The misery of Mitie

The failure of Carillion has brought to light widespread moral hazard in the outsourcing sector. For years, companies that deliver crucial public services relied on expectation of government support to keep their borrowing costs low and enable them to please shareholders by giving dividends they couldn't afford. They, and the banks and investors that funded them, assumed they were too important to fail. So when Carillion was on the brink of failure, RBS tightened the screws, clearly believing that the UK government would eventually cough up (my emphasis):
RBS....insisted that this revised arrangement "would be in place until support from [the Government] had been agreed and that the terms of this support would determine whether other uncommitted facilities with RBS would be withdrawn". But they were wrong. The UK government refused to provide support, preferring to allow Carillion to fail. That decision shocked the outsourcing sector to the core. In effect, it had been…

Clearing out Carillion's cupboards

Those excellent researchers at the House of Commons Library have produced a briefing paper on the Carillion collapse. It is clear, succinct and well-researched. And extremely grim.

The researchers seem to have gone back through the reports & accounts to about 2009. And they conclude that Carillion was a basket case not just in the last year of its life, but from about 2011 onwards. I've now done the same exercise, and I agree with them. Carillion's cupboards were virtually bare, and the little that was in them stank.

This chart summarises the mess that Carillion got itself into:

We need to be a little careful with this chart, of course, since it is comparing stocks and flows. But what it shows is that a large uplift in loans in 2010-12 generated absolutely no additional net cash revenue - in fact cash revenue actually fell between 2009 and 2016. For a company whose entire business model relies on increasing net cash flow, this is disastrous. The distressed uptick in borro…

The Carillion whitewash

The Carillion whitewash has begun. Carillion's interim CEO, Keith Cochrane, is spinning the line that had banks not pulled funding, its collapse could have been averted. And the Financial Times has released details of a letter Carillion sent to the Government at the beginning of January, in which it asked for short-term advances to tide it over while it underwent restructuring. Labour MP Pat McFadden has written to the Treasury Secretary asking whether it would have been more cost-effective for the U.K. Government to support Carillion, rather than allowing it to collapse.

This looks to me like a campaign to deflect blame from Carillion's management to its lenders and customers. We are being led to believe that it wasn't insolvent, it was just illiquid, and depriving it of short-term funds caused a completely unnecessary collapse.

Deliciously, the bank Cochrane principally accuses of precipitating Carillion's collapse by depriving it of funds is RBS, which was resc…

The Fat Controller of the Lightning Network

The geeks to whom my post on probability was addressed responded exactly as I expected. "You don't understand the tech", they said. And they went on about network routing protocols and Dijkstra's algorithm. Someone even sent me a spec for an onion routing protocol for the Lightning network. I read it and sighed. They had completely missed the point.

To be sure, I had made an incorrect assumption about Lightning. I assumed that Lightning devs respected property rights. It turns out that they don't even know what property rights are, let alone respect them. They see Lightning's pathfinding problem as entirely a technical matter. If it were, then solving it would simply involve developing algorithms to oversee the network and find the most efficient payment paths. I did mention this possibility in my post, in relation to recursive payment paths (emphasis not in original):
Payment routes could become very long and very complex without anyone knowing. They coul…

Tribalism in political appointments

So Toby Young was eventually hounded into resigning from the board of the Office for Students. I confess, I was one of those who hounded him. I thought, and still think, that his appointment was wholly inappropriate.

I was not sorry to see Jo Johnson subsequently moved out of the Department for Education, either, though personally I would have sacked him. Johnson, who was instrumental in bringing about Young's appointment, defended it to the House of Commons on the extraordinary grounds that Young was on a "developmental journey". It's absolutely fine for Young to go on a developmental journey, of course, but not paid for by my taxes or affecting the lives of my children (my daughter is currently a university student).

But there is a much bigger issue here. Why was Young ever appointed in the first place? He admitted to me on Twitter that he did not have the academic experience the Department of Education said he did, but then said that it did not matter because o…

Probability for geeks

The Lightning network is being touted as the solution to Bitcoin's scaling problems. If lots of transactions can be taken off the main chain, the thinking goes, then Bitcoin can still take over the world despite its considerable performance problems. Lightning enthusiasts say that when fully enacted, the network will be able to process millions of transactions at, er, lightning speed, without compromising decentralisation, security or transparency.

But there are dissenting voices. For example, in this piece, Jonald Fyookball disputes the claims of the Lightning enthusiasts on the grounds that the mathematics doesn't stack up. Predictably, the Lightning geeks have fought back: the pseudonymous "Murch", a software engineer at the Bitgo cryptocurrency exchange, describes Fyookball's analysis as "laughable".

Fyookball describes the Lightning network thus:
To send or receive bitcoins, you need either a payment channel with that specific user, or a linked s…

Toby Young's repugnant eugenics

Eugenics has a bad reputation. Even the word "eugenics" is repugnant to many people, associated as it is with atrocities - forced sterilization programmes in America, for example, and of course the horrors of Nazi Germany. We like to see eugenics as discredited pseudo-science that has been consigned to the dust of history. Never again will we treat people as expendable simply because of their inherited characteristics.

But ideas that we discard because of their horrible consequences have a way of returning, dressed up in respectable clothing. Eugenic ideas have existed - and been acted upon - since ancient times. The idea of eliminating those who are, or will be, a burden on society because of disability raises hackles now, but in ancient Rome it was regarded as a public duty. The Biblical ban on marriage between close relatives effectively prevented birth defects due to consanguineity - but among the Pharaoahs of ancient Egypt, marriage between very close relatives was co…