If winning isn’t important, why do they keep score?

October 30, 2009

In play there are two pleasures for your choosing:
The one is winning, and the other losing.

Lord Byron—But if winning isn’t important, why do they keep the score?

One of the more admirable characteristics of Old Etonians and Old Paul­ines is their highly developed sense of sportsmanship.  They don’t like to win too easily.  And to ensure they don’t, they’re quite prepared to score own goals. Cricket isn’t just their game; it’s their morality.

Messrs. Cameron and Osborne have been demonstrating the phe­no­menon in recent weeks.  As soon as it began to look as if their Party’s lead in the opinion polls was unassailable, they sporting­ly set about evening up the odds. How did they do so? By affect­ing to misunderstand the realities sur­rounding Europe on the one hand, Banks on the other!

Cameron started the process. He was brilliant. In a sequence of evasions and half-truths, he showed that he could be every bit as perfidious as Brown and Clegg. He let it be known that he might not live up to his promise to stage a referendum on the European Constitution. That slap in the face for the Tory rank-and-file work­ed wonders. It caused the Party’s opi­nion poll lead to fall by 5%.  But it clearly wasn’t enough.  Something else had to be done.

Osborne was up to the task.  Speaking in the City a couple of days ago, he killed two birds with a single stone. He suggested that bank­ers be given a generous dollop of shares rather than a sizeable bucket of money. “Toe-curlingly stupid!” said a close colleague admiringly. The recommended thera­py managed simultaneously to offend voters and bankers. A master­stroke!

The only danger was that, having developed a taste for playing the fool, nei­th­er of these gentlemen would be able to resist the temp­tation to continue do­ing so. Both Europe and Banking were going to be big factors in the next elec­tion. Now that the score sheet was more even­ly balanced, it’d do no harm to think logically about the issues.

Cameron had to say unambiguously that the EU Constitution was dead. The Irish had killed it. The proposition that the Republic’s second vote super­seded its first one was valid only if every other coun­try in the Union (all being presumed equal) were also to have a second bite of the cherry. That argument, logically impeccable, would de­lay matters for long enough to secure for Britain the Re­fer­endum it had been promised.

Osborne, meanwhile, should make the point that the banking crisis had only turned into a banking catastrophe when taxpayers were asked to bail out RBS and HBOS. Had that mistake not been made, had the delinquents had been allowed to fail (depositors being pro­tect­ed on a sliding scale), today’s problems would be much reduc­ed. If chairmen, board mem­bers, and employees had had to seek jobs elsewhere, their bonuses would now be minimal, probably non-existent.

It’s not too late to bring a dose of sanity to the situation. Let the Tories state that, within three months of their taking office, the failed Scottish banks would be required to sell off all their non-money-transmission activities. If they failed to do so, liquidators would take over. There’d be imposed disposals and enforced dis­missals. What price bonuses then?

Economics News : 30 Oct

October 30, 2009

It is doubtful whether man is sufficient of a political animal

to produce a sensible and efficient constitution.

George Bernard Shaw—least of all, any of those who’ve had most practice at it, the French!

Representative democracy demands that the executive . . .

Not many States claiming democratic credentials would countenance an unelected political Executive.  The European Union is, of course, the exception.  It suffers from institutional schizophrenia:  it sees its Commission, though neither elected nor representative, as a model of liberalism and egalitarianism!

. . . be capable of occasional dismissal by the people.

Has it sought treatment for its malady?   Sadly, it has not.  It’s probably unaware of the psephological sophism.  Indeed, it now proposes to substantiate the principle with a President cast in the same mould as its wretched Commissioners!

The European Union fails the test.

And the greatest irony of all is that one of the candidates for the post of Chief Executive is Tony Blair.  Do Europeans really thing the man who launched two illegitimate Middle Eastern wars is suitable for the job?   If they do, it’s clear their psychiatric disorder has become much worse.

Unabashed, the Constitution proposes a psephologically repugnant president.

Gordon Brown’s opinion on the matter is intriguing.  He’s reported to be canvassing in favour of his predecessor.  A cunning plan worthy of the great Baldrick?   A case of Orwellian doublethink?   Does Brown concede that he is now so devalued as a statesman, his opinion so despised by contemporaries, that anybody who gets his vote is bound to fail?

Gordon, unsurprisingly, says such a role would suit Tony!

What, meanwhile, is David Cameron’s view?   Has he been canvassing for or against Blair?   Has he decided yet whether he’ll renege on the promise to hold a referendum on the constitution?   He won’t be able to avoid the issue for much longer.  In every interview he does between now and the election, the question will be posed.

And what does David Cameron think?   Will he ever say?

He’ll be the next Prime Minister in any event.  But his decision on this issue will reveal whether he’s to be trustworthy or not.  He’s said he wants to clean up politics, and he’s certainly taken a fairly tough line on expenses.  But that’ll be small compensation if he should let the Constitution be implemented against the will of the overwhelming majority of Britain’s electorate.

Happily, the US economy seems to be on the move again.

On a brighter note, the US produced some encouraging economics numbers last week.  Between the second and third quarters of the year, GDP was reported to have risen at an annual rate of 3½% per annum.  That was a little ahead of consensus estimates, and consistent with the less bad trends in the labour markets at the end of the third quarter.

A single swallow?   Or a full blown summer?

Will things continue to improve?   That’s open to a good deal of doubt.  The most recent data have been unimpressive.  Consumption is not reviving strongly because pay settlements are softening at a time when people wish to lift their savings.  And the still fairly difficult labour market is reflected in deteriorating sentiment readings.

The outlook is not unambiguously bright.

Nor is corporate investment likely to be robust.  Profits are quite strong, and external finance is now available as well, but companies are not keen to spend.  They think they have sufficient capacity already.  Time enough to lift capital outlays when consumption embarks upon sustainable growth.

Consumption, investment and public spending are all constrained.

Public spending, meanwhile, looks set to grow more slowly, possibly to decline a little.  The problem is partly that tax revenues are inadequate, partly that voters don’t want bureaucrats to spend their money (they’d prefer to do it themselves).  The result, in any event, is that congress will become progressively less accommodative as the months go by.

But less so than in Europe or Japan.

That said, the US economy looks as if it’s responded better to government policies than has Europe or Japan.  The former bit the labour market bullet speedily and forcefully.  It shook out excesses twelve months ago and is consequently in a reasonably good position now to stabilise or rebuild.  Europe and Japan, on the other hand, procrastinated then and are poorly placed for the future.  There’d have to be a huge surge in demand in the next twelve months to justify their current workforces.  Failing such a surge, there’ll be the continual drip of job losses and the continual negative therefore of poor sentiment.

Equities everywhere will continue to advance.

The equity market is set fair, of course.  There’s no near-term chance of a worryingly fast pick-up in activity, and none therefore of any deliberate monetary tightening.  Instead, activity will be dull and inflation negative.  But profits will be quite strong.  They’ll be driven, not by sales growth, but by wage compression.  There’ll be a transference of resources from worker to company, from spender to saver.  The equity indices will reflect these shifts.  They’ll rise briskly in the remainder of 2009; satisfactorily in 2010.

Economics Viewpoints : 28 Oct

October 29, 2009


A little madness in the Spring,

Is wholesome even for the King.


 Emily Dickson.   But not if it lasts and lasts.  Then, as with George III, the courtiers have to act.  En garde, Trichet!



The “recovery” seems to have been mild and short-lived.

Economics numbers in the old industrial world have been losing momentum for several weeks.  Only recently, though, has the in­vestment community appeared to take notice.  Previously, the con­sensus had seemed determined to ignore the negative and focus on the positive.  It was conceded, at worst, that the pace of recovery might be a little slower than originally envisaged.  But there was no ac­knowledgement of the possibility of protracted debility, none a fortiori of depression.

Things may now be soften­ing again.

A bit short sighted!   The reality is that the recovery is very much in doubt.  There was an upwards blip in activity, inventory-driven, in the spring and early sum­mer, but that’s now finished.  Currently, the driv­ing forces are retail sales, corporate capi­tal spending and ex­ports—all chronically weak.

The decline bank lending    in the EZ was hugely significant.

Perhaps the most significant of the recent data releases was the EZ’s September figure for bank lending to the corporate sector.  It fell!   Why?   Not because lenders were short of funds, but be­cause borrowers no longer needed them.  Profita­bility was high and the desire to invest low.

It may be a forerunner of a surge in unemployment.

What this implied was that the EZ’s employment levels—little changed from those a year ago despite a decline in GDP of more than 5%—were unlikely to be validated by a surge in output.  In­stead, it was employment that would have to make the adjustment.  There’d be a huge rise in joblessness.  A rate of 15% was highly like­ly; and, if the downwards spiral became self-feeding, 20% couldn’t be ruled out.

The ECB will be blamed.

Understandably, a number of national governments grew twitchy.  Criticism of the ECB, previously covert, became overt.  It was point­ed out that the euro had been encouraged to rise, but that there’d been no compensatory reduction in relative inflation.  As a result, the region had become profoundly uncompetitive.  There’d be no economics recovery, it was feared, until the currency was more sensibly priced.

A bas, le président!

But how could national governments effect their democratically-mandated will?   Not easily.  The hateful constitution gave the ECB the right to pursue whatever harebrained schemes it chose.  Even a clinically insane President, was untouchable and consequently ir­re­mov­able.  There’d have to be a revolution; a civil war perhaps.

More downside for equities?

Was it the dire economics that had undermined investor enthusi­asm for equities?   Probably not.  The general environment re­main­ed bull­ish—monetary conditions accommodative and corporate profits strong.  And there was no change on the near-term horizon.  Indeed, if economies continued to soften, central banks would re­double their expansionary policies and workers offer yet more pay concessions.

Not at all.  It was a central bank miscalculation.  It’ll be reversed.

What then had caused the recent wobble in markets?   In all proba­bility, it was an unintentional (and therefore temporary) squeeze on liquidity.  Perhaps the Fed, preparing for a very large issu­ance of treasury bonds, had got its sums slightly wrong.  If so, it’d soon move to reverse the tightness.

The market’s pause will be only temporary. 

In that event, most parts of the world would revert to the status quo ante:  markets rising because of money excesses on the one hand and profits resilience on the other.  Actuarially, nominal re­turns would be in the 5 to 8% per annum range; real ones varying between 5 and 10%!





If to be done, ’twere well it were done quickly.

October 26, 2009

If other people are going to talk,

conversation becomes impossible.




James McNeill Whistler─the conceit of politicians!  the vanity of broadcasting executives!


The BBC is much like Gordon Brown:  long on promises, but short on results; aiming ambitiously for the extraordinary, but achieving disappointingly the mundane.  Each, of course, is the product of public sector culture.  Each, therefore, affects humility to hide arrogance; feigns egalitarianism to camouflage authoritarianism. 

For some time, both were lucky.  That made their faults tolerable.  No longer.  Both now seem irretrievably accident-prone.   It’ll not be long before each is cast, unremembered, into history’s dustbin.

Gordon Brown intended last year to boost economics activity and thereby alleviate the recession, but, having not a clue about the mechanics of the process, stumbled into policies that inhibited aggregate spending and intensified communal agony!   Similarly, the BBC intended last week, when it invited Nick Griffin to appear on Question Time, to treat the BNP fairly, but, having not a clue about fairness, managed only to shot itself and the liberal establishment in the foot.  For both Brown and Beeb, the laws of unintended consequences operated with devastating severity.  Being unskilled gunners, they missed the target and caused collateral damage on a huge scale!

What Brown should have done was cut public spending; not hike it.  He should have reduced the headcount of bureaucrats, not increased it.  He should have left the failed bankers to the fate their incompetence deserved; not bailed them out by impoverishing the rest of us.

He might have used the funds saved from doing so to reduce taxes:  personal allowances lifted aggressively; employers’ national insurance abolished for modest salaries; and corporation tax halved across the board.  The objective would have been the protection of jobs.  To that end, employment costs had to tumble.  New businesses had to be tempted to open in Britain; old ones to stay. 

Poor Brown has achieved the opposite.  He’s raised costs and driven away jobs.  He’s indulged those who waste resources (bankers and bureaucrats) and persecuted those who generate them (private sector workers).  As a result, he’ll have deepened and lengthened the recession. 

The BBC has behaved with comparable ineptitude.  It wanted to show Nick Griffin in a poor light, but was so heavy-handed in its bias that it caused the general public to feel sorry for him!   The Question Time panellists and audience were packed with people whose positions seemed more extreme than the BNP’s, and whose general morality was distinctly dubious.  A spectacular own goal!

The simple fact is that Griffin is an elected representative of the people.  He’s not a member of a quango, nodded into power by establishment chums.  He’s not an apparatchik who’s swanned into the legislature, unloved by voters, because of the “safe seat” status of his constituency.  He’s a man who, against all the odds, appealed to the people, and was approved by them.  For the Hains and Straws to treat him with contempt demonstrates their contempt also for voters.

The BBC likewise.  How can it treat Hain and Straw respectfully, but Griffin disrespectfully?   The latter is a probable racist; but the former are unambiguous warmongers.  Does Auntie really believe the former to be a greater sin than the latter?   And who says, in any case, that she should decide these matters?   Do members of the BBC—its Director General or its Board of Governors or its Editorial Staff—have so spotless a moral record that they can afford to cast the first stone?

In the final analysis, it is the people who will decide.  They’ll shortly have a chance to make their views known.  In the Westminster elections, their preferences will become clearer.  In all probability, Brown’s boys will be slaughtered.  In rural and suburban areas, the slayers will be the Tories and Ukip; in industrial cities, the Tories and BNP; in Scotland, Wales and Ireland, the Tories and Regionalists. 

It’s Schumpeter, applied to politics.  Recessions are necessary, desirable even, because they give the country the chance to change the political guard.  Voters are enfranchised to dismiss the bad and replace it with an alternative—potentially something better.

Sadly, the option to do the same to the BBC is rarely provided.  But the pressures are building inexorably.  If the public demonstrates a persistent preference, politicians will eventually respond.  In the period of fiscal austerity that lies ahead, it is likely that the Broadcaster’s revenues will be cut and cut again.  That’ll provoke many squeals of indignation from within, but very few from without.  Rightly so; no quarter extended to the organisation that chose not to televise the “Ashes”!

Getting rid of the bad doesn’t necessarily mean installing the good.  But it does provide some possibility of amelioration.  Brown and the BBC won’t improve of their own accord, and they won’t depart unless forced to.  It’s undignified of them to have outstayed their welcome for so long.  They now need to be told firmly and unambiguously to quit.



Economics News : 23 Oct

October 23, 2009

Sole judge of truth, in endless error hurl’d;

The glory, jest and riddle of the world!



Alexander Pope, referring to Men in general or Chancellors in particular?





Economics projections based solely on wishful thinking tend not to be accurate.

The happy-clappy consensus was shocked and disappointed by news that Britain’s GDP had fallen again in the third quarter of 2009.  Prior to the announcement, economists had been speculating only on the size of the advance.  They had wondered whether it would be enough to change the policies of the Bank of England.  They had speculated about the impact it might have on the popularity of political incumbents!

Logic has many virtues; it should be used more often.

In the event, the forecasts were hopeless; they constituted another telling indictment of the forward-looking abilities of economists.  Why had they been so optimistic?   Which areas of activity did they suppose were growing?   

In the third quarter, personal spending was weak.

Not consumption, presumably.  With pay settlements moderating, employment falling, and savings rising, the personal sector lacked the wherewithal to spend.  Indeed, retail sales (as reported by official statistics and confirmed by company results) were seen to be drifting sideways.

And corporate spending weaker.

And not capital spending.  The banks didn’t want to lend to companies, and companies were reluctant to borrow from banks.  Capacity was deemed to be excessive.  The difficult was not in producing stuff, but in selling it.  Cash resources were to be protected not depleted—fixed capital spending was scaled back, inventory likewise.

Overseas deliveries declined moderately.

What about exports?   Very weak.  Demand elsewhere in the world was fragile.  The overseas sales of each of the majors were tumbling.   Britain’s might have been holding up better than most.  But that meant a sizeable decline nevertheless.

And so did public expenditure.

The only possibility for a quickening in GDP came from public spending.  It had surged at the end of 2008, but there were hints that it had lost momentum more recently.  Why?   Because finance was lacking, and so was political will.  The Cabinet conceded that the trajectory of the National Debt was appalling and, worse, it realised that most voters loathed the mollycoddled public sector worker.

Darling has been stitched up; he’ll find life even tougher.

So what happens now?   How will the Chancellor explain away his earlier optimism?   He and the Prime Minister were claiming only a few weeks ago that they knew how to remedy the economics hiccough.  They’d implemented the therapy and it remained only to wait for it to work.  Nonsense, of course.  They’d neither of them a clue about the economy’s inclinations before the crisis struck, while it was doing so, or afterwards:  a truth universally to be acknowledged.

King has hit him already.  Others will do so shortly.

Was that why Governor King, speaking in Edinburgh a few days earlier, had distanced himself from Government policies?   Did he calculate that he might thus keep his reputation (and possibly his job) when those in the Treasury (devoutly to be hoped) were losing theirs?   Presumably, he’ll also have been in touch with Cameron and Osborne!

Will the Tories ever break cover?   Will they acknowledge past error  . . .

What do they now think about the economy’s prospects?   A year ago, they were supportive of the bailout of delinquent banks.  They were enthusiastic proponents of higher public spending as well.  Are they still?   Of course not.  They can’t recognise the right policy beforehand, but they can identify the wrong one afterwards.

. . . and aspire to future truth?   Will they take their banking chums to task?

What they have now to do is reverse their prior stance without acknowledging that it was wrong!   The Governor may help them do so.  He’ll argue that a bank that’s too big to fail is too big to exist.  The first priority, therefore, will be to make them smaller.  They’ll be instructed to sell off their non-money-transmission activities.  They’ll be told that organisations that take several working days to move funds from one bank account to another cannot be deemed to be adult members of the financial community.

Treat them like the posties they so closely resemble?

Those working in the banking sector have to be treated in much the same way as civil servants and post office workers.  They have to be told that it’s no longer acceptable to sequester resources from the rest of society to boost their own living standards.  If reason and rationality fail, the firm slap of joblessness might do the trick.

A backbone would be useful.

How does Cameron see these things?   Is he a Thatcher or a Brown?   Will he fight or compromise?   It’d be useful for the electorate to know.  He really ought to say something about the public sector, about how they can be made to contribute resources rather than just to consume them.

Equities to continue to climb!

Despite the grim economics news, the equity markets held up fairly well.  They’ll likely continue to do so for a while.  The FTSE at 6000, by spring, is an easy target; 7000, by the following winter, not impossible.





Economics Viewpoints : 21 Oct

October 21, 2009

Those whom the gods wish to make regulators,

they first render incompetent.


 Lear—self-indulgent, psychologically insecure and insightfully challenged—would fit in well at the FSA.



It’s been a long wait; but worth it perhaps.

It’s not often that the Governor of the Bank of England says anything sensible.  But, earlier this week, addressing business leaders in Edinburgh, he did so.  He made the point that Governments and Regulators, in their frenzied activity last year, may have made a bad financial environment worse.  The taxpayer bailout of the banks didn’t solve the problem.  At best, it delayed the crisis.

The B-of-E is questioning the wisdom of regulatory indulgence.

We’d landed ourselves, he said, with the biggest moral hazard in history.  It’d take a generation to work our way out of it.  But, to facilitate the process, to reduce the vulnerability of the rest of society, banks needed to be smaller and less exposed.  If they wanted to continue to be guaranteed by the taxpayer, they had to concentrate on the process of money transmission.  They had to divest themselves of other activities.  

Commercial bankers are children . . .

In such circumstances, the function of the Regulatory Authority had to alter accordingly.  There’d be a requirement for an organisation with administrative expertise, rather than public relations skills; one that could focus on fundamental principles, rather than trivial practices; one that was smaller than at present, but smarter.  He didn’t say it explicitly, but hinted implicitly, that current incumbents were inadequate.

. . . they should be seen rarely and heard never.

What did the Prime Minister and Chancellor make of the Governor’s remarks?   And what was the reaction of the noble Lords Turner and Mandelson?   In the last twelve months, they’d begun to see themselves as insightful masters of the universe, prescient saviours of the world economy.  To be attacked now as bungling amateurs, unaware of the dangers posed by imbalances beforehand, ignorant of the risks posed by remedies afterwards, will have irritated.

Politicians are out of their depth:  Brown blustering; Cameron floundering.

And what of the Leader of the Opposition?   Hitherto, he’d accepted the comfortable proposition that the bailout of the banks had been sensible and that, with a small amount of tweaking, new rules relating to bonuses, for instance, the crisis was over.  He’ll not be pleased to have to review economics policies:  it’ll not show him in a favourable light.   

The old industrial world is losing momentum again.

The latest numbers from the rest of the world, meanwhile, were not encouraging.  Data from the EZ and Japan had been rather duller than expected.  The inventory bounce was almost over, and exports were failing.  The regions’ industrial giants were not maintaining their shares of world trade.  Technical virtuosity was proving insufficient to compensate for uncompetitive prices.  There was a good deal of soul searching in Brussels and Tokyo, therefore.  Should money policy be changed to effect devaluation?   Or social policy altered to lower labour costs?   Neither option was attractive.  But one might have eventually to be chosen.

Markets still look good though—at least for now.

The only good news was that securities markets were continuing to rise.  Accommodative credit policy, set in the context of low inflation and improving profits, was bound to generate favourable returns in equities and corporate bonds.  And it would continue as long as central bankers kept the credit taps wide open.  Would they?   For the next several months, yes.  But not for ever.  As the Governor implied, excesses of liquidity caused problems as well as solving them.  



Corrections that are delayed are severe.

October 17, 2009

Truth will sooner come out of error than confusion.




Francis Bacon─in which case, the Europeans must shortly be headed for lots of truth!



The EZ’s August trade numbers were poor:  exports very weak, and imports moderately so.  The seasonal adjustment may have been a little inaccurate, but the overwhelming message was that things were not going according to plan.  Europe was headed, not for a robust recovery, but a very anaemic one. 

It was performing in much the same way as Japan.  There’d been a modest inventory rebuild and industrial production had recorded several small monthly gains.  But consumption remained in the doldrums.  And exports likewise.

Why couldn’t Europe take advantage of (reportedly) strong demand in Asia, in Latin America and in the oil producing world?   Arguably because it was uncompetitive.  The euro had risen sharply, but the region’s inflation rate was only slightly lower than that elsewhere in the world.

What had gone wrong?   Labour costs!   In Germany, for instance, GDP had fallen 7% in the last eighteen months, but employment had barely declined.  As a result, productivity had plunged and unit labour costs soared.  Measured in euros, they’d climbed by 6% per annum over this period; in dollars, by more like 10% per annum. 

Even Germany, its technical virtuosity notwithstanding, couldn’t compete in such circumstances.  France, Italy and Spain were devastated.  National Governments were frantic.  The ECB knew it’d messed up.  Even that pinnacle of complacency, the Commission, was worried.

Either the currency had to sustain a sizeable devaluation (30% plus); or the unemployment rate had to climb very sharply (5% plus).  It wasn’t a happy picture.  There’d be severe disenchantment.  Who’d be blamed?   With luck, the odium would fall most heavily on those who deserved it most:  the ECB in Frankfurt and the Commission in Brussels!



Economics News : 16 Oct

October 16, 2009

Moral Indignation is Jealousy,

 with a Halo.






H. G. Wells—yes, but beware those who feel they’ve a right to be indignant!



American banks have registered huge increases in profits.

The surge in profits announced by US banks last week was hardly a surprise.  The Government had deliberately constructed an environment that allowed them to make spectacular returns, and thereby repair their balance sheets.  Most importantly, they were encouraged to engage in round-tripping:  borrowing from the Treasury cheaply and lending back to it expensively!   Additionally, they were offered the facility to dispose of their toxic assets at prices well in excess of those available in the market place.  And who provided the funds in each case to square the circle?   The taxpayer, of course.  He picked up the tab for the interest rate differential and also for the overpayment for assets.

It’s the predictable corollary of official policy.

The profits declared by the banks hadn’t been earned, of course, merely transferred.  They were the result, not of business acumen, but of regulatory prerogative.  Accordingly, there was no justification for anything being distributed to shareholders or executives.  The monies had been extracted from retailers and industrialists, from consumers and pensioners. It was they who’d been obliged to make sacrifices previously (unemployment in some cases, impoverishment in others); it was they who deserved rewards now.  

Morally, it’s the taxpayer who should get the benefit.  

Would they get them?   Not a chance.  The unspeakable bankers would scoop the lot.  And their chums in high places (in the Treasury, the SEC etc.) would protect them while they did so.  If an explanation were to be sought, it’d be claimed that generous rewards for bankers were a necessary part of the process of rebuilding equilibrium!!!

It’ll be much the same in the UK; perhaps worse.

A similar tragi-comedy is likely to be played out in Britain in the months ahead:  banks will declare huge profits; journalists will make fatuous criticisms; spokesmen for Government and Opposition will talk empty nonsense; and bankers will carry on as before.  Not many will ask the key question.  Not many will ask whether it was necessary or desirable that the taxpayer bailout the bad banks.  

Nationalisation was an expensive farce.

Only the eccentric will claim that low interest rates were solution enough.  That there was no good reason to nationalise the banks; none at all to saddle generations of future taxpayers with mountains of enervating debt.  The judgment of those who made the relevant decisions—Brown and Darling, King and Macpherson—may not be called immediately into question, but, in years to come, it will be.  History will savage them.

It might have prejudiced London’s longer term position in the world.

Posterity is likely to judge that it would have been better to have allowed the bad banks to fail and the good ones to succeed.  It’ll ridicule the assertion that the City’s status was enhanced by the actions of the “feckless four.”  It’ll argue that the preservation of a bunch of banking delinquents who seemed to know how to gear up in favourable circumstances, but not how to gear down in bad ones was detrimental to London’s standing in the financial world.  It’ll be said that the authorities were driven, not by Augustan logic, but Caledonian politics.  

What if there were to be another phase of the crisis next year?

The trouble is that the crisis may be far from over.  It’s true that exceedingly easy money seems to have stabilised the economy, but there is an anxiety that the relief might be only temporary.  If the liquidity were to be withdrawn, it’s possible the economy would collapse again.  And, if it were to be maintained, it’s possible (probable even) that the bankers would misbehave once more.

Do we have confidence in the authorities?   Sadly, no! 

What would they do next year if they found themselves with a huge potential to lend, but a dearth of reliable borrowers?   In the past, in such circumstances, they’ve always sought out to unreliable borrowers.  And, lending to them, they’ve sown the seeds of the next crisis!   Could they avoid that mistake this time?   Very unlikely.

What’s required is Glass Steagall, with teeth.

What the authorities should have done last year, and what they might still do next, is prohibit banks from engaging in complicated activities.  Banks should stick to money transmission.  The tricky stuff should be the exclusive reserve of those intellectually and psychologically equipped to handle it.  We could all sleep more soundly in our beds at night if we knew the bankers were under lock and key.    

Equities still cheap.

Near term, the stock market is going to rise briskly.  But there’s uncertainty about the world in the second half of next year.  Let’s be aggressive buyers of stock for a few more months, but review the situation in 2010.  







To be seen, but not heard!

October 14, 2009


Lawyers, I suppose, were children once;

Bankers still are.




Charles Lamb, from his Collection of Barely Believable Tales?


The RBS Board is to be sued by its shareholders.  Excellent!   Those who ran the bank have not hitherto been censured for their misbehaviour, let alone punished for it.  Instead, they were protected by their compatriots, the Chancellor and Prime Minister.  Sadly, it was the stockholders, employees and customers who had suffer.

Now, hopefully, a civil action will bring a degree of justice.  With luck, the Chairman and the Board will be found to have been negligent.  They will lose a sizeable proportion of the emoluments and pensions they paid themselves. 

But the process shouldn’t stop there.  Children are not wholly responsible for their actions.  It is the wayward parents who neglected to supervise them who are as much to blame.  The FSA, the Bank of England, the Chancellor and the Prime Minister have a lot for which to answer.  They too deserve their time in the dock.


Pride and Vanity!

October 14, 2009

To err is the characteristic of humans;

to do nothing else, that of politicians.




Alexander Pope, from his Essay on Criticism, section relating to Prospective PMs?


The Prime Minister is to send more troops to Afghanistan.  He has no choice.  If he were to recognise the futility of military operations there, he’d have to admit he’d been in error in supporting the adventure for the previous seven years.  Impossible!   He’s a man whose self-esteem is built on the perceived correctness of earlier decisions.  He has to have been right in the past—even if that means continuing to be wrong in the future.

The leader of the Opposition, on the other hand, is psychologically unconstrained.  He’s not seeking to justify mistakes made in years gone by.  He’s content to make them now and in years to come.

His judgement, it seems, is not to be relied on.  He’s at odds with his party and country on the size of the Public Sector, the nature of State Education and the acceptability of the Lisbon Treaty.  If it weren’t for the recession and the ineptitude of the current administration, he’d probably lose the forthcoming election!



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