There is a glorious row rumbling on about the salaries of Vice-Chancellors [general managers] of Universities. A new Vice-Chancellor of Oxford feels constrained to defend a salary of less than £400,000 as the head of one of the half-dozen most powerful and effective academic communities in the world: and that is quite inappropriate. To attract a significant global academic-cum-manager needs that amount of money: though it is only a couple of decades since Sir Colin Lucas occupied the office of Vice Chancellor for a couple of years as Master of Balliol College. Colin was able to persuade the powers-that-be in the university that the time had come to drop the hit-or-miss rotation of the Vice-Chancellorship among the heads of colleges and to employ a top manager on a longer-term contract. Cambridge did the same thing about the same time, and so far the two institutions between them had some successes and some embarrassments: but nobody is proposing a reversion to the medieval system.
The silly title of Vice-Chancellor implies an assistant or deputy to the honorific head of a university, who may be a member of the aristocracy [even a minor royal] or a politician or a benefactor or a distinguished scholar or scientist: but who is in no way involved in the routine management of the place. Several vice-chancellors have added titles like 'president' to their portfolio [evincing a painful need to say 'I'm really the boss'] and Scots avoid the whole morass by being known as 'principals'.
The route to being a vice-chancellor is complex, but now that there are some 120 of them it has become obvious that both the institutions and their general managers are of very different quality. The vice-chancellor of Bolton University [yes, there is even one there now] has waded onto the media several times, bragging of his importance despite his institution wallowing near the bottom of the league. He claims to be worth what he is paid, in a way that would perhaps justify £50,000 a year plus expenses and pension: the fact that he is within spitting distance of the top 'earners' is absurd on any objective criterion.
The row started with somebody making the observation that all the vice-chancellors are paid more than the Prime Minister is paid. This has been developed into something close to a vendetta by the obsessive proponent of the useless HS2 railway, who has been unable to make any inroad into the system; while the government looks most unwilling to intervene. There are at least twenty world-class university institutions in the United Kingdom, including the leading colleges of the University of London. Their heads need to be global figures. But for the rest of the so-say university system the salaries are indeed inflated. How did this happen? I was there at the time. During the 'seventies and the 'eighties of the last century several 'polytechnics' were created, usually by amalgamating teacher-training colleges and craft colleges with city technical colleges. These institutions grew quickly as they 'produced' graduates more cheaply than did the 'traditional' universities; so their Directors were able to negotiate high salaries with their local-authority-dominated employers. Then the government decided that the polys should be given 'parity of esteem' by being designated as universities. Then the pre-existing vice-chancellors found it impossible to ignore the fact that their median salaries were below those of ex-poly directors; and a game of catch-up went crazy: resulting in the present system.
Then somebody drew in the comparison with the Prime Minister: if she gets a much more modest salary for 'running the country', then it can be claimed to stand as self-evident that V-Cs are paid 'too much'.
This is daft: everybody knows that most prime ministers in recent decades have been quite young people, who had a great deal of lifetime remaining in which to make a great deal of money, if they are so inclined. Gordon Brown is not so inclined: he has a comfortable existence doing global good works. But his old sparring-partner Blair was quickly notorious for the millions that have passed through his personal accounts as well as through the charities that give him a public profile that has not yet diminished his odious personal reputation. David Cameron's cowardly exit from Downing Street and the Commons was followed by the purchase of a hut-on-wheels in which he is writing the memoirs that he hopes will begin the repletion of the fortunes that he and his wife have inherited. Mrs May's impending departure will give her the opportunity to accumulate a cash pile to set alongside her husband's City earnings; starting, again, with heavily-supported memoirs.
The 'granny of them all' among ex-politician big earners, Hillary Rodham Clinton, is in the UK now to promote the memoirs that have been written and published in quick time since her election defeat last November. Like her husband, she had outblaired Blair himself in the league of big post-political earners. So to make a current prime minister's salary a template for anything is simply silly. Some civil servants, NHS managers and others in the public sector are necessarily paid more than the prime minister. If Labour re-nationalise any industries or utilities, they will have to pay their managers more than the prime minister, if they want the re-nationalisation to work. That is the way of the world. Meanwhile, the vice-chancellor of Bolton University will be the living proof that some people in the semi-public sector are indeed overpaid.
Showing posts with label Blair. Show all posts
Showing posts with label Blair. Show all posts
Saturday, 14 October 2017
Sunday, 17 September 2017
QE: The Social Cost
The Labour governments of Tony Blair and Gordon Brown [1977-2010] progressively moved from following their Tory predecessor's conservative budgetary policy to creating a deficit on government spending [the amount by which the government spent more than their income from taxes, tolls etc]. As Chancellor of the Exchequer, then Prime Minister, Gordon Brown made a very quaint use of the word 'investment'. It has been normal for a couple of centuries [at least] to use the word 'spending' [or expenditure] to mean the amount that is spent on pay-as-you-go government activity, and the word 'investment' to mean spending on projects that have a net cost as they are undertaken, but which it is hoped will yield an economic or a social dividend - ideally, both - when they have been completed. Under Labour, this distinction was eliminated. 'Investment' was just part of current spending: it just sounded better to make it seem as if some future return was in mind.
Alongside this abuse of words [and of common sense] the Labour government introduced the wildly irresponsible PFI concept, by which a school or a hospital building [which could be seen as an investment for the long term, in the conventional understanding of the term] would be built by a private contractor who could then charge a rent for the building while it was in use. This crazy system meant that the contractors, and the funders with whom they formed consortia, would be able to take a high rent from the health service or the school governing body. In addition, many such contracts gave the builder the right to undertake all maintenance work - at their own 'costing' - for several years, at the expense of the user of the building. This obviously provided a massive drain on the income of the user organisation when the premises came into use. As the premises had often been designed many years before they came into use, the designs were often very much less that state-of-the-art when they became operational. Thus taxpayers were involuntarily having to meet these charges.
Thus, when the Tory-LibDem coalition came into power they were horrified at the 'out-of-control' public spending obligations that they confronted. They decided that the burgeoning annual deficit on the national budget must be reduced: then they experienced their own brainstorm, and decided that they must cut future spending projections by the state. Hence began the regime of 'austerity'. Under that regime, public spending has been held down; almost as a matter of faith.
This policy was imposed in 2010, just after the Bank of England had become used to administering its programme of Quantitative Easing, as explained in the previous two blogs. The orderly queue of bankers was allowed each to encash approved securities for new credit, which they could then spend as they wished. This meant that they could keep in being the securities whose existence had been threatened by the market crash of 2007-8 until they came to their term dates; and an increasing proportion of them could be sold once their face-value had been restored [more or less] within the highly flexible wholesale finance market. So while people running public services were increasingly constrained by what they could spend - including on wages and social benefits - the banks could lend more money to firms and to individuals. Not many firms needed to borrow from the banks: the successful among them could derive all the investment they needed from their profits and from share issues; the unsuccessful drew in their horns and hoped to survive. Furthermore, the government provided modest funds to help some classes of start-up and developing businesses [although most of the more successful of them fell prey to overseas takeover, whereupon the technological innovation that they embodied was alienated].
In both the public and the private sectors, wages were constrained; in the public sector by the austerity rules, which included either nil or 1% increases each year. The private sector was able to import staff from less high-wage countries, and a consensus of commentators accepted that the combination of immigration with the appallingly low level of skills among the indigenous British population kept wages low; in both cash terms and real terms. Hence after 2010, most people found that the only way to increase their spending on consumption was by borrowing. Loans and credit card debts were freely available, so people borrowed; largely to buy imported commodities. So the balance-or-payments deficit burgeoned, while the government struggled to keep public spending within the limits that Osborne and then Hammond vainly aimed to enforce. Unsecured household indebtedness increased, alongside the debt that the UK owed to the rest of the wThen it became apparent that QE had another perverse effect on ordinary people. After the financial crisis, new starts in house building had reduced to a record low level; and virtually nobody was building social housing. Thus the resale prices on existing properties increased: but with interest rates set at their lowest ever level by the Bank of England the cost of borrowing [per pound] seemed affordable. Cassandra-like warnings that people who had mortgaged their property heavily might not be able to maintain payments when interest rates rose received scant attention.To get a new home, people had to borrow the money to buy expensive new properties on terms that profitable to their constructors. Mortgages were freely available for house buyers with even modest incomes, thanks to QE and government schemes to enable a minority of first-time buyers to enter the market. The majority of would-be first time buyers could not find the cash deposit they needed to enter the housing market; and anyway their incomes, especially for those burdened by student loan debt, could not support the ongoing cost of house purchase. In addition to the existing poor, there was a growing cohort of nearly-poor, including many graduates. In the next blog I will examine the pattern of poverty in Mrs May's Brexit Britain, and relate it to QE and to austerity.
Alongside this abuse of words [and of common sense] the Labour government introduced the wildly irresponsible PFI concept, by which a school or a hospital building [which could be seen as an investment for the long term, in the conventional understanding of the term] would be built by a private contractor who could then charge a rent for the building while it was in use. This crazy system meant that the contractors, and the funders with whom they formed consortia, would be able to take a high rent from the health service or the school governing body. In addition, many such contracts gave the builder the right to undertake all maintenance work - at their own 'costing' - for several years, at the expense of the user of the building. This obviously provided a massive drain on the income of the user organisation when the premises came into use. As the premises had often been designed many years before they came into use, the designs were often very much less that state-of-the-art when they became operational. Thus taxpayers were involuntarily having to meet these charges.
Thus, when the Tory-LibDem coalition came into power they were horrified at the 'out-of-control' public spending obligations that they confronted. They decided that the burgeoning annual deficit on the national budget must be reduced: then they experienced their own brainstorm, and decided that they must cut future spending projections by the state. Hence began the regime of 'austerity'. Under that regime, public spending has been held down; almost as a matter of faith.
This policy was imposed in 2010, just after the Bank of England had become used to administering its programme of Quantitative Easing, as explained in the previous two blogs. The orderly queue of bankers was allowed each to encash approved securities for new credit, which they could then spend as they wished. This meant that they could keep in being the securities whose existence had been threatened by the market crash of 2007-8 until they came to their term dates; and an increasing proportion of them could be sold once their face-value had been restored [more or less] within the highly flexible wholesale finance market. So while people running public services were increasingly constrained by what they could spend - including on wages and social benefits - the banks could lend more money to firms and to individuals. Not many firms needed to borrow from the banks: the successful among them could derive all the investment they needed from their profits and from share issues; the unsuccessful drew in their horns and hoped to survive. Furthermore, the government provided modest funds to help some classes of start-up and developing businesses [although most of the more successful of them fell prey to overseas takeover, whereupon the technological innovation that they embodied was alienated].
In both the public and the private sectors, wages were constrained; in the public sector by the austerity rules, which included either nil or 1% increases each year. The private sector was able to import staff from less high-wage countries, and a consensus of commentators accepted that the combination of immigration with the appallingly low level of skills among the indigenous British population kept wages low; in both cash terms and real terms. Hence after 2010, most people found that the only way to increase their spending on consumption was by borrowing. Loans and credit card debts were freely available, so people borrowed; largely to buy imported commodities. So the balance-or-payments deficit burgeoned, while the government struggled to keep public spending within the limits that Osborne and then Hammond vainly aimed to enforce. Unsecured household indebtedness increased, alongside the debt that the UK owed to the rest of the wThen it became apparent that QE had another perverse effect on ordinary people. After the financial crisis, new starts in house building had reduced to a record low level; and virtually nobody was building social housing. Thus the resale prices on existing properties increased: but with interest rates set at their lowest ever level by the Bank of England the cost of borrowing [per pound] seemed affordable. Cassandra-like warnings that people who had mortgaged their property heavily might not be able to maintain payments when interest rates rose received scant attention.To get a new home, people had to borrow the money to buy expensive new properties on terms that profitable to their constructors. Mortgages were freely available for house buyers with even modest incomes, thanks to QE and government schemes to enable a minority of first-time buyers to enter the market. The majority of would-be first time buyers could not find the cash deposit they needed to enter the housing market; and anyway their incomes, especially for those burdened by student loan debt, could not support the ongoing cost of house purchase. In addition to the existing poor, there was a growing cohort of nearly-poor, including many graduates. In the next blog I will examine the pattern of poverty in Mrs May's Brexit Britain, and relate it to QE and to austerity.
Friday, 14 July 2017
Britain-in-Europe Survived as a 'Service Economy'
Yesterday, I hinted at the crucial fact that in 1948 the British people generally accepted that the country needed to rebuild its balance of payments; but their interests as consumes came to predominate over the recognised priority for productive investment in the economy. Following the collapse of neo-Keynesianism, the entry of the UK into the EEC was a vital step in the next major development. Within the cocoon of the EEC, then the EU, Britain was brought within a vast shelter that [it was hoped] could save any member country from economic catastrophe.
After Mrs Thatcher had eviscerated the economy, her successors were obliged to express admiration for her achievement in 'rebuilding' it. So, as the balance of payments worsened and the material economy continued to decay, it became imperative for the European shelter to be toughened. Mrs Thatcher herself huffed and puffed about Europe's exactions - and she gained an unprecedented rebate when other member states admitted that Britain was, indeed, being screwed under the prevailing formula - then she signed up to integrationist agreements. John Major, a hugely under-estimated figure, won a general election and proceeded to lead the country into the 'inevitable' process of political association of the EEC states with the passage of the Maastricht Treaty. A significant number of Conservative MPs, who he apparently classed as 'the Bastards', recognised that a political price was being paid for an economic shelter; and several of them did not like it. Thus they sought to oppose the surrender of ultimate sovereignty to the European Union: and though Britain went fully into the Union, there were many who resented it, in both major political parties.
Tony Blair's contempt for any history but his own, and for any political principle more profound that his convenience, led him to pack the House of Lords with donors who spared him the need to mollycoddle the trade union leaders whose predecessors has dominated the Labour Party through their control of the purse strings. His cavalier attempt to abolish the ancient office of Lord Chancellor showed how superficial he was; and the scandal of the Gulf War has rightly become the basis for an ineradicable contempt for his unconcern with truth; and apparently for the lives of British forces and Iraqui civilians. He allowed the drift towards further integration of EU institutions to continue, while considering himself a 'bridge' between the USA and the EU. Gordon Brown's brief period in office was dominated by the economic crisis, to which he and his Chancellor, Alastair Darling, responded well.
The came the Cameron-Clegg coalition. The LibDems were fanatically pro-'European', so for the five years of the coalition government the subjection of the UK to the EU was welcomed: the economic protection that it gave to the UK was recognised, and as the major financial centre to have survived well when the dust settled after the great crash of 2007-8 London was proven to be an asset to the whole of the EU. Of course, French and German bankers resented this situation; but their banks had to build up their London operations to remain globally competitive. Thus in the period 2010-15 a sub-set of the service sector, the financial services, became central to the economic offering that the EU made to the rest of the world. After five years of coalition the LibDems were adamant that they needed to stand [and to crash] as an independent party in the 2015 general election; while David Cameron [with an arrogant insouciance reminiscent of Tony Blair] promised a referendum on membership of the Union hoping, once and for all, to show that the 'Bastards' were a declining and impotent minority within the British state. Cameron was surprised to win the election, and he decided to call the referendum on the basis that a simple majority was required, with no limiting conditions. He apparently expected something over 70% of those who voted to favour continued membership of the Union. He had not foreseen that the referendum could be opened up as an avenue for the pent-up resentment of large swathes of the nation against his austerity policies, against deindustrialisation, against alien immigration, and simply against authority. The more the odious apostle of austerity, George Osborne, predicted doom and disaster, so the more people were tempted to vote against the government.
Thus came about Brexit. Cameron stood down, shocked at the consequences of his actions. The largely unknown Theresa May became the surprise premier, and she immediately grasped the wrong end of the stick on Brexit. Without comprehension of the importance of the economic cocoon, she set in train a process which - if it were continued to the end - would be calamitous. On her minsters' first presentation of major Brexit legislation - yesterday - it immediately became clear that she would not get away with it. The nation is about to descend into faction, debate and disagreement that will be reflected in both houses of parliament and in all the devolved assemblies. Things are getting interesting: and the only certainty is that Brexit as Mrs May has misconstrued it has gone into protracted death throes,
After Mrs Thatcher had eviscerated the economy, her successors were obliged to express admiration for her achievement in 'rebuilding' it. So, as the balance of payments worsened and the material economy continued to decay, it became imperative for the European shelter to be toughened. Mrs Thatcher herself huffed and puffed about Europe's exactions - and she gained an unprecedented rebate when other member states admitted that Britain was, indeed, being screwed under the prevailing formula - then she signed up to integrationist agreements. John Major, a hugely under-estimated figure, won a general election and proceeded to lead the country into the 'inevitable' process of political association of the EEC states with the passage of the Maastricht Treaty. A significant number of Conservative MPs, who he apparently classed as 'the Bastards', recognised that a political price was being paid for an economic shelter; and several of them did not like it. Thus they sought to oppose the surrender of ultimate sovereignty to the European Union: and though Britain went fully into the Union, there were many who resented it, in both major political parties.
Tony Blair's contempt for any history but his own, and for any political principle more profound that his convenience, led him to pack the House of Lords with donors who spared him the need to mollycoddle the trade union leaders whose predecessors has dominated the Labour Party through their control of the purse strings. His cavalier attempt to abolish the ancient office of Lord Chancellor showed how superficial he was; and the scandal of the Gulf War has rightly become the basis for an ineradicable contempt for his unconcern with truth; and apparently for the lives of British forces and Iraqui civilians. He allowed the drift towards further integration of EU institutions to continue, while considering himself a 'bridge' between the USA and the EU. Gordon Brown's brief period in office was dominated by the economic crisis, to which he and his Chancellor, Alastair Darling, responded well.
The came the Cameron-Clegg coalition. The LibDems were fanatically pro-'European', so for the five years of the coalition government the subjection of the UK to the EU was welcomed: the economic protection that it gave to the UK was recognised, and as the major financial centre to have survived well when the dust settled after the great crash of 2007-8 London was proven to be an asset to the whole of the EU. Of course, French and German bankers resented this situation; but their banks had to build up their London operations to remain globally competitive. Thus in the period 2010-15 a sub-set of the service sector, the financial services, became central to the economic offering that the EU made to the rest of the world. After five years of coalition the LibDems were adamant that they needed to stand [and to crash] as an independent party in the 2015 general election; while David Cameron [with an arrogant insouciance reminiscent of Tony Blair] promised a referendum on membership of the Union hoping, once and for all, to show that the 'Bastards' were a declining and impotent minority within the British state. Cameron was surprised to win the election, and he decided to call the referendum on the basis that a simple majority was required, with no limiting conditions. He apparently expected something over 70% of those who voted to favour continued membership of the Union. He had not foreseen that the referendum could be opened up as an avenue for the pent-up resentment of large swathes of the nation against his austerity policies, against deindustrialisation, against alien immigration, and simply against authority. The more the odious apostle of austerity, George Osborne, predicted doom and disaster, so the more people were tempted to vote against the government.
Thus came about Brexit. Cameron stood down, shocked at the consequences of his actions. The largely unknown Theresa May became the surprise premier, and she immediately grasped the wrong end of the stick on Brexit. Without comprehension of the importance of the economic cocoon, she set in train a process which - if it were continued to the end - would be calamitous. On her minsters' first presentation of major Brexit legislation - yesterday - it immediately became clear that she would not get away with it. The nation is about to descend into faction, debate and disagreement that will be reflected in both houses of parliament and in all the devolved assemblies. Things are getting interesting: and the only certainty is that Brexit as Mrs May has misconstrued it has gone into protracted death throes,
Wednesday, 14 June 2017
The 'Value' of Reputation
Christiano Ronaldo is the world's best-paid, and probably the world's best, footballer. He is currently in the headlines as a consequence of a pursuit by the taxman, who is challenging the amount that the footballer's accountants have declared to be his taxable income from sale of his 'image rights': the use of his name and his photographic [or sculptured] image. No doubt there will be an eventual settlement. The media are interested because their viewers and readers are almost all fascinated by the massive amount of money that is attracted to people with a huge 'image'.
In my book, advertised on this page, I stress that the utter failure of Economists to account for intellectual property [ik] - of which image is just one category - is one of the most significant demonstrations of the utter failure of their subject to explain the real world in which humans live. So long as the received wisdom of the Econocracy dominates the advice that governments receive on economic issues, questions like the appropriate taxation of image rights will be more contentious than they need be; and disputes about the eligibility of different streams of income for taxation will enrich accountants and lawyers, and benefit journalists.
Footballers, film stars and inventors keep the residue of their incomes that the taxmen leave for them: that taxation makes them a little less obscenely wealthy than they otherwise would be; and some of them dissipate their fortunes due to bad character or bad advice, but the resultant distribution of wealth is generally thought to be 'fair' once the due tax has been paid. A megastar like like Sir Paul McCartney is honoured because he has remained tax resident in the UK throughout his career.
Politicians who became prominent have the opportunity to make significant fortunes after their careers have ended in failure [as all political careers do, with relative degrees of failure]. Tony Blair is notorious for the wealth that he has acquired since leaving office. The loathed George Osborne has been offered lucrative contracts, and David Cameron and Barrack Obama are both 'working' on their memoirs, for which they have been paid massive advances. Gordon Brown, unusually, has stuck to his Presbyterian principles, allocating most of his post-premier earnings to charitable causes and deserves credit for this. Even Theresa May, who is currently dissipating what little political 'capital' she has ever had, will make a nice little pile of pennies when her career is terminated.
How long that career will last is currently being determined; and the outcome of the current discussions will ultimately define the reputation on which her inevitable failure will be judged. She is risking chaos in Northern Ireland by her proposed political alliance with the DUP, and strife within her own party as a result of having sided with Liam Fox, Boris Johnson and other apparent economic illiterates in planning to leave the European Economic Area. The division of the population in the 2016 Referendum was broadly one-third to stay, one-third to leave, and one-third with no answer: a sensible prime minister would take this as a guide to seek the best and broadest possible consensus - which is very clearly for a 'soft Brexit'. Mrs May seems to be ignoring those signs, just at present.
Perhaps she is reckoning that her memoirs will be worth more, the more spectacular is her coming failure and the damage that it does to the nation? Perish the thought!
In my book, advertised on this page, I stress that the utter failure of Economists to account for intellectual property [ik] - of which image is just one category - is one of the most significant demonstrations of the utter failure of their subject to explain the real world in which humans live. So long as the received wisdom of the Econocracy dominates the advice that governments receive on economic issues, questions like the appropriate taxation of image rights will be more contentious than they need be; and disputes about the eligibility of different streams of income for taxation will enrich accountants and lawyers, and benefit journalists.
Footballers, film stars and inventors keep the residue of their incomes that the taxmen leave for them: that taxation makes them a little less obscenely wealthy than they otherwise would be; and some of them dissipate their fortunes due to bad character or bad advice, but the resultant distribution of wealth is generally thought to be 'fair' once the due tax has been paid. A megastar like like Sir Paul McCartney is honoured because he has remained tax resident in the UK throughout his career.
Politicians who became prominent have the opportunity to make significant fortunes after their careers have ended in failure [as all political careers do, with relative degrees of failure]. Tony Blair is notorious for the wealth that he has acquired since leaving office. The loathed George Osborne has been offered lucrative contracts, and David Cameron and Barrack Obama are both 'working' on their memoirs, for which they have been paid massive advances. Gordon Brown, unusually, has stuck to his Presbyterian principles, allocating most of his post-premier earnings to charitable causes and deserves credit for this. Even Theresa May, who is currently dissipating what little political 'capital' she has ever had, will make a nice little pile of pennies when her career is terminated.
How long that career will last is currently being determined; and the outcome of the current discussions will ultimately define the reputation on which her inevitable failure will be judged. She is risking chaos in Northern Ireland by her proposed political alliance with the DUP, and strife within her own party as a result of having sided with Liam Fox, Boris Johnson and other apparent economic illiterates in planning to leave the European Economic Area. The division of the population in the 2016 Referendum was broadly one-third to stay, one-third to leave, and one-third with no answer: a sensible prime minister would take this as a guide to seek the best and broadest possible consensus - which is very clearly for a 'soft Brexit'. Mrs May seems to be ignoring those signs, just at present.
Perhaps she is reckoning that her memoirs will be worth more, the more spectacular is her coming failure and the damage that it does to the nation? Perish the thought!
Saturday, 30 June 2012
Banking Shock?
It is astonishing that anyone could be surprised by the latest major scandal to be published about the bankers. Of course they manipulated the London Market Offered Rate of interest: LIBOR. Of course they sold completely inappropriate derivatives to small businesses. They have run the financial system on the basis of blatant veniality for the last few decades.
The Rating Agencies are paid by the firms whose stock they rate: and by 2010 they had completely blown away their wholly spurious reputation of earlier years, when the uselessness of their ratings of billions of dollarsworth of badly-cobbled 'securities' and other instruments was made clear. It is incredible that five years on from the crunch of 2007 they remain recognised [by regulators, actuaries and accountants] as holders of the magic means by which stocks, shares and gambling slips issued by other firms are regarded as possessing 'value' in financial markets.
This suspension of disbelief in respect of the Agencies' ratings of company stocks helps to explain how the banks have continued to get away with a similar - and even more obviously corruptible - standard and measure of 'value' in the banking sector. Nobody has had any excuse for believing that any valid standard of competence or integrity has been attached to the daily announcement of libor [and of other median rates of interest] in the London Market. These figures, which are used as numeraires in millions of transactions worldwide every day, are based on data that are submitted by employees of the regulated UK banks. Since the nineteen eighties these same institutions have been deeply embroiled in the business of the London Market on their own account, as well as in the role of agents for other investors.
After two years of investigation by the regulatory authorities, during which the libor has been produced on the accepted basis, it has been admitted publicly that Barclays:
First, both in the good times pre-2007 and during the consequential crunch, massaged the data that they submitted for inclusion in the libor computation to support "the sneaking arts of underling tradesmen". The supposed data that the bank submitted were adjusted to support the day-to-day convenience of their trading counterparties and their chums. They supported their own market positions by influencing the rates that were authoritative in the Market.
Subsequently, after the extent of the crunch had begun to become clear, Barclays continued wantonly to mis-state the data better to facilitate their traders taking up and winding-down borrowings.
There is no reason to believe that the other banks that contributed data were significantly immune to the temptation to use the libor methodology to their advantage. More confessions will be made; and trivial fines [without criminal charges against offenders] are expected to be imposed on the other banks. Thus the whole of the UK's regulated home-based banking business have massively more undermined than had already been done by the crunch itself.
In the same week, just past, the RBS.group remained unable to rectify a disastrous, inept and incompetent 'upgrade' to its retail software that kept millions of customers from effecting transactions. This was reputationally at least as bad among less sophisticated customers as was the damage to 'wholesale' banking in the credit crunch that they could not understand. Then it was announced that thousands of firms had been invited to buy betting slips that had cost them heavily when interest rates had fallen: some of the 'invitations' had been presented as conditions that must be accepted by the client firm as a term for being granted some other facility by the bank. Many firms were ruined and many more suffered serious difficulty in finding the cash that was necessary to keep going through the slump.
The pathetic politicians have mouthed what their puerile advisers have recommended they should say in response to the multilayered revelations. They have demanded - or promised to establish - 'inquiries' informed by 'independent' 'experts' selected from the usual gang of lawyers and quangocrats who have drawn fees from the system that has promoted the decline of the once-robust economy..
Ordinary white British folk already know all too well what happened. Since 1980 successive governments of both parties have grovelled to accommodate the demands of the most pushy segments of the finance sector of the economy, because they were declaring expanding turnover and creating jobs and paying taxes that partially made up for the politicians' systematic destruction of the 'real economy'. They never were and never will be capable of self-regulation in any particular. They never were and never will be capable of making objective statements about the 'value' of anything that they conjure into existence. The delusion that the empowerment of market participants will endow them with responsibility towards society or to the body politic was most powerfully asserted by Margaret Thatcher and her sycophants; and was maintained by Major, Blair and Brown. David Cameron has neither the intellectual capacity nor the will to understand the consequences of this ruinous litany; and sneering Osborne has every interest in letting Cameron founder, in the hope that he will become the leader of a dying Tory Party.
It is certain that within the current political structure the government will not respond adequately or in good time to the next phases of the crisis that the political class has fostered; that the bankers will continue on their exploitative progress; and that the economy will continue to decline. Nobody can seriously claim to be surprised by any of it!
The Rating Agencies are paid by the firms whose stock they rate: and by 2010 they had completely blown away their wholly spurious reputation of earlier years, when the uselessness of their ratings of billions of dollarsworth of badly-cobbled 'securities' and other instruments was made clear. It is incredible that five years on from the crunch of 2007 they remain recognised [by regulators, actuaries and accountants] as holders of the magic means by which stocks, shares and gambling slips issued by other firms are regarded as possessing 'value' in financial markets.
This suspension of disbelief in respect of the Agencies' ratings of company stocks helps to explain how the banks have continued to get away with a similar - and even more obviously corruptible - standard and measure of 'value' in the banking sector. Nobody has had any excuse for believing that any valid standard of competence or integrity has been attached to the daily announcement of libor [and of other median rates of interest] in the London Market. These figures, which are used as numeraires in millions of transactions worldwide every day, are based on data that are submitted by employees of the regulated UK banks. Since the nineteen eighties these same institutions have been deeply embroiled in the business of the London Market on their own account, as well as in the role of agents for other investors.
After two years of investigation by the regulatory authorities, during which the libor has been produced on the accepted basis, it has been admitted publicly that Barclays:
First, both in the good times pre-2007 and during the consequential crunch, massaged the data that they submitted for inclusion in the libor computation to support "the sneaking arts of underling tradesmen". The supposed data that the bank submitted were adjusted to support the day-to-day convenience of their trading counterparties and their chums. They supported their own market positions by influencing the rates that were authoritative in the Market.
Subsequently, after the extent of the crunch had begun to become clear, Barclays continued wantonly to mis-state the data better to facilitate their traders taking up and winding-down borrowings.
There is no reason to believe that the other banks that contributed data were significantly immune to the temptation to use the libor methodology to their advantage. More confessions will be made; and trivial fines [without criminal charges against offenders] are expected to be imposed on the other banks. Thus the whole of the UK's regulated home-based banking business have massively more undermined than had already been done by the crunch itself.
In the same week, just past, the RBS.group remained unable to rectify a disastrous, inept and incompetent 'upgrade' to its retail software that kept millions of customers from effecting transactions. This was reputationally at least as bad among less sophisticated customers as was the damage to 'wholesale' banking in the credit crunch that they could not understand. Then it was announced that thousands of firms had been invited to buy betting slips that had cost them heavily when interest rates had fallen: some of the 'invitations' had been presented as conditions that must be accepted by the client firm as a term for being granted some other facility by the bank. Many firms were ruined and many more suffered serious difficulty in finding the cash that was necessary to keep going through the slump.
The pathetic politicians have mouthed what their puerile advisers have recommended they should say in response to the multilayered revelations. They have demanded - or promised to establish - 'inquiries' informed by 'independent' 'experts' selected from the usual gang of lawyers and quangocrats who have drawn fees from the system that has promoted the decline of the once-robust economy..
Ordinary white British folk already know all too well what happened. Since 1980 successive governments of both parties have grovelled to accommodate the demands of the most pushy segments of the finance sector of the economy, because they were declaring expanding turnover and creating jobs and paying taxes that partially made up for the politicians' systematic destruction of the 'real economy'. They never were and never will be capable of self-regulation in any particular. They never were and never will be capable of making objective statements about the 'value' of anything that they conjure into existence. The delusion that the empowerment of market participants will endow them with responsibility towards society or to the body politic was most powerfully asserted by Margaret Thatcher and her sycophants; and was maintained by Major, Blair and Brown. David Cameron has neither the intellectual capacity nor the will to understand the consequences of this ruinous litany; and sneering Osborne has every interest in letting Cameron founder, in the hope that he will become the leader of a dying Tory Party.
It is certain that within the current political structure the government will not respond adequately or in good time to the next phases of the crisis that the political class has fostered; that the bankers will continue on their exploitative progress; and that the economy will continue to decline. Nobody can seriously claim to be surprised by any of it!
Thursday, 17 November 2011
The First Million
UK government figures released yesterday report the number of unemployed young people in the country to be in excess of one million. Labour politicians have made ludicrous attempts to attach the blame for this to the present government. Anyone who has followed this blog knows that the responsibility lies with the entire 'political class' and over forty years or even longer. The story is not just the lack of jobs: the greater crisis centres on the absence of productive jobs in agriculture, industry, education and healthcare; and it applies to all age groups and it is a part of the contemporary paradox that a significant and growing proportion of the people who carry on working after reaching the age of 65 are in productive activities.Industrial skills, in particular, are held by a smaller proportion of the people in each successive generation.
Between 1945 and 1980 a slow process of deindustrialisation happened spontaneously, despite half-hearted government policy in favour of expanding material exports. Policy was dominated by Keynesian ideas that the system must be fine-tuned to ensure that people were 'fully employed'. In practice this worked out as a series of inflationary 'stimuli' interspersed with periods of raised interest rates and restricted credit. Industrial investments take place over several years between design and the operation of new plant: every time that market conditions and the costs of investment were arbitrarily worsened by the government at the time when investment decisions had to be taken, companies were likely to cut their losses on the design of plant and just shelve the project. This happened again and again. Then from 1980 the Thatcher government had a deliberate policy to rid the country of 'smokestack industry' by removing all protective measures that had been maintained even during the supposed free trade era of the nineteenth century and declining to subsidise 'failing firms' or under-funded start-ups. What Thatcher began, Blair and Brown enthusiastically followed.
There was also a cross-party consensus that state schools should be funded to adopt educational theories that stressed that 'students' experiences' should take overwhelming preference over orderly instruction. Ignoring the axiom "those who can, do; those who can't do, teach; those who can't teach train teachers'. 'Educationalists' in the latter category developed the theories that supported the comprehensivisation of schools on the cheap. The order and discipline of the Grammar Schools were ditched, together with the emphasis on practical technology - which requires workshop health-and-safety discipline - that had characterised technical schools and the good secondary-moderns. Margaret Thatcher as the education minister in the Heath government [1970-4] was an enthusiastic comprehensiviser and she never showed any subsequent awareness of the ruin that she had wrought. Thus there has been a multi-decade dumbing-down of education precisely where it hurts most: both in intellectual and industrial disciplines. This progressed step-by-step with deindustrialisation and the increase of manufactured imports.
With both industry and education lain waste, high unemployment among young adults is an inevitable consequence: and it is unsurprising that those employers who still have jobs available to fill prefer people from countries where the educational system has been less undermined. Within the UK there is an increasingly conspicuous differential in employability between products of state and private schools. Parents who can afford to exercise choice in their children's education buy schooling that is anathema to the theorists: schools with order and discipline, pupils sitting in rows for class, plenty of sport and a concentration on 'hard' subjects. What a shock! How dreadful, so to privilege some children over others.
This is very much a British story; no other European country has so recklessly undermined its educational system [though some have gone quite a long way in that direction]; and no other country has so persistently suppressed industry. In the USA there are great doubts about the state of the educational system, and youth unemployment is close to the British level [with very much higher peaks among some ethnic groups in some states] but industrial development has continued across the board, and especially in the higher technologies, despite the collapse of some sectors of low-value-added manufacturing. Rebuilding the US economy can be accomplished within five years: the ruin of the British economy will take at least three times as long to replace.
Between 1945 and 1980 a slow process of deindustrialisation happened spontaneously, despite half-hearted government policy in favour of expanding material exports. Policy was dominated by Keynesian ideas that the system must be fine-tuned to ensure that people were 'fully employed'. In practice this worked out as a series of inflationary 'stimuli' interspersed with periods of raised interest rates and restricted credit. Industrial investments take place over several years between design and the operation of new plant: every time that market conditions and the costs of investment were arbitrarily worsened by the government at the time when investment decisions had to be taken, companies were likely to cut their losses on the design of plant and just shelve the project. This happened again and again. Then from 1980 the Thatcher government had a deliberate policy to rid the country of 'smokestack industry' by removing all protective measures that had been maintained even during the supposed free trade era of the nineteenth century and declining to subsidise 'failing firms' or under-funded start-ups. What Thatcher began, Blair and Brown enthusiastically followed.
There was also a cross-party consensus that state schools should be funded to adopt educational theories that stressed that 'students' experiences' should take overwhelming preference over orderly instruction. Ignoring the axiom "those who can, do; those who can't do, teach; those who can't teach train teachers'. 'Educationalists' in the latter category developed the theories that supported the comprehensivisation of schools on the cheap. The order and discipline of the Grammar Schools were ditched, together with the emphasis on practical technology - which requires workshop health-and-safety discipline - that had characterised technical schools and the good secondary-moderns. Margaret Thatcher as the education minister in the Heath government [1970-4] was an enthusiastic comprehensiviser and she never showed any subsequent awareness of the ruin that she had wrought. Thus there has been a multi-decade dumbing-down of education precisely where it hurts most: both in intellectual and industrial disciplines. This progressed step-by-step with deindustrialisation and the increase of manufactured imports.
With both industry and education lain waste, high unemployment among young adults is an inevitable consequence: and it is unsurprising that those employers who still have jobs available to fill prefer people from countries where the educational system has been less undermined. Within the UK there is an increasingly conspicuous differential in employability between products of state and private schools. Parents who can afford to exercise choice in their children's education buy schooling that is anathema to the theorists: schools with order and discipline, pupils sitting in rows for class, plenty of sport and a concentration on 'hard' subjects. What a shock! How dreadful, so to privilege some children over others.
This is very much a British story; no other European country has so recklessly undermined its educational system [though some have gone quite a long way in that direction]; and no other country has so persistently suppressed industry. In the USA there are great doubts about the state of the educational system, and youth unemployment is close to the British level [with very much higher peaks among some ethnic groups in some states] but industrial development has continued across the board, and especially in the higher technologies, despite the collapse of some sectors of low-value-added manufacturing. Rebuilding the US economy can be accomplished within five years: the ruin of the British economy will take at least three times as long to replace.
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