Barclays' new CEO Bob Diamond seems to have approached yesterday's grilling by the House of Commons Treasury Committee with the attitude that the best defence is a good offence. He and the assembled politicians largely talked past each other. The pols foamed at the mouth and made the points that had been scripted for them by their aides, but never seemed to pay much attention to Diamond's replies. As for Diamond, he concentrated on making a few key preconceived points of his own, none of which came anywhere close to the sort of apology or remorse that the politicians, or at least their constituents, might have appreciated. Diamond seems to have come out on top, judging by the media's grudging appreciation of his calmness and intransigence, as well as his mahogany tan.
He certainly got away with saying things that the committee could, if it hadn't been in such a righteous lather, have picked him up on. For example:
"Frankly, the biggest issue is how do we put some of the blame game behind us? There was a period of remorse and apology for banks – that period needs to be over. We need banks to be able to take risk, working with the private sector in the UK."
It's hard to know where to start with that little lot, but here goes:
* Does anyone else remember the "period of remorse and apology" that Diamond claims? Barclays itself may feel it had little to apologise for, inasmuch as it did not need a direct bailout, but one of the striking things about the crisis at its peak was the lack of any contrition from those who really did owe the country an apology, such as Fred Goodwin at RBS or Adam Applegarth at Northern Rock.
* "That period needs to be over"? Not for you to say, Bob, especially if you mean you want to go back to business as usual. As long as the taxpayer owns a big chunk of the banks and the Bank of England is continuing to provide unlimited low-cost funding, a bit more humility would seem to be in order.
* "We need banks to be able to take risk, working with the private sector in the UK". What's stopping you? The Bank of England's cheap funding was extended to allow exactly that, and politicians have been calling for it until they're blue in the face. Is Diamond suggesting that the banks are refusing to lend because they're cowed by public criticism? Do grow up, man!
According to The Independent, Asked if Barclays was "too big to fail", Mr Diamond said: "No, I don't think so. No bank should ever be a burden on the taxpayer. We have to make the system safer and more sound. It is not OK for taxpayers to bail out banks."
Again, where to start??
* Diamond is in a position of strength to the extent that Barclays was able to avoid accepting a government injection of capital at the height of the crisis. Even so, the assertion that "no bank should ever be a burden on the taxpayer" is a bit rich, considering that Barclays and all the rest of the banks are benefitting from ultra low-cost funding both from the Bank of England and from ordinary depositors, who are largely the same people as taxpayers.
* The astounding costs of the crisis strongly suggest that the premia the banks have paid in the past for deposit insurance were unrealistically low. That implies that all of the banks are always a burden on the taxpayer.
* As for making the system "safer and more sound", the Government has failed to advance any real ideas and if the banks themselves have big thoughts, they are keeping schtum. The one proposal that might actually make it possible to lighten the burden on the taxpayer -- separating retail banking from corporate and investment activities -- seems to be dead in the water, and would certainly be fiercely opposed by Barclays itself.
Bob Diamond and his colleagues are no doubt happy that he walked away unscathed yesterday, but neither he nor, more culpably, his interrogators did or said much to advance the public interest. A missed opportunity.
Wednesday, 12 January 2011
Sunday, 9 January 2011
Tales of media power
I'm an avid consumer of the mass media, but that doesn't make me a fan. Over the years I've realised that when I'm reading or watching a news story about something I already know about -- which usually, but not always*, means economics or business -- the stories are generally full of factual errors and slipshod analysis. It would be dumb to assume that all of the bad reporters are on the business desk, so as a working assumption, I tend to take it as read that the rest of the stories are comparably flawed, even if I can't always spot the specific mistakes.
So it's scary to think that the power of the media, at the expense of elected politicians, seems to be increasing relentlessly. Rupert Murdoch may be at the forefront of this trend globally, but it's much more widespread than that. Rather than reading me wibbling on about it, please take a look at this excellent and wide-ranging analysis by John Lloyd, originally published in the FT, but here reproduced on Slate.
* I'm a know-it-all about music and travel as well.
So it's scary to think that the power of the media, at the expense of elected politicians, seems to be increasing relentlessly. Rupert Murdoch may be at the forefront of this trend globally, but it's much more widespread than that. Rather than reading me wibbling on about it, please take a look at this excellent and wide-ranging analysis by John Lloyd, originally published in the FT, but here reproduced on Slate.
* I'm a know-it-all about music and travel as well.
Friday, 7 January 2011
The real sovereign debt crisis
For the last few months, bond markets have been spooked by sovereign debt woes in the peripheral countries of the Eurozone: first Greece, then Ireland, and perhaps soon Portugal and Spain. Even founder members of the EU such as Belgium and Italy have seen markets taking a more cautious approach to their debts, if credit default swap (CDS) rates are anything to go by.
This is all scary enough, but the elephant in the room, the really big kahuna, is....the United States. The US federal government, unusually or indeed uniquely, is always subject to a borrowing ceiling, which has to be approved by Congress. The current ceiling is USD 14.3 trillion, and with current borrowing heading towards $14 trillion, the Government expects to use up its remaining "headroom" of about $335 billion by the end of March. At which point, notionally, the US government starts to close down, and could even default. You can read the story on Reuters, and there's a good potted history of the debt ceiling on Slate.
We've been here before, in political circumstances similar to today's. In 1995 the Clinton administration needed to hike the debt ceiling, but Congress was in Republican hands, under the hard-line leadership of the irascible Newt Gingrich. Newt pushed the process all the way to the precipice, and a partial shutdown of the US government had begun before a deal was finally struck.
For the past several years the annual increase in the debt ceiling has been a non-event, because Congress agreed to tack it onto the annual budget bill. However, the new Republican majority in the House has quickly adopted procedural rules that make this impossible, so this year's increase will have to be specifically approved. The Republicans are determined to extract their pound of flesh in return, and have already begun to introduce proposals for spending cuts. The Obama administration is responding with proposed cuts of its own, including a huge slice out of the military budget, which of course the Republicans would prefer to leave untouched.
The new Republican House Speaker, John Boehner (he pronounces it Bayner -- well, you would, wouldn't you?) insists that his party has no wish to shut the government down, and other senior GOP congressmen agree. However, they have to be wary of the assorted right wing kooks and ideologues who have just arrived in Congress with the support of the Tea Party movement. Their willingness to compromise with the Obama administration on even the most trivial matter -- which this, assuredly, is not --must be seriously in doubt.
None of this would matter to the rest of us if Americans were just arguing about reneging on their IOUs to each other. But of course, the US is the world's biggest international debtor. If the debt ceiling isn't raised, Uncle Sam may be faced with stiffing the international creditors who have underwritten its standard of living for the past couple of decades. The consequences for international relations and for the global financial system can only be imagined, but to be sure, it would all make the problems in Ireland and Greece look like, well, a tea party.
This is all scary enough, but the elephant in the room, the really big kahuna, is....the United States. The US federal government, unusually or indeed uniquely, is always subject to a borrowing ceiling, which has to be approved by Congress. The current ceiling is USD 14.3 trillion, and with current borrowing heading towards $14 trillion, the Government expects to use up its remaining "headroom" of about $335 billion by the end of March. At which point, notionally, the US government starts to close down, and could even default. You can read the story on Reuters, and there's a good potted history of the debt ceiling on Slate.
We've been here before, in political circumstances similar to today's. In 1995 the Clinton administration needed to hike the debt ceiling, but Congress was in Republican hands, under the hard-line leadership of the irascible Newt Gingrich. Newt pushed the process all the way to the precipice, and a partial shutdown of the US government had begun before a deal was finally struck.
For the past several years the annual increase in the debt ceiling has been a non-event, because Congress agreed to tack it onto the annual budget bill. However, the new Republican majority in the House has quickly adopted procedural rules that make this impossible, so this year's increase will have to be specifically approved. The Republicans are determined to extract their pound of flesh in return, and have already begun to introduce proposals for spending cuts. The Obama administration is responding with proposed cuts of its own, including a huge slice out of the military budget, which of course the Republicans would prefer to leave untouched.
The new Republican House Speaker, John Boehner (he pronounces it Bayner -- well, you would, wouldn't you?) insists that his party has no wish to shut the government down, and other senior GOP congressmen agree. However, they have to be wary of the assorted right wing kooks and ideologues who have just arrived in Congress with the support of the Tea Party movement. Their willingness to compromise with the Obama administration on even the most trivial matter -- which this, assuredly, is not --must be seriously in doubt.
None of this would matter to the rest of us if Americans were just arguing about reneging on their IOUs to each other. But of course, the US is the world's biggest international debtor. If the debt ceiling isn't raised, Uncle Sam may be faced with stiffing the international creditors who have underwritten its standard of living for the past couple of decades. The consequences for international relations and for the global financial system can only be imagined, but to be sure, it would all make the problems in Ireland and Greece look like, well, a tea party.
Thursday, 6 January 2011
Red Ed's economic revisionism
Nobody has been more enthusiastic about rubbishing new Labour Party Leader Ed Miliband than the Murdoch media, so it's a bit of a surprise to find him gracing the op ed pages of today's Times with a column attacking the government's deficit reduction plans. I guess it's a welcome change from his day job of underwhelming the members of of his own party.
The story is behind The Times paywall, but here are a few choice extracts, with the usual carefully calibrated comments.
No surprise that Ed thinks the Government is cutting the deficit too quickly, but he's at pains to assure us that this is not just about politics:
"....no other developed country is taking such an extreme approach. That is why we say Mr Osborne is going too far and too fast on the deficit. This is not a political slogan, it is our economic judgment".
Well, let's look at it in those terms, then. Just what is this economic judgment based on? There's no mention of Keynes in Miliband's article, but he and many others have been keen enough to put on the great man's mantle in the recent past, so we can fairly assume that's his starting point.
Problem is, Labour's record in office doesn't really entitle Miliband to claim to offer a Keynesian alternative: at least, not one that would be recognizable to Keynes. Much of Labour's fiscal policy was founded on Gordon Brown's claim to have abolished boom and bust, which isn't Keynesianism or any other kind of -ism: it's just idiocy. Based on that belief, Brown and Alastair Darling enthusiastically ramped up spending throughout the first decade of the new millenium, which is a very non-Keynesian thing to do: fiscal policy should be counter-cyclical in good times as well as bad. In fact, the growth in spending was so robust that the Treasury had to keep moving the goalposts in order to maintain the illusion that Brown's self-imposed "golden rules" were being met.
Let's go back to Ed Miliband:
"...the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997".
This is only sort of true. The Treasury expended enormous energies during the Labour years in finding ways to keep public sector debt off the books. Accounting fictions at Network Rail, hugely expensive private finance initiative (PFI) schemes and underaccounting of the true cost of public sector pensions all played a role. It's close to impossible to come up with an accurate measure of public sector debt (for other countries as well as the UK), but ask yourself this: if the size and growth of the debt really wasn't a problem, why was the Treasury working so hard to cloud the truth?
One more quote from Ed:
"....the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason".
Wow, Ed, is that really a club you want to be a part of? Japan has had the ongoing fiscal deficits and ultra-easy monetary policy that you seem to favour for more than a decade, and all it's done is to rack up massive public debts without getting the economy out of its near-depression. As for the US, it's close to bankrupt at both the national and state level, and only manages to keep going because the dollar is still accepted internationally as a store of value. That's not an option for the UK, and it may not be one for the US for much longer: in the words of the great economic soothsayer Leonard Cohen, "there's a mighty judgment coming, but I may be wrong".
All of this leaves us in a bit of a quandary. The Con-Dem coalition may well be right for the long term: we should have the size and scope of public sector that we're willing to pay for. Yet Miliband is surely at least half right when he cautions in the Times article that "The big question is whether the Tory approach will leave us with low growth and squeezed living standards in the short term, as well as deeper economic problems in the long term". The problem with paying attention to Miliband is that there's little sign that he and his party have even acknowledged. much less learned from what went wrong when they were in office. We'll know soon enough whether Miliband is right about the short-term outlook, but for the long term, he seems to be just as delusional as his predecessors.
The story is behind The Times paywall, but here are a few choice extracts, with the usual carefully calibrated comments.
No surprise that Ed thinks the Government is cutting the deficit too quickly, but he's at pains to assure us that this is not just about politics:
"....no other developed country is taking such an extreme approach. That is why we say Mr Osborne is going too far and too fast on the deficit. This is not a political slogan, it is our economic judgment".
Well, let's look at it in those terms, then. Just what is this economic judgment based on? There's no mention of Keynes in Miliband's article, but he and many others have been keen enough to put on the great man's mantle in the recent past, so we can fairly assume that's his starting point.
Problem is, Labour's record in office doesn't really entitle Miliband to claim to offer a Keynesian alternative: at least, not one that would be recognizable to Keynes. Much of Labour's fiscal policy was founded on Gordon Brown's claim to have abolished boom and bust, which isn't Keynesianism or any other kind of -ism: it's just idiocy. Based on that belief, Brown and Alastair Darling enthusiastically ramped up spending throughout the first decade of the new millenium, which is a very non-Keynesian thing to do: fiscal policy should be counter-cyclical in good times as well as bad. In fact, the growth in spending was so robust that the Treasury had to keep moving the goalposts in order to maintain the illusion that Brown's self-imposed "golden rules" were being met.
Let's go back to Ed Miliband:
"...the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997".
This is only sort of true. The Treasury expended enormous energies during the Labour years in finding ways to keep public sector debt off the books. Accounting fictions at Network Rail, hugely expensive private finance initiative (PFI) schemes and underaccounting of the true cost of public sector pensions all played a role. It's close to impossible to come up with an accurate measure of public sector debt (for other countries as well as the UK), but ask yourself this: if the size and growth of the debt really wasn't a problem, why was the Treasury working so hard to cloud the truth?
One more quote from Ed:
"....the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason".
Wow, Ed, is that really a club you want to be a part of? Japan has had the ongoing fiscal deficits and ultra-easy monetary policy that you seem to favour for more than a decade, and all it's done is to rack up massive public debts without getting the economy out of its near-depression. As for the US, it's close to bankrupt at both the national and state level, and only manages to keep going because the dollar is still accepted internationally as a store of value. That's not an option for the UK, and it may not be one for the US for much longer: in the words of the great economic soothsayer Leonard Cohen, "there's a mighty judgment coming, but I may be wrong".
All of this leaves us in a bit of a quandary. The Con-Dem coalition may well be right for the long term: we should have the size and scope of public sector that we're willing to pay for. Yet Miliband is surely at least half right when he cautions in the Times article that "The big question is whether the Tory approach will leave us with low growth and squeezed living standards in the short term, as well as deeper economic problems in the long term". The problem with paying attention to Miliband is that there's little sign that he and his party have even acknowledged. much less learned from what went wrong when they were in office. We'll know soon enough whether Miliband is right about the short-term outlook, but for the long term, he seems to be just as delusional as his predecessors.
Wednesday, 5 January 2011
Happy New Year, Mr CEO
I loved this story from The Vancouver Sun:
Top CEOs will have earned average workers' full annual pay by 2:30 p.m. today
"Today" refers to January 3, when the Sun's story appeared, and these are Canadian CEOs we're talking about. Canada remains more egalitarian in its income distribution than the UK (or the US), though evidently that's not really saying very much any more. Even so, the CEO-to-average-worker comparison may not quite hold in the UK -- but only because most people here hadn't straggled back to work by January 3.
It's nothing to worry about, anyway. After all, we're all in it together, aren't we?
Update, January 6: By coincidence some related data for the UK were released this morning by IDS (Income Data Services). In the year to November, private sector wages rose 2.2%, while income for corporate directors edged up by a mere 55%. As I said, all in it together.
Top CEOs will have earned average workers' full annual pay by 2:30 p.m. today
"Today" refers to January 3, when the Sun's story appeared, and these are Canadian CEOs we're talking about. Canada remains more egalitarian in its income distribution than the UK (or the US), though evidently that's not really saying very much any more. Even so, the CEO-to-average-worker comparison may not quite hold in the UK -- but only because most people here hadn't straggled back to work by January 3.
It's nothing to worry about, anyway. After all, we're all in it together, aren't we?
Update, January 6: By coincidence some related data for the UK were released this morning by IDS (Income Data Services). In the year to November, private sector wages rose 2.2%, while income for corporate directors edged up by a mere 55%. As I said, all in it together.
Tuesday, 4 January 2011
Insurance fraud
Oh joy. Time to renew my car insurance for another year.
I'm a big believer in holding as little insurance as possible. Once you've paid off your mortgage, life insurance is a complete waste of money -- mathematically speaking, it can't be a good deal for the average buyer, because if it was the insurers would be unable to stay in business. The same goes double for the extended warranties that retailers try to force on you every time you make a purchase. The very fact that they seem almost keener to sell you the warranty than the underlying product has to tell you something, and that something is that it's a great deal for them, which means that it can't be a good deal for you. (I was once offered an extended warranty on a small electrical item that cost less than £10 to buy!)
Anyway, the car....I have been dealing for ten years or so with an agency that operates across the UK. They have already sent me two e-mails reminding me that my policy is due for renewal this month. But of course, they haven't actually shown me a quote yet. As usual, they'll do that as close as possible to the renewal date, in the hope that I won't have enough time or energy to check with other providers. I've also been pestered already by several other companies who have managed to find out when my insurance is due for renewal. Then there are the innumerable price comparison websites, one of which I will probably consult, despite the gruesome certainty that once I provide them my details, they'll be all over me like a cheap suit for the rest of my days.
There can't be any product that's sold more aggressively than insurance, yet to hear the companies tell it, they're all losing money hand over fist. It makes you wonder why they work so hard to attract your business, if it's going to cost them money. So is insurance more profitable than the companies are prepared to admit, or are insurance people stupid? I suspect the answer to both questions is "yes".
Update: within an hour of using a comparison site, I received FIVE e-mails trying to bounce me into a quick decision. No intrusive phone calls yet, but give it time...
I'm a big believer in holding as little insurance as possible. Once you've paid off your mortgage, life insurance is a complete waste of money -- mathematically speaking, it can't be a good deal for the average buyer, because if it was the insurers would be unable to stay in business. The same goes double for the extended warranties that retailers try to force on you every time you make a purchase. The very fact that they seem almost keener to sell you the warranty than the underlying product has to tell you something, and that something is that it's a great deal for them, which means that it can't be a good deal for you. (I was once offered an extended warranty on a small electrical item that cost less than £10 to buy!)
Anyway, the car....I have been dealing for ten years or so with an agency that operates across the UK. They have already sent me two e-mails reminding me that my policy is due for renewal this month. But of course, they haven't actually shown me a quote yet. As usual, they'll do that as close as possible to the renewal date, in the hope that I won't have enough time or energy to check with other providers. I've also been pestered already by several other companies who have managed to find out when my insurance is due for renewal. Then there are the innumerable price comparison websites, one of which I will probably consult, despite the gruesome certainty that once I provide them my details, they'll be all over me like a cheap suit for the rest of my days.
There can't be any product that's sold more aggressively than insurance, yet to hear the companies tell it, they're all losing money hand over fist. It makes you wonder why they work so hard to attract your business, if it's going to cost them money. So is insurance more profitable than the companies are prepared to admit, or are insurance people stupid? I suspect the answer to both questions is "yes".
Update: within an hour of using a comparison site, I received FIVE e-mails trying to bounce me into a quick decision. No intrusive phone calls yet, but give it time...
Sunday, 2 January 2011
God let down by Tony Blair
A few weeks back there was a public debate in Toronto about the role of religion in public life. Speaking on behalf of God was former UK Prime Minister Tony Blair; opposing him was the writer (and sadly, current cancer victim) Christopher Hitchens. The BBC News channel chose to show the debate, with virtually no advance billing, early in the evening of New Year's Day. Shame, because it was well worth watching.
The participants offered an interesting contrast. One was an important political thinker, a former leftist yet a supporter of the Iraq invasion of 2003, and the author this year of a well-received autobiography with a slightly naff title*. The other was Tony Blair.
A vote taken among the invited audience after the debate showed Hitchens as the clear winner. Watching the broadcast, it was impossible to disagree. Blair's argument in favour of religion basically boiled down to a repeated assertion that religious people do good things for other people. Since nobody could deny that atheists and agnostics also do good things, it was hard to see what this was supposed to prove. Even the behaviour of the two participants worked in Hitchens's favour. When Blair was speaking, Hitchens took copious notes in order to frame his rebuttals, whereas when Hitchens had the floor, Blair sat smirking and gurning in his usual style.
A better debater might well have scored more heavily at Hitchens's expense, because his bog-standard modern atheism prompts many questions. For example:
- If it's laughably primitive to believe in heaven because nobody has ever seen it, how come it's at the cutting edge of science to believe in billions of parallel universes, or in dark matter and dark energy, all of which are equally unseen?
- How did consciousness evolve?
- Given that nature is driven by the survival of the fittest, where do human moral attitudes come from?
You, good reader, no doubt have your own ideas about these things, as do I. The sad part of the Hitchens-Blair debate is that because of Blair's inept performance, such questions were never aired.
* "Hitch-22". Blair's doorstopper was called "A Journey".
The participants offered an interesting contrast. One was an important political thinker, a former leftist yet a supporter of the Iraq invasion of 2003, and the author this year of a well-received autobiography with a slightly naff title*. The other was Tony Blair.
A vote taken among the invited audience after the debate showed Hitchens as the clear winner. Watching the broadcast, it was impossible to disagree. Blair's argument in favour of religion basically boiled down to a repeated assertion that religious people do good things for other people. Since nobody could deny that atheists and agnostics also do good things, it was hard to see what this was supposed to prove. Even the behaviour of the two participants worked in Hitchens's favour. When Blair was speaking, Hitchens took copious notes in order to frame his rebuttals, whereas when Hitchens had the floor, Blair sat smirking and gurning in his usual style.
A better debater might well have scored more heavily at Hitchens's expense, because his bog-standard modern atheism prompts many questions. For example:
- If it's laughably primitive to believe in heaven because nobody has ever seen it, how come it's at the cutting edge of science to believe in billions of parallel universes, or in dark matter and dark energy, all of which are equally unseen?
- How did consciousness evolve?
- Given that nature is driven by the survival of the fittest, where do human moral attitudes come from?
You, good reader, no doubt have your own ideas about these things, as do I. The sad part of the Hitchens-Blair debate is that because of Blair's inept performance, such questions were never aired.
* "Hitch-22". Blair's doorstopper was called "A Journey".
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