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Wednesday, 30 December 2009

They still have not 'got it'!

Politicians and the press are becoming tired of repeating the mantra that the bankers have not yet 'got it'; but the point is that the bankers have got the lot!
They have mostly kept their jobs, they had banked their earlier bonuses before the crunch struck the system; and now they can threaten to walk away from London if they don't have their way into the future.

The politicians have not begun to 'get it'.
Their analysis of the events of the past couple of years is superficial: even the better onces, notably Vince Cable, are much stronger on description than on dissecting the causes of the crisis and making policy for the future on that basis.

The inter-party mudslinging is approaching election pitch, and will increasingly alienate voters.

The announcement by NHS auditors that 'international accounting standards' REQUIRED them to aggregate charitable giving to NHS-related causes within NHS accounts was rightly seen as an attempt by government to enable them to pretend that NHS funding by them was much greater than it is.
International accounting standards were a major factor in the exaggeration of the crisis in banking.
International accounting standards are an ego-trip for would-be masters of the universe; who depend on the same, nonsensical Economics that sanctioned the excesses of 'rational markets'.
This may seem a trivial matter, but - like the recent resurgence of the spurious authority of the rating agencies - it shows that the Economics establishment that bears huge responsibility for the global crisis is still wreaking havoc. Keynes wrote that most politicians are in thrall to some dead economist: the tragedy of our day is that the whole system is in thrall to living economists!

Friday, 11 December 2009

Brown & Balls Drop Darling in the Doo-Doo

Alistair Darling has 'had a good recession', in the way that some men have been said to have 'had a good war'.
 He was ridiculed for his prescience in recognising that the then-impending crisis of 2007-9 would be the most serious economic issue for sixty years. He kept his nerve through the collapse of Bear Stearns and Lemans [refusing to take Lemans' obligations onto his balance sheet, which would have been the case if Barclays had been allowed to buy the whole rotten empire]. He calmly took over Northern Rock and Bradford and Bingley, and bailed out the other banks that were essential to the UK economy.
He increased government spending and borrowing to keep trade and industry alive.
Then came his pre-budget report of December 9, 2009. It was crass electioneering, designed in painfully glaring detail to try to get the Labour vote out in the coming contest with the slightly-revived Tories.
National concerns, reducing the deficit and rebuilding international confidence in the UK, were set to the side; to be tackled by whoever will be the government after the election.
It is now revealed that Darling had intended to put the national interest first in his planning, but was overruled by his bully-boss and his sidekick.  What a pity: for Darling's reputation, and for the future of the country.

Thursday, 10 December 2009

Brown backs Sarkozy on Bankers

On the morning after the bugetary non-event in London, Gordon Brown has grabbed significant publicity with a joint 'editorial' in Murdoch's WALL STREET JOURNAL,in which he and the French President rail about the unacceptable face of international banking. They note that the bankers have been feathering their own nests in massive speculation that does nothing for the 'real economy'.
Brown spent his decade at the Treasury praising the bankers for precisely what he now condemns.
His entire economic strategy - if it may be described by such an elevated term - was based on taxing the banks at a rate that they found tolerable, encouraging mass consumption through borrowing facilitated by the banks, and allowing industry to fade away under the burdens of heavy taxation and increasingly intrusive regulation.
Now he is imposing a one-off tax on the banks, which they can easily afford; while they pay accountants and lawyers to find ways of substituting other means of remuneration for the bonuses that have been banned. The medium to long term increases in taxation that are needed,  because of the bail-out of those very same bankers, will fall on the broad mass of the population: starting with an increase in the second income tax [known as national insurance]. There's nothing else to be taxed!

Monday, 7 December 2009

The really significant [very bad] news of the week

This week, Her Majesty's Government in the United Kingdom will demonstrate that it has learned nothing of real significance in all the thirteen wasted years since they came to power.
The Thatcherite idiocy of selling-off what used to be the world's greatest concentration of high-grade intellectual property will continue, with the invitation to bid for the Metereorological Office, the Ordnance Survey and other scientific foci in which Britain has been a global leader since the respective sciences were first delineated.
Although these agencies have been denied much of the investment that could have improved them even further over the past three decades, they remain innovative and respected by their few peers. As has happened with other already-sold-off intellectual property, the key assets will quickly pass into alien ownership, so that the earnings from the existing investment - together with all the new output that will come from future investment - will pass away from the United Kingdom. The profits that should come to British taxpayers will go to the new shareholders; while the price for which the agencies are sold will simply be swallowed up in the black hole of the government's deficit.

Wednesday, 25 November 2009

So now we know: £60 BILLION

The Bank of England announcement that they lent this huge sum off-balance-sheet to RBS and HBOS in the autumn and early winter of 2008 is not really surprising: there were doubtless similar mood-calming moves in other countries.
What is remarkable is that it was replaid by the end of January. So it is no wonder that the banks had no cash to support their customers with, during an after the repayment period.
It shows that the banks have been preferred to their users, because the banks are 'too big to fail': so small businesses have been allowed to fail for the lack of cash.
Banks don't innovate: small businesses develop ideas, and the best of them become big businesses.

Wednesday, 11 November 2009

Britain Threatened by Discredited Agency

Fitch - one of the less-disreputable Rating Agencies - has indicated that the UK could soon loose its AAA rating, and thus be seen as a worse credit risk than any other leading economy.
There is no surprise in the observation that the British Treasury is creating so much debt that British Government securities may become devalued. But it is very sad that the media can take the comments of any rating agency seriously. The agencies' collective failure adequately to value a huge range of financial 'products' - or the companies that issued them - was a major factor is allowing the credit bubble to develop, which ended in the credit crunch; which in turn created a crisis for the 'real economy' that will take years to work itself out.
Notwithstanding the agencies' disastrous impact ,government and regulators - not least our very own FSA - use agency ratings of businesses and of financial assets because without them they would have no systematic valuation medium at all.
Just as governments have to use the businesses that made the bubble as the means of getting out of the consequential mess, so they have to accept as authoritative agency ratings that can directly harm them.
Truth really is stranger - and even sadder - than fiction.

Tuesday, 10 November 2009

No Surprise about Barclay's

Barclays has surprised nobody with the huge profits that have been announced today. This company cleverly stayed out of the tighter government 'safety net', while benefitting from effectively-unlimited almost-free credit that the government and the Bank of England made available to maintain the whole banking sector.
They bought the US operations of Lehmans for a  token sum, without having to accept any of the embedded liabilities.
Their management is tough and intelligent.They have done absolutely nothing wrong; but they are widely reported as having somehow abused their resources and opportunities. That nonsense doesn't hurt the company, or reduce the principals' pay.
Attention will now focus on bonuses to be awarded to the people who do the clever stuff in 'casino banking'. They have a huge turnover, doing things that make no contribution at all to the material economy; but which are intellectually demanding and institutionally stressful. Their pay comes from the profits that are made on 'retail' - real world - banking, and from the corporate banking area that manages corporate mergers, acquisitions, share issues and bond sales; these also require intelligence, attention to detail and huge investment in contacts.

Monday, 9 November 2009

China in Africa

The most important economic news of the weekend was not the G20 meeting at Saint Andrew's [where Gordon Brown's advocacy of a 'Tobin Tax' on financial transactions received a loud raspberry], but a piece of back-room business that accompanied the African Economic Summit at Sharm-el-Sheikh. China agreed contracts of at least six billion dollars - very likely, much more - with several mineral-rich but poverty-stricken African countries.
While the West has fretted about doing any deal with an undemocratic or corrupt regime, over the past decade China has gone for access to the oil and minerals that it will need for the next stages of industrialisation.
The news reports include the fact that at least 50 'clean' power stations are to be part of the deal; enabling millions of Afircans to become users of Chinese computers and TV sets.
While Britain lags behind the field even in escaping from a 'technical' recession, former colonies that used to get all their manufactures from the UK are now Chinese clients [though some of them still receive assistance from the Department for Overseas Development in London].
While imperialism on the old pattern is unacceptable in this century, Britain could have retained much more positive relations with former colonies - as France has done, with considerable success. This is another glaring instance of the incompetence of the entire British political class over the past two generations. For a realistic perspective on all of this, click on to Nuclean Economy via this site.

Friday, 6 November 2009

RBS Losses and Bonuses

Royal Bank of Scotland today announced another huge loss on its overall activities. No surprise there!

It is equally unsurprising that RBS claims to have billions of pounds in funds allocable - and allocated - to SMEs that are not taking up the loans they have been offered. They do not add the truism that this is because the terms are too onerous. The banks have access to incredibly cheap money: but they screw their customers in the hope of rebuilding their balance sheets quickly. Quite rightly, the customers who have survived - in the main - are telling the bankers where to stack their funds.

The Corporate Banking area continues to produce disastrous results of Goodwin-era excess.

The Casino Banking operation is bringing in oodles of lovely profit; but the owner, the government, has told RBS that it cannot pay the going rate for the traders' high-pressure activity. It is expected that when this is confirmed - people in that world cannot yet believe that they may not be paid the top slice of the cream that they generate in their cyberspatial transactions of ephemera - they will resign. The speed with which the resignees will get equivalent jobs elsewhere will be an interesting indicator of the real degree of vitality in the City casino: and that will be the one really useful piece of information to emerge from the RBS Group results.

Thursday, 5 November 2009

Quantitative Easing

So, to nobody's surprise, it was announced to day that the Bank of England has decided to spend another £25 billion buying 'old' government bonds, to put the cash into the hands of firms that will use it buy new bonds and maybe a few old shares.
Meanwhile the government is selling the 'new' bonds at an unprecedented rate for peacetime.
The release of at least £200 billion of 'new money' into the economy from the QE programme will inevitably cause inflation of costs and prices at some time in the next few years.
The people who should be most concerned about this 'financial engineering' are those in employment who plan to become pensioners - with company pensions or personal pensions - in the next few years. The value of their 'pension pots' has been eroded massively over the past decade, and the trend of the last  few years for fund trustees to hold bonds has set fund members up for further significant losses. The consensus of commentators has decreed that it will probably never be knowable whether quantitative easing has 'worked' or not, at the macro-economic level: it is certain at the micro-economic level that it will be disastrous for members of pension funds.
It is probable that a majority of members of pension funds who are old enough voted for Thatcher in the 'eighties, and for Blair-Brown in 1997: so did they in so doing earn the misfortune that the succession of governments has brought upon them?

Tuesday, 3 November 2009

Banks 'Bailed-out and Broken-up'

Although the latest steps in the rehabilitation of RBS and the LLoyd's Group are being announced by British ministers, the decisions were taken in Brussels. In most EU countries [including the eastern states, before they were captured by the communists] smallish banks, often run on a mutual or local basis, were the norm. The megacorporations have largly been for corporate banking business, while personal account-holders and mortgagees have been with the smaller banks.
Thus the changes that may seem to be a little eccentric to the British are definitely intended to move the picture nearer to parity with the 'old' EU.
The fifty-odd billions of pounds that are to be added to the two banks' balance sheets are a [largish] drop in the ocean on top of what the public have committed to 'saving' the banks over the past fifteen months. RBS and Lloyd's will still be massively bigger than the new spin-off banks; so 'competition' will only be assured by an active regulatory regime.
We won't see the full picture for months.

Friday, 30 October 2009

Everybody will funk out at Copenhagen

The party games that have been played out in the EU Heads Of Government meeting this past two days have been more obviously silly that usual, because the poor mutts have allowed themselves to indulge in a mood of euphoria that at last the Lisbon Fudge is to be ratified. They went on to create a new mess of sugary fudge by agreeing that Europe should pay heavily to encouraging other parts of the world to tackle climate change; while funking which country shall pay how much.
Nobody can be held responsible for any policy failure after the final ratification, because nobody will 'own' any policy: EU Directives will set the context - and nobody is ever responsible for a Directive - and policies within states will be constrained or overruled by Directives. So the bully-politicos who are becoming the 'natural party of government' in each country will push through whatever seems to them to serve their blairite best advantage, without constraint or potent public inquiry. Nobody can remember when EU accounts were last signed-off by the auditors; and now the girls and boys on the inside track in each member state can tell the people below them that any abuse of pwer was sanctioned by Brussels: knowing that the people above them don't dare to rock the boat.
The extent of humanity's responsibility for climate change will increasingly be disputed as the economic constraints tighten: both by those who don't want to pay for mitigation and by the increasing minority of literates who are becoming influenced by the deniers of anthropogenic causation. The fact of climate change looks set to continue; and two more countries this week have issued dire warnings to their seaside populations that they may have to evacuate their homes within this generation. Prevention of an ultimate crisis must focus on what humanity can do to mitigate climate change on a global scale. This will probably entail huge climate-influencing public works that will try to change the behaviour of the oceans, and devices to control the penetration  of solar radiation to the atmosphere and to the suface of out planet.The concentration of green campaigners - and tax-collectors - on 'greenhouse gas emissions' is bizarrely unhelpful: that whole argument assumes that - this time - the single cause of the phenomenon [which has occurred many times in world history] is the human economy.
Solutions that could 'work' to save human life on the planet would overcome CO2 impacts and yet correct for global warming that might emanate from astronomical and geotechnical forces that our science has not yet analysed adequately. In the arrogantly depressing tradition of the Puritans and the Marxists, the Greens would impose high taxes and low living standards on most people in  what have been the advanced economies; while tolerating the possible starvation of 'overexpanded' populations within the emergent countries where population growth has become rampant,
No wonder the politicos are backing off from any draconian proposal to spend hugely [from resources they do not have] that would [at best] deal naively with a problem which none of them could explain.
Back to Al Gore!

Tuesday, 27 October 2009

Methane, Meat and Water

Lord Stern - the intelligent apostle of the climate change lobby - has been quoted this morning as advocating vegetarianism as a step towards mitigating climate change. He notes that methane is 23 times more dangerous a greenhouse gas than is carbon dioxide: a proposition interestingly similar to one used on the other side by an early denier of anthopogenic climate change, who argued that the methane excreted by millions of buffalo and elk in North America until their extermination by European settlers would have been a greater risk to climate than all the vehicular pollution created by the modern USA.
British farmers reacted to the latest comment by saying that they were now challenged [and modestly paid] to maintain the countryside as it is, which is largely based on sheep and cattle farming. That land is mostly unsuitable for intensive food crops; so there is no practical alternative to the present use of the land.
Whether the future is to be vegetarian or carniverous for the human who survive the next sixty or seventy years, one thing is clear: a crisis at least as great as the potential consequances of global warming is assured. The predicted growth in population will outstrip available water resources, even if rainfall in the most heavily-populated areas is not drastically reduced by climate change. The ability of humanity to address climate change is heavily questioned: but there is no question about the water problem. If population grows at the rate that has been predicted, thirst and filth will inescapably create incalculable human misery; and food supplies will fail as crops wither and animals die. This is no distant prospect: it is happening today in Africa.

Monday, 26 October 2009

Osborne Bashes Bonuses

The Brown government is likely to loose the next General Election; but it is increasingly unlikely that the Tories will win - other than by default. There is a distinct lack of enthusiasm for the Etonians and their associates among the majority of uncommitted and undecided voters.
George Osborne the shadow chancellor made a populist pitch today, with his proposal that people in 'retail' banks should not be paid significant bonuses; but the profits should instead be used for investment in businesses.
Businesses certainly need access to funding. For this purpose, they need banks. Most banks have been foolishly, even recklessly, run in past years; but the current crop of senior managers have been retained or engaged on salary-with-bonus packages that are designed to ensure that the retail banks become once more fit for purpose. The bosses will have earned those packages, in full, if the objectives are achieved and 'real world' businesses and viable individuals can borrow responsibly in future.
By contrast Osborne appears to have backed off from wanting to ban - or draconically to limit - the bonuses that traders and product designers are due to be paid in the 'casino' wholesale financial services business. Yet that is the sector against which public disgust has most strongly been directed, the market that almost destroyed the world economy. Doubtless he has been told by his shadow treasury team that a future government would have a devil of a job balancing the national books if these 'investment bankers' and traders stopped being paid massive taxable sums in the UK. It will be bad enough for government cash-flow if part of the bonus is received in shares, or is otherwise deferred, because the immediately accessible tax take is reduced.
Thus in this area - as in so many others - there is no clear difference between government and opposition [and the Lib Dems offer no innovation, notwithstanding the forensic skill of Vince Cable].
Policymakers can only thrash around for the least-painful way out of the mess into which 'brilliant' Chancellor Brown allowed the system to propel us all. Political parties have no relevance in this crisis management, but - suprisingly - in this context, Darling seems marginally to be the better man for job; pity about his leader!

Friday, 23 October 2009

The Banks 'On Welfare'

Anyone interested in the rational view of American social issues should follow Star Parker in her syndicated columns and via her CURE organisation.
It provides regular blogspots and access to a very significant corpus of work.
Her key perception that the US banking system has - in effect - been put on welfare [alongside the growing cohort of those who have been made unemployed by the banks' past actions] gives a useful perspective to the rapidly advancing statism that has captured both the USA and the UK.
This cannot be seen as a party political issue, as what the Bush administration began the Obama administration has carried forward [though the latter has pursued quasi-nationalisation with much more enthusiasm].
The bovine acceptance of dependency by both individuals and institutions is the antithesis of enterprise; and marks a major phase in the decline of the west.

Wednesday, 21 October 2009

Mervyn is Right!

If a few men go out to sea in a small boat to catch fish - say haddock - and one of them catches a cod, that must now be reported to the national government, which must report it to the EU, which will deduct that codfish from the national quota that professional fishermen are allowed to catch.
The EU pretends that it is allowing more latitude to national and regional governments: but, as this new regulation about cod fishing shows, it is merely building up intrusive bureaucracy.
A parallel point was made by Mervyn King in his Edinburgh speech on October 20, 2009. Detailed regulation is mere regulation: bureaucracy is just costly bureaucracy: and clever Dicks who know how to manipulate the fringes of legality to their own gross advantage will always outsmart the deskbound rulemakers. The bankers have been given greater power to ruin the economy than they had on New Year's Day 2007; and they can safely assume that there will always be a Gordon Brown to lead the next bail-out. This will be true until the idiocies of the historical Economics establishment have finally been abandoned.

Monday, 19 October 2009

Freakanomics: a Nice Escape

Levitt and Dubner have deservedly struck gold with their second book in a series that could run further. Since SUPERFREAKONOMICS includes the sex trade among its subject matter, it has had huge exposure in the press.
Among the great attractions of their approach is that it does not hark back to the core dogmatics of textbook Economics: it is fun, it includes a lot of common sense and sensible observation. This is so unlike the aridity of mainstream economic theory, that has built complexity sky-high on the basis of assertions that are 150 years old and did not describe the 'real world' even as it was when they were formulated.
There is no similar fun in NUCLEAN ECONOMY, but there is realism and good sense: try it out, accessible from this site.

Thursday, 15 October 2009

Contempt of the People

Bankers' bonuses are beating all records - and all but the most senior managers of the banks will be able to take most of their bonuses in cash pretty well immediately. Just a year after the credit crisis reached its peak, it is generally agreed that the bankers' behaviour is obscene. it is certainly contemptuous of the mass of people whose lives will be adversely affected by the bankers' and securities traders' past antics  for many years to come.
Meanwhile Britain's parliamentarians have got themselves in a pickle by having accepted an adjudicator on their expenses who has made up his own aberrant rules: they must now accept what he has said, or defy him and look corrupt and selfish. Either way, it means that politicians as a class do not have the moral authority to censure the bankers as they should.
Bizarrely, the one person who comes really well out of the past period is Alistair Darling, who predicted the depth of the crisis while on his summer holiday [to receive much ridiclue] and kept his cool throughout! While the Prime Minister postured, Darling beavered away; and when he made public statements they were measured, clear and comprehensible. It will be worse than unfortunate if he falls foul of the expenses kerfuffel in any serious way.

Wednesday, 14 October 2009

Bank Profits and Bonuses

The international bankers have again achieved what should be imposible.
They have made very significant profits, from which they are paying large bonuses; making fools of the politicians who bailed them out at such huge cost just a year ago. Ministers demanded that bonuses be limited: they have not been; though there are some cosmetic changes in the timing of when the rewards will go into the blokes' pockets.
How do they manage this, when things are getting tighter for ordinary people and for 'real' businesses?
The answer is, that they trade with others of their ilk in imaginative contracts, not in reality,
This is explained in Nuclean Economy, acessible via this blog.

Monday, 12 October 2009

More Assets to be Stripped

The government is trying to sell its holding in the Channel Tunnel, the Dartford Bridge, the Tote and other assets, to reduce the deficit on government spending.
The deficit arose because the stability of society was seriously threatened in 2008 by the near-collapse of the banking system. That failure was due to the disastrously incompetent manner in which the 'financial services' were regulated; and regulation in turn was burdened  by its dependence on nonsenical propositions that were asserted in Economics.
The revenue that may be received from these sales will be a mere drop in the ocean as a supplement for normal government revenue; but a much more important question is whether it is right or sensible to sell yet more 'public goods'  to be administered for private profit.
The Tote was established by Winston Chrchill in 1928, when he was Chancellor of the Exchequer, and it has supplied stable funding for the sport of horseracing ever since then. There is a broadly valid old adage: 'if it ain't broke, don't fix it'. We may add, if it's useful as it is, why change things?
Such tinkering will not make a ha'peth of difference to the economy, or to the financial position of the government. It is action for the sake of action: gesture politics. The real issues are demanding, and should properly be addressed.
To see a realistic assessment of the issues, refer to Nuclean Economy, via this site.

Friday, 9 October 2009

A true measure of Britain's problem

The World Economic Forum [best known for running the annual Davos shindig] has announced that Britain is the world's 'leading financial centre'; but this apparent accolade is balanced by the fact that the same survey lists Britain in 37th place for 'financial stability', after Nigeria and Bangladesh in a table of 55 countries.
The UK was 44th for currency stability, 45th for the stability of the banking system, 39th for managing the public sector debt and 40th for managing private deabt.
This is because there is precious little evidence that the government and the Bank of England really have control of the system
By keeping the economy open to global financial trade the government gets taxes from the City trading firms and on the salaries and bonuses of the traders. The cost of doing this is to expose the 'real economy' and the economic existence of citizens to unpredictable and potentially violent fluctuations.
Gordon Brown thinks that he has 'saved the world': he may have benefitted other countries by his vastly expensive intervention in the meltdown of the financial system in 2008, but he has pushed Britain further out on the limb that hangs over an abyss.

The Tory Twister

David Cameron has taken a bold line in his 2009 Party Conference, and it has received a good response. The ideas that emanate from work led by Iain Duncan Smith and by a recent import from New Labour show that the Conservatives have recognised the extent of the problems Britain faces.
But their proposed 'solution' will make matters vastly worse.
Nobody except their mothers and dependents likes or respects NHS managers: they are legendary for inefficiency, waste, and the avoidance of responsibility; so if they are - rightly - weeded out, who would ever employ them? Ditto for many of the MILLIONS of Civil Servants who should be thrown out if the Tories really want to shrink 'big government'.
It's great to claim to be able to 'get Britain back to work': but DOING WHAT? Serving in Tesco or Asda for a short week, selling imported commodities and receiving tax credit? That's no good for the tax burden or for the balance of payments.
The problems go seriously deeper than the 'solutions' that Cameron has proposed: see Chapter Five of Nuclean Ecnomy

Saturday, 12 September 2009