave us alone.
The LibDem leader, Nick Clegg, to his great credit said this morning that the Tories, with the most votes and the most seats, should have the first shot a forming a government. Maybe, unlike Mandelson and Harman, he's taken a glance at the arithmetic. The LibDems and Labour together would have more seats than the Tories, but would still be well short of a majority. So any such coalition would, no less than the Tories, be dependent on securing votes from the minority parties (the usual collection of about 30 nationalists and unionists, plus for the first time one Green) in order to get legislation passed. Since the Tories gained seats while both Labour and the LibDems lost them, the moral arguments seem perfectly clear.
Based on David Cameron's statement this afternoon, it looks as if we are going to wind up with some sort of Tory-LibDem coalition. I hope so, not because I have any love for the Tories, but because the prospect of Gordon Brown starting a second term as PM without winning even one election would be an even greater scandal than all the sleaze we went through in the last Parliament.
One unequivocal piece of good news: the awful LibDem candidate in my constituency lost. Maybe he can try running in his own hometown next time, and leave us alone.
It's all Greek to them
Yesterday's astounding gyrations in US stock markets -- the DJIA fell almost 700 points in minutes, only to recover almost as abruptly -- are being attributed, even by usually sensible commentators like Daniel Gross, to fears of contagion from the economic crisis in Greece. Really? The most bizarre stock movements yesterday were exhibited by Proctor and Gamble, so if that was related to the Greek crisis, the good folk of Athens must use soap powder in unimaginably large quantities. Boeing and Hewlett Packard were two more stocks that took a beating. Greece-related? I don't think so.
Right after the mayhem, there were suggestions that a computer failure at the NYSE had caused the problem. That was quickly denied, to be followed by suggestions that a "fat fingered" trader had wrongly entered a deal that triggered all kinds of stop-loss trades. I don't suppose an individual culprit will ever be named, but this sounds feasible to me. The problem is that nowadays, the vast majority of stock trading is computerised, with "black boxes" reacting in microseconds to every tick of the index. Given the sheer speed of the decline -- and, for that matter, the subsequent reversal -- it's unlikely that more than fraction of the action resulted from human decision making at the time.
A lot of people must have lost a lot of money here, but it's unlikely that many of them will even question the wisdom of allowing computers to do their thinking for them. We discovered during the credit crunch that computer-designed securities could wreak havoc in the bond markets, so it's really no surprise to see the same now happening in the equity markets. Maybe techies need to be reminded of the mega computer in "The Hitch-hiker's Guide to the Galaxy" that took eons to decide that the answer to "life, the universe and everything" was 42. I bet it wouldn't have sold P & G, though.
Right after the mayhem, there were suggestions that a computer failure at the NYSE had caused the problem. That was quickly denied, to be followed by suggestions that a "fat fingered" trader had wrongly entered a deal that triggered all kinds of stop-loss trades. I don't suppose an individual culprit will ever be named, but this sounds feasible to me. The problem is that nowadays, the vast majority of stock trading is computerised, with "black boxes" reacting in microseconds to every tick of the index. Given the sheer speed of the decline -- and, for that matter, the subsequent reversal -- it's unlikely that more than fraction of the action resulted from human decision making at the time.
A lot of people must have lost a lot of money here, but it's unlikely that many of them will even question the wisdom of allowing computers to do their thinking for them. We discovered during the credit crunch that computer-designed securities could wreak havoc in the bond markets, so it's really no surprise to see the same now happening in the equity markets. Maybe techies need to be reminded of the mega computer in "The Hitch-hiker's Guide to the Galaxy" that took eons to decide that the answer to "life, the universe and everything" was 42. I bet it wouldn't have sold P & G, though.
Thursday, 6 May 2010
Too late the hero
Gordon Brown made his last speech of the election campaign last night, to a partisan audience in Dundee. He was passionate. He was coherent. He focused on policy issues. He didn't crack any lame jokes at the expense of his rivals (personal cringe-making favourite from the debates: "they remind me of my young sons squabbling at bathtime"). If this Gordon Brown had shown up earlier in the campaign, maybe the outcome would have been quite different. But it's way too late now.
Tuesday, 4 May 2010
Stop already!
If Thursday's election were to be decided by the amount of bumf stuck through letter boxes, there's no doubt that in my area the LibDems would be the clear winners. Hardly a day goes by without an orange flyer of some sort making its way into the recycling bin, after a brief sojourn on the hallway floor*. In contrast, we've had two pieces from the Tory incumbent and one each from Labour, UKIP and the Greens.
I was a LibDem voter when voting LibDem wasn't cool, but I won't be voting for them this time, so all those trees have died in vain. The LibDem candidate has chosen to devote his campaign to a sustained personal attack on the Tory incumbent. His focus is the fact that she doesn't live in the constituency, and has instead claimed expenses to keep a second home here. Here's the thing though: the LibDem doesn't live in the constituency either, so choosing his main opponent's residency as his key line of attack doesn't strike me as a particularly astute move. (In fact, given that the Tory has a flat here, the LibDem is the only one of the five candidates who doesn't have a home in the constituency).
One of his other major claims is that he has put pressure the county council to maintain the county's roads properly. Anyone who has driven in Hertfordshire lately -- and not just since the exceptionally cold winter weather -- could only conclude that he's not much of a lobbyist. He just likes seeing himself in the local paper, posing grim-faced next to the latest monster crater. In short, he's both malicious and ineffective, and I hope he gets his head handed to him on Thursday night.
* Addendum, May 6: This has continued right up until polling day! A LibDem flyer came through the letter box not much before midnight last night. And a young LibDem canvasser rang the doorbell around lunchtime today reminding us that we should go out and vote. I can never remember that happening before. You have to give then an A for effort. Too bad the candidate here is such a chuff.
I was a LibDem voter when voting LibDem wasn't cool, but I won't be voting for them this time, so all those trees have died in vain. The LibDem candidate has chosen to devote his campaign to a sustained personal attack on the Tory incumbent. His focus is the fact that she doesn't live in the constituency, and has instead claimed expenses to keep a second home here. Here's the thing though: the LibDem doesn't live in the constituency either, so choosing his main opponent's residency as his key line of attack doesn't strike me as a particularly astute move. (In fact, given that the Tory has a flat here, the LibDem is the only one of the five candidates who doesn't have a home in the constituency).
One of his other major claims is that he has put pressure the county council to maintain the county's roads properly. Anyone who has driven in Hertfordshire lately -- and not just since the exceptionally cold winter weather -- could only conclude that he's not much of a lobbyist. He just likes seeing himself in the local paper, posing grim-faced next to the latest monster crater. In short, he's both malicious and ineffective, and I hope he gets his head handed to him on Thursday night.
* Addendum, May 6: This has continued right up until polling day! A LibDem flyer came through the letter box not much before midnight last night. And a young LibDem canvasser rang the doorbell around lunchtime today reminding us that we should go out and vote. I can never remember that happening before. You have to give then an A for effort. Too bad the candidate here is such a chuff.
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