We learn this week that Halloween is now the third-largest retail event in the UK each year, after Christmas and Easter. It's rapidly squeezing out the uniquely British celebration of Guy Fawkes Day, in another example of the Americanisation of our culture.
Just what is Halloween? Well, in its modern form it involves sending young people onto the property of strangers, to threaten them and get them to hand over something that you want. I just can't imagine why something like that would be so popular in the United States.
Thursday, 18 October 2007
Thursday, 11 October 2007
The moral hazard of Gordon Brown
Just before last weekend, when it seemed likely that we would soon be plunged into an early election, Tory Leader David Cameron accused Gordon Brown of spending too much time focusing on politics and not enough on running the country. I thought this was a bit unfair, given the hailstorm of crises that Brown has faced since he replaced Tony Blair: terrorist attacks, foot-and-mouth, flooding, Northern Rock...
Most commentators, regardless of their political persuasion, seemed to think that Brown had handled these crises competently and with next to none of his predecessor's phony emoting. This is, of course, precisely why the opinion polls seemed to be moving in the Government's favour, opening up the possibility of an early election. Then a couple of populist (and wrong-headed and poorly costed) Tory tax proposals pricked the election balloon and Brown was forced to announce that there would be no election until, probably, 2009.
This should have been no more than a short-lived embarrassment for Brown, not least because there is no hard evidence that he personally ever favoured an early vote -- the worst that can be said is that he failed to rein in his closest advisors quickly enough. However, there are now signs that the phoney crisis has badly unhinged the Government, which is now firing off half-baked policy announcements in all directions.
The most egregious example so far is, of course, the pre-Budget statement, which borrows to a quite shameless extent from last week's Tory conference speeches -- inheritance tax reform, poll tax on the non-doms, changing the basis of taxation on air transport. Get a grip guys -- these ideas were intended to forestall an early election, not to become the centrepiece of public policy. Aside from the air tax reforms, they're not particularly good ideas in themselves (see my previous posting) and they're not really consistent with the supposed principles of the Tory party, let alone Labour.
Now Chancellor Darling is at it again, announcing new measures designed to prevent a recurrence of the Northern Rock debacle. While the debate about who is supposed to be in charge in these situations -- is it the Bank of England, the FSA or the Government -- is set to continue, the Government is moving ahead quickly with steps to improve the "protection" of depositors.
There's little doubt that the pre-Northern Rock level of deposit insurance was inadequate. Only the first £2,000 of each individual's deposits with a particular bank was fully covered, with 90% coverage between £2,000 and £35,000, and no protection above that. The Government has already decreed that £35,000 will be fully protected in future, but it intends to go much further, probably by requiring banks to pay premiums in order to raise the fully insured amount to £100,000.
There is a real risk that the Government is going to go all the way from a patently inadequate level of depositor protection to dangerously excessive one. The Association of British Insurers estimates that the £35,000 limit will cover 98% of individual bank accounts. If you have more money than this, there's a good argument that you should take some responsibility for your own protection by doing a bit of due diligence about the institution where you are keeping your money, but evidently that's not an argument the Government thinks it can afford to make right now. Interestingly, media commentators, even those on the right of the opinion spectrum, are shy about taking a stance on this as well.
The bigger banks will no doubt be aghast about this. They will argue that they will pay the bulk of the premiums even though they are the least likely candidates for failure. Smaller institutions with riskier business models, like Northern Rock, will get something of a free ride, which only makes it more likely that problems will occur again some time in the future -- what economists call "moral hazard". However, it's reasonable to believe that they won't be saying these things very loudly, at least in public, for as long as the memories of queues outside Northern Rock branches remain fresh.
Inheritance tax, non-dom tax, deposit insurance -- populist measures all, bespeaking a panicky Government making policy on the fly. And they may not be through yet -- the Government says it is re-examining the model for payment for seniors' residential care, in response to complaints from people forced to sell their homes to pay their care bills. It says it wants to preserve the principle that better-off users should pay, but given the way things are going at the moment, another ill-judged giveaway must be in the offing.
Most commentators, regardless of their political persuasion, seemed to think that Brown had handled these crises competently and with next to none of his predecessor's phony emoting. This is, of course, precisely why the opinion polls seemed to be moving in the Government's favour, opening up the possibility of an early election. Then a couple of populist (and wrong-headed and poorly costed) Tory tax proposals pricked the election balloon and Brown was forced to announce that there would be no election until, probably, 2009.
This should have been no more than a short-lived embarrassment for Brown, not least because there is no hard evidence that he personally ever favoured an early vote -- the worst that can be said is that he failed to rein in his closest advisors quickly enough. However, there are now signs that the phoney crisis has badly unhinged the Government, which is now firing off half-baked policy announcements in all directions.
The most egregious example so far is, of course, the pre-Budget statement, which borrows to a quite shameless extent from last week's Tory conference speeches -- inheritance tax reform, poll tax on the non-doms, changing the basis of taxation on air transport. Get a grip guys -- these ideas were intended to forestall an early election, not to become the centrepiece of public policy. Aside from the air tax reforms, they're not particularly good ideas in themselves (see my previous posting) and they're not really consistent with the supposed principles of the Tory party, let alone Labour.
Now Chancellor Darling is at it again, announcing new measures designed to prevent a recurrence of the Northern Rock debacle. While the debate about who is supposed to be in charge in these situations -- is it the Bank of England, the FSA or the Government -- is set to continue, the Government is moving ahead quickly with steps to improve the "protection" of depositors.
There's little doubt that the pre-Northern Rock level of deposit insurance was inadequate. Only the first £2,000 of each individual's deposits with a particular bank was fully covered, with 90% coverage between £2,000 and £35,000, and no protection above that. The Government has already decreed that £35,000 will be fully protected in future, but it intends to go much further, probably by requiring banks to pay premiums in order to raise the fully insured amount to £100,000.
There is a real risk that the Government is going to go all the way from a patently inadequate level of depositor protection to dangerously excessive one. The Association of British Insurers estimates that the £35,000 limit will cover 98% of individual bank accounts. If you have more money than this, there's a good argument that you should take some responsibility for your own protection by doing a bit of due diligence about the institution where you are keeping your money, but evidently that's not an argument the Government thinks it can afford to make right now. Interestingly, media commentators, even those on the right of the opinion spectrum, are shy about taking a stance on this as well.
The bigger banks will no doubt be aghast about this. They will argue that they will pay the bulk of the premiums even though they are the least likely candidates for failure. Smaller institutions with riskier business models, like Northern Rock, will get something of a free ride, which only makes it more likely that problems will occur again some time in the future -- what economists call "moral hazard". However, it's reasonable to believe that they won't be saying these things very loudly, at least in public, for as long as the memories of queues outside Northern Rock branches remain fresh.
Inheritance tax, non-dom tax, deposit insurance -- populist measures all, bespeaking a panicky Government making policy on the fly. And they may not be through yet -- the Government says it is re-examining the model for payment for seniors' residential care, in response to complaints from people forced to sell their homes to pay their care bills. It says it wants to preserve the principle that better-off users should pay, but given the way things are going at the moment, another ill-judged giveaway must be in the offing.
Tuesday, 2 October 2007
Dumber than a bag of hammers
The tax proposals outlined by the Tory Shadow Chancellor to the party's annual conference this week are strikingly dumb, as well as being way out of line with the party's presumed "principles". If elected, the Tories plan to reduce the burden of taxation on unearned income (inheritances) while boosting it on earned income (as represented by the demonised "non-doms"). They will also in all likelihood pump the housing bubble up even further. Nice one, George.
The party's distaste for inheritance tax was made clear in the recent Redwood Report, which proposed replacing it with a reformed capital gains tax. As I said at the time, that's not a bad idea. However, the party has gone much further, with a plan to eliminate all inheritance tax on estates of less than £1 million, exempting family homes altogether.
The party claims that it detects a growing level of worry among taxpayers about the widening application of inheritance tax. Actually, it's not the taxpayers who are worried: they'll be dead when the tax comes through. It's the people hoping to benefit from the bequests who are concerned. But should taxation policy be rewritten to exempt almost all bequests? The largest single item that most people pass on to their heirs is the family home. True, people have diligently paid their mortgages in order to own the place; but most of its value is a result of the surge in UK property prices that has resulted from the last deecade and more of low interest rates. The homeowners have not earned it in any meaningful way, and it's hard to make a case that it should be exempted from tax -- particularly when the Tories propose to make up the revenue shortfall by taxing earned income, of which more below.
At the other end of the housing ladder, the Tories plan to exempt all first-time buyers from property taxes on homes sold for less than £250,000. One can only imagine the chicanery this will lead to, as husbands and wives take turns being the "first time buyer" of their first two homes. And it would be naive in the extreme to think that the removal of the tax will do anything except push asking prices higher, eliminating some or all of the hoped-for benefit to buyers.
In a bigger-picture sense, the Tories' pandering to the UK property obsession looks badly misjudged. Property often seems like the main driver of the UK economy and the favoured savings mechanism for a large part of the population, at the expense of more productive investments. (When did you last see a column in one of the weekend money supplements saying "I don't trust the housing markets so I'm putting my money into stocks and shares"?)
If the Tories get their way, there will be no tax on the first-time homebuyer; none on sales of the family home during one's lifetime; and none on the family home as part of a bequest. Can it really be smart to exempt such a key sector of the economy so completely from taxation? The Tories have castigated the Labour Government for making housing unaffordable through excessively cheap credit: it looks like they intend to do the same thing through wildly favourable tax treatment.
What makes this so much worse is that the Tories plan to pay for this needless and dangerous giveaway to homeowners by means of a new flat-rate tax on non-domiciled UK residents. Everyone has been attacking the non-doms lately, and no doubt a tax on them will play well with Daily Mail readers, but does anyone know who they are and exactly how they are treated?
Well yes, actually -- I do. When I returned from Canada to the UK a decade ago, I was given non-dom status. (For what it's worth, I no longer claim it). Non-dom status allows a UK resident to avoid tax on assets held outside the UK and on sums earned outside the UK while resident here. It emphatically does not exempt people from UK income tax: money earned in the UK is taxable in the normal way, and any money remitted from abroad is also fully subject to tax.
For me, the main (in fact almost the only) benefit was that it allowed me to keep my "Canadian" capital away from the UK tax man, on the assumption that I would return to Canada when my assignment in London ended. So here's the first question for the Tories: I was already paying income tax on virtually all of my employment earnings, which I received in the UK. Would I also have had to pay your proposed £25,000 non-dom tax? And given that there is probably a huge number of non-doms in similar positions to mine, and a whole lot more in relatively low-paid occupations, how can you possibly expect to raise £3.5 billion from your new poll tax? Do you really want to drive away the entrepreneurial Europeans who have moved to London in recent years by doing something as ill-judged as this, in order to pump yet more money into the housing sector?
There are sensible things that could be done to reform property taxation, inheritance taxes and the taxation of non-domiciled residents. The Tories are proposing none of them.
The party's distaste for inheritance tax was made clear in the recent Redwood Report, which proposed replacing it with a reformed capital gains tax. As I said at the time, that's not a bad idea. However, the party has gone much further, with a plan to eliminate all inheritance tax on estates of less than £1 million, exempting family homes altogether.
The party claims that it detects a growing level of worry among taxpayers about the widening application of inheritance tax. Actually, it's not the taxpayers who are worried: they'll be dead when the tax comes through. It's the people hoping to benefit from the bequests who are concerned. But should taxation policy be rewritten to exempt almost all bequests? The largest single item that most people pass on to their heirs is the family home. True, people have diligently paid their mortgages in order to own the place; but most of its value is a result of the surge in UK property prices that has resulted from the last deecade and more of low interest rates. The homeowners have not earned it in any meaningful way, and it's hard to make a case that it should be exempted from tax -- particularly when the Tories propose to make up the revenue shortfall by taxing earned income, of which more below.
At the other end of the housing ladder, the Tories plan to exempt all first-time buyers from property taxes on homes sold for less than £250,000. One can only imagine the chicanery this will lead to, as husbands and wives take turns being the "first time buyer" of their first two homes. And it would be naive in the extreme to think that the removal of the tax will do anything except push asking prices higher, eliminating some or all of the hoped-for benefit to buyers.
In a bigger-picture sense, the Tories' pandering to the UK property obsession looks badly misjudged. Property often seems like the main driver of the UK economy and the favoured savings mechanism for a large part of the population, at the expense of more productive investments. (When did you last see a column in one of the weekend money supplements saying "I don't trust the housing markets so I'm putting my money into stocks and shares"?)
If the Tories get their way, there will be no tax on the first-time homebuyer; none on sales of the family home during one's lifetime; and none on the family home as part of a bequest. Can it really be smart to exempt such a key sector of the economy so completely from taxation? The Tories have castigated the Labour Government for making housing unaffordable through excessively cheap credit: it looks like they intend to do the same thing through wildly favourable tax treatment.
What makes this so much worse is that the Tories plan to pay for this needless and dangerous giveaway to homeowners by means of a new flat-rate tax on non-domiciled UK residents. Everyone has been attacking the non-doms lately, and no doubt a tax on them will play well with Daily Mail readers, but does anyone know who they are and exactly how they are treated?
Well yes, actually -- I do. When I returned from Canada to the UK a decade ago, I was given non-dom status. (For what it's worth, I no longer claim it). Non-dom status allows a UK resident to avoid tax on assets held outside the UK and on sums earned outside the UK while resident here. It emphatically does not exempt people from UK income tax: money earned in the UK is taxable in the normal way, and any money remitted from abroad is also fully subject to tax.
For me, the main (in fact almost the only) benefit was that it allowed me to keep my "Canadian" capital away from the UK tax man, on the assumption that I would return to Canada when my assignment in London ended. So here's the first question for the Tories: I was already paying income tax on virtually all of my employment earnings, which I received in the UK. Would I also have had to pay your proposed £25,000 non-dom tax? And given that there is probably a huge number of non-doms in similar positions to mine, and a whole lot more in relatively low-paid occupations, how can you possibly expect to raise £3.5 billion from your new poll tax? Do you really want to drive away the entrepreneurial Europeans who have moved to London in recent years by doing something as ill-judged as this, in order to pump yet more money into the housing sector?
There are sensible things that could be done to reform property taxation, inheritance taxes and the taxation of non-domiciled residents. The Tories are proposing none of them.
Monday, 17 September 2007
Greenspan's Age of Flatulence
Winston Churchill once said "History will be kind to me, for I intend to write it". So he did, and so, mostly, it has. Former Fed Chairman Alan Greenspan, now doing the chat show circuit to promote his memoirs ("The Age of Turbulence"), is unlikely to be so lucky.
I met "the Maestro" a couple of times, before he was famous, and was never a subscriber to the cult of personality that grew up around him. His halo began to slip noticeably soon after he quit the Fed Chairman's role at the start of 2006, and undermined his successor, Ben Bernanke, in a series of ill-judged (but doubtless well-rewarded) speaking assignments even before Bernanke had had a chance to organise his pencil tray. Maybe Greenspan is unfortunate to be releasing his memoirs at the exact moment when the chickens he fed for so many years are coming home to roost, but there's no doubt that he's facing a hostile reception in some quarters: here, for example.
Greenspan was the most political of Fed Chairmen. His views on fiscal policy depended primarily on who was asking (and even he now admits that his endorsement of the Bush tax cuts was a mistake). But the key charge against him has to relate to monetary policy, specifically his willingness to allow unprecedented amounts of money growth at unprecedentedly low interest rates for unprecedentedly long periods of time, even when it became clear that the US economy was in no need of such support. The explosion of cheap money unleashed by Greenspan, in response to the LTCM crach, then the tech crash, and finally the September 2001 terrorist attacks, directly created the severe problems in credit markets that are now unfolding.
Even at the time, Greenspan's justification for this approach -- that it was safe because inflation was so low -- did not stand up to much scrutiny. Greenspan's attitude to inflation was supposedly a monetarist one, best summed up in Milton Friedman's famous quote that "inflation is always and everywhere a monetary phenomenon". However, a more accurate description of his view would be that "inflation is whatever I say it is". He (and thus the Fed) changed his view on what was the best measure of inflationary pressures with remarkable frequency. The only certainty is that it never focused on either the money supply or the widely-followed consumer price index (CPI). For a number of years the Fed appeared to focus on the Employment Cost Index (ECI), but toward the end of his tenure, Greenspan appeared to switch his allegiance to the snappily-named core personal consumption expenditure deflator.
There are good technical reasons for preferring this measure to the CPI, principally the fact that it reflects actual spending patterns rather than the arbitrary and inflexible basket used in computing the CPI. But over the past decade, both of these measures have had a fatal flaw as guides to US monetary policy: they have been held artificially low by the flood of cheap imports coming into the US, mainly from China. These have kept prices down all right, but it's not something that the Fed or Greenspan in particular can take any credit for. In focusing on the apparently tame behaviour of the various price indices, Greenspan and pals turned a blind eye to the buildup of financial market risk that inevitably flowed from the tidal wave of cheap money. Indeed, with his reflexive monetary easings in response to every setback, Greenspan convinced a lot of investors that he would always act to cushion those risks -- the so-called "Greenspan put". (It's largely in reaction to this that Bank of England Governor King was initially inclined to take a hard line in the current crisis).
Now the great man is bloviating (reportedly at $100k per throw) about the inevitability of a recession in the US and a housing crash in the UK. If you're a Northern Rock customer worried about your savings (you probably needn't) or a Northern Rock employee worried about your job (sadly, and through almost no fault of your own, you should be), make sure you know who to blame.
I met "the Maestro" a couple of times, before he was famous, and was never a subscriber to the cult of personality that grew up around him. His halo began to slip noticeably soon after he quit the Fed Chairman's role at the start of 2006, and undermined his successor, Ben Bernanke, in a series of ill-judged (but doubtless well-rewarded) speaking assignments even before Bernanke had had a chance to organise his pencil tray. Maybe Greenspan is unfortunate to be releasing his memoirs at the exact moment when the chickens he fed for so many years are coming home to roost, but there's no doubt that he's facing a hostile reception in some quarters: here, for example.
Greenspan was the most political of Fed Chairmen. His views on fiscal policy depended primarily on who was asking (and even he now admits that his endorsement of the Bush tax cuts was a mistake). But the key charge against him has to relate to monetary policy, specifically his willingness to allow unprecedented amounts of money growth at unprecedentedly low interest rates for unprecedentedly long periods of time, even when it became clear that the US economy was in no need of such support. The explosion of cheap money unleashed by Greenspan, in response to the LTCM crach, then the tech crash, and finally the September 2001 terrorist attacks, directly created the severe problems in credit markets that are now unfolding.
Even at the time, Greenspan's justification for this approach -- that it was safe because inflation was so low -- did not stand up to much scrutiny. Greenspan's attitude to inflation was supposedly a monetarist one, best summed up in Milton Friedman's famous quote that "inflation is always and everywhere a monetary phenomenon". However, a more accurate description of his view would be that "inflation is whatever I say it is". He (and thus the Fed) changed his view on what was the best measure of inflationary pressures with remarkable frequency. The only certainty is that it never focused on either the money supply or the widely-followed consumer price index (CPI). For a number of years the Fed appeared to focus on the Employment Cost Index (ECI), but toward the end of his tenure, Greenspan appeared to switch his allegiance to the snappily-named core personal consumption expenditure deflator.
There are good technical reasons for preferring this measure to the CPI, principally the fact that it reflects actual spending patterns rather than the arbitrary and inflexible basket used in computing the CPI. But over the past decade, both of these measures have had a fatal flaw as guides to US monetary policy: they have been held artificially low by the flood of cheap imports coming into the US, mainly from China. These have kept prices down all right, but it's not something that the Fed or Greenspan in particular can take any credit for. In focusing on the apparently tame behaviour of the various price indices, Greenspan and pals turned a blind eye to the buildup of financial market risk that inevitably flowed from the tidal wave of cheap money. Indeed, with his reflexive monetary easings in response to every setback, Greenspan convinced a lot of investors that he would always act to cushion those risks -- the so-called "Greenspan put". (It's largely in reaction to this that Bank of England Governor King was initially inclined to take a hard line in the current crisis).
Now the great man is bloviating (reportedly at $100k per throw) about the inevitability of a recession in the US and a housing crash in the UK. If you're a Northern Rock customer worried about your savings (you probably needn't) or a Northern Rock employee worried about your job (sadly, and through almost no fault of your own, you should be), make sure you know who to blame.
Wednesday, 12 September 2007
Martin Amis and the cult of death
I have not previously written anything about the "Clash of Civilisations" (or "Long War" or whatever you want to call it). Bigger brains than mine have focused on it, as have smaller ones such as George Bush's. I am going to offer a few thoughts on it now for two reasons:
1. I have been reading a biography of Gertrude Bell, the remarkable adventurer (or poet or author or mountaineer or photographer or geologist) without whom the state of Iraq would probably never have been created;
2. Martin Amis has broken a fairly prolonged silence on the issue this week, publishing a very odd article.
Why do I say it is "very odd"? Well, to start with, Amis devotes almost a quarter of the piece to a completely pointless rant about the appropriateness of the term "9/11" to describe the terrorist attacks of September 11, 2001. He even says that there is an "unfortunate resemblance" to the "911" emergency call number used in the US. Martin, old pal, that's exactly why 9/11 came into such widespread use.
The article is also odd because it indulges Amis's penchant for using obscure words -- or for making up some of his own. "Thanatism"? "Ratiocinative"? Very helpful for the average reader trying to digest this stuff on the train to work. (He also talks about a "negative eureka", which prompted my wife to say "What? You mean 'I've lost it'?" Maybe so.)
Moving on to matters of greater substance, Amis seems to believe (perhaps because he has been living in Latin America for the past few years) that his views on the war on terror are in some way unique. He recounts an appearance on Question Time in 2006, wherein he "said that the West should have spent the past five years in the construction of a democratic and pluralistic model in Afghanistan, while in the meantime merely containing Iraq. In Afghanistan we have already seen, not the “genocide” eagerly predicted by Noam Chomsky and others, but “genogenesis” (in Paul Berman’s coinage) – a burgeoning census. Since 2001, the population has risen by 25 per cent. Meanwhile, too, needless to say, the coalition should have been tearing up the earth of Waziristan in its hunt for the remnants of al-Qaeda". He claims that this "centrist" (his word) view was greeted with disbelief -- which I find very surprising, as I suspect that the position he advanced would be shared by a large proportion of the UK population.
Amis's main contention is that Islamism should be seen as a death cult. Well, duh. However, I don't think he is on firm ground in suggesting that this makes it comparable to (or even "indebted" to) Bolshevism and Nazism. There is a world of difference between people who are keen to kill other people, and people who are willing or even anxious to kill themselves in the process. As Amis himself might say, I think his ratiocinations on thanatism are inapposite.
Like a lot of other commentators given to foaming at the mouth about Islamism (Mark Steyn, Christopher Hitchens), Amis falls seriously short when it comes to offering any practical suggestions for what the West should do next. I don't claim to have any big ideas either, which is one reason I've stayed away from this topic until now. However, I do have one thought. Clearly, if there's a death cult out to get you, you have to do everything possible to kill it. It's like dealing with the Terminator, rather than with the IRA -- it doesn't have an exit strategy or a fallback position. But it makes no sense to adopt a policy that results in the addition of ten new recruits to the death cult for every one that you eliminate.
That's what the "war on terror" has managed to do, thanks mainly to the invasion of Iraq, and that's the key reason why that invasion was such a colossal error. Judging from the quote a couple of paragraphs back, Amis realises that too. The problem is, there's no way of uninvading Iraq. Dubya and pals have fed the death cult, instead of starving it.
1. I have been reading a biography of Gertrude Bell, the remarkable adventurer (or poet or author or mountaineer or photographer or geologist) without whom the state of Iraq would probably never have been created;
2. Martin Amis has broken a fairly prolonged silence on the issue this week, publishing a very odd article.
Why do I say it is "very odd"? Well, to start with, Amis devotes almost a quarter of the piece to a completely pointless rant about the appropriateness of the term "9/11" to describe the terrorist attacks of September 11, 2001. He even says that there is an "unfortunate resemblance" to the "911" emergency call number used in the US. Martin, old pal, that's exactly why 9/11 came into such widespread use.
The article is also odd because it indulges Amis's penchant for using obscure words -- or for making up some of his own. "Thanatism"? "Ratiocinative"? Very helpful for the average reader trying to digest this stuff on the train to work. (He also talks about a "negative eureka", which prompted my wife to say "What? You mean 'I've lost it'?" Maybe so.)
Moving on to matters of greater substance, Amis seems to believe (perhaps because he has been living in Latin America for the past few years) that his views on the war on terror are in some way unique. He recounts an appearance on Question Time in 2006, wherein he "said that the West should have spent the past five years in the construction of a democratic and pluralistic model in Afghanistan, while in the meantime merely containing Iraq. In Afghanistan we have already seen, not the “genocide” eagerly predicted by Noam Chomsky and others, but “genogenesis” (in Paul Berman’s coinage) – a burgeoning census. Since 2001, the population has risen by 25 per cent. Meanwhile, too, needless to say, the coalition should have been tearing up the earth of Waziristan in its hunt for the remnants of al-Qaeda". He claims that this "centrist" (his word) view was greeted with disbelief -- which I find very surprising, as I suspect that the position he advanced would be shared by a large proportion of the UK population.
Amis's main contention is that Islamism should be seen as a death cult. Well, duh. However, I don't think he is on firm ground in suggesting that this makes it comparable to (or even "indebted" to) Bolshevism and Nazism. There is a world of difference between people who are keen to kill other people, and people who are willing or even anxious to kill themselves in the process. As Amis himself might say, I think his ratiocinations on thanatism are inapposite.
Like a lot of other commentators given to foaming at the mouth about Islamism (Mark Steyn, Christopher Hitchens), Amis falls seriously short when it comes to offering any practical suggestions for what the West should do next. I don't claim to have any big ideas either, which is one reason I've stayed away from this topic until now. However, I do have one thought. Clearly, if there's a death cult out to get you, you have to do everything possible to kill it. It's like dealing with the Terminator, rather than with the IRA -- it doesn't have an exit strategy or a fallback position. But it makes no sense to adopt a policy that results in the addition of ten new recruits to the death cult for every one that you eliminate.
That's what the "war on terror" has managed to do, thanks mainly to the invasion of Iraq, and that's the key reason why that invasion was such a colossal error. Judging from the quote a couple of paragraphs back, Amis realises that too. The problem is, there's no way of uninvading Iraq. Dubya and pals have fed the death cult, instead of starving it.
Monday, 10 September 2007
Kaletsky still doesn't get it
At an early stage of this summer's financial crisis (30 July to be exact), I wrote about the confidence of the big beasts of economic punditry in the UK that the whole thing would blow over without any serious impact on the real economy. I suggested that it was much to soon to be sure about this, since banks always react to old loans going bad in the same way: they stop making new loans.
One of the big beasts I named at that time, Anatole Kaletsky, has continued to write about the crisis on a regular basis. He's been careful to abide by one of the main rules of punditry: express every possible opinion at least once, so you always have a helpful quote to fall back on. Without parodying his views too much, I'd say he's gone from "crisis, what crisis?" to "there wouldn't be a crisis if market participants were as smart as A. Kaletsky".
So when I opened the biz section of today's Times and found a Kaletsky piece called "Summer crisis will change things forever", I thought that his Damascene conversion was finally complete. I was wrong: after a few swipes at the Bank of England, Kaletsky gets to his main point -- which is that the hedge funds done it: "The question that nobody bothered to ask was how the managers of hedge funds and SIVs could provide this desirable combination of liquidity and safety, while still paying high returns and pocketing very handsome fees for themselves." Speak for yourself, Anatole. Quite a lot of people (including, no doubt, many within the hedge fund sector itself) were asking that question years ago, and managed to resist the temptation to invest there.
But hedge funds' fee structures, obscene as they may have been, are SO beside the point. The issue now is that these funds took on enormous amounts of structured product -- CLOs and CDOs and all that stuff, prime and non-prime. Their appetite for it was so huge that a lot of investment banks turned into sausage machines, churning the product out at ever-increasing rates.
As interest rates have risen, the credit quality of the sub-prime stuff has come into question, particularly in the US. Hedge fund investors are asking for their money back, so the managers are having to liquidate assets -- or to put it another way, they're selling the CLO and CDO product back to the banks that originated it. In fairness to Kaletsky, he recognises this, but stops short of drawing the important conclusion: the need to fund this tidal wave of product that is falling onto the balance sheet is putting a strain on the banks' own liquidity, so they're not making any new loans, least of all to each other. In today's highly credit-driven economy, this is all but certain to lead to big problems.
I wouldn't be surprised if hedge fund fees become a matter for a huge class action lawsuit once we get through the present crisis. But that will be a luxury we can enjoy in a quieter time. For now, the huge rollover of commercial paper in London this week and the possible unwinding of the Yen carry trade are much more pressing concerns.
One of the big beasts I named at that time, Anatole Kaletsky, has continued to write about the crisis on a regular basis. He's been careful to abide by one of the main rules of punditry: express every possible opinion at least once, so you always have a helpful quote to fall back on. Without parodying his views too much, I'd say he's gone from "crisis, what crisis?" to "there wouldn't be a crisis if market participants were as smart as A. Kaletsky".
So when I opened the biz section of today's Times and found a Kaletsky piece called "Summer crisis will change things forever", I thought that his Damascene conversion was finally complete. I was wrong: after a few swipes at the Bank of England, Kaletsky gets to his main point -- which is that the hedge funds done it: "The question that nobody bothered to ask was how the managers of hedge funds and SIVs could provide this desirable combination of liquidity and safety, while still paying high returns and pocketing very handsome fees for themselves." Speak for yourself, Anatole. Quite a lot of people (including, no doubt, many within the hedge fund sector itself) were asking that question years ago, and managed to resist the temptation to invest there.
But hedge funds' fee structures, obscene as they may have been, are SO beside the point. The issue now is that these funds took on enormous amounts of structured product -- CLOs and CDOs and all that stuff, prime and non-prime. Their appetite for it was so huge that a lot of investment banks turned into sausage machines, churning the product out at ever-increasing rates.
As interest rates have risen, the credit quality of the sub-prime stuff has come into question, particularly in the US. Hedge fund investors are asking for their money back, so the managers are having to liquidate assets -- or to put it another way, they're selling the CLO and CDO product back to the banks that originated it. In fairness to Kaletsky, he recognises this, but stops short of drawing the important conclusion: the need to fund this tidal wave of product that is falling onto the balance sheet is putting a strain on the banks' own liquidity, so they're not making any new loans, least of all to each other. In today's highly credit-driven economy, this is all but certain to lead to big problems.
I wouldn't be surprised if hedge fund fees become a matter for a huge class action lawsuit once we get through the present crisis. But that will be a luxury we can enjoy in a quieter time. For now, the huge rollover of commercial paper in London this week and the possible unwinding of the Yen carry trade are much more pressing concerns.
Monday, 3 September 2007
No credit to the Times
Today's Times has an editorial to the effect that the UK tax credits for lower-paid workers (sorry, that's "Gordon Brown's tax credits" -- there must be an election coming) are more trouble than they're worth. This may well be true, but I'm not sure that it justifies the same paper's front page story today, which is also about tax credits.
Apparently a lot of people who were overpaid the tax credits (either through official incompetence, misunderstanding of the rules or outright fraud) have been forced to repay the government. However, because the tax authorities did not properly notify everyone whose claims were under investigation, many people mat be able to appeal successfully against the demand for repayment.
The Times illustrates the story with a front-page picture of a pleasant-looking woman who has successfully won such an appeal. She doesn't dispute that she was overpaid, but seems to have no qualms about keeping the money. Amazingly the Times helped with her appeal, which I think makes it an accessory to crime. Needless to say, the lady looks happy almost to the point of smugness. I hope she'll understand if those of us whose tax money she's pocketed are a bit less happy.
Apparently a lot of people who were overpaid the tax credits (either through official incompetence, misunderstanding of the rules or outright fraud) have been forced to repay the government. However, because the tax authorities did not properly notify everyone whose claims were under investigation, many people mat be able to appeal successfully against the demand for repayment.
The Times illustrates the story with a front-page picture of a pleasant-looking woman who has successfully won such an appeal. She doesn't dispute that she was overpaid, but seems to have no qualms about keeping the money. Amazingly the Times helped with her appeal, which I think makes it an accessory to crime. Needless to say, the lady looks happy almost to the point of smugness. I hope she'll understand if those of us whose tax money she's pocketed are a bit less happy.
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