Showing posts from August, 2011

Unholy alliance

It appears that Angela Knight, head of the British Bankers' Association, thinks that now is not a good time for structural reform of the banks to make them less dangerous to life and liberty in the event of their failure.

It also appears that John Cridland, chairman of the Confederation of British Industry, thinks the same.

Knight argues that reforming the banks now, when the economy is dodgy, the stock market is volatile and the Eurozone is imploding, would delay economic recovery. She wants banks to concentrate on making money so that they can "pay taxpayers back".  Implementing structural reform to reduce risk can come later, apparently.

That's bonkers. We are facing a banking crisis that could make Lehman look like a minor flurry. The imperative to reform banks to ensure that they can fail safely has never been stronger. Delay economic recovery? Disorderly failure of unreformed banks wouldn't just delay it, it would cancel it for a generation. And how come p…

Two takes on the Tyranny of Democracy

This morning, on twitter, I saw this blog from Richard Murphy: The Tyranny of Democracy.

And right next to it, in another column, I saw this blog from Tim Worstall: The Tyranny of Democracy.

Of course I had to read both of them, didn't I?

Fascinating. Tim Worstall's blog was, of course, a rebuttal of Richard Murphy's arguments.  And I have to say that in general I agree with him on this one.

The Tyranny of Democracy is not purely concerned with taxation, as Richard Murphy suggests. As Tim Worstall says, it is to do with the tendency of majorities to impose upon, discriminate against and abuse minorities.  To the extent that in our parliamentary democracy, the government is elected by the majority (and I'm aware that there are issues around that), minorities will always be at risk.

Imposition of draconian taxes on minorities has happened at various times in the past in the UK. Worstall gives a recent example of such a tax. I prefer to mention the continual milking of t…

Setting up banks to fail: retail ring-fencing revisited

In my quest for a blueprint for bank reform that would allow dinosaurs to die quietly without endangering people's lives and finances, I found myself re-reading the Independent Commission on Banking's (ICB) draft report yesterday.  I always find it interesting to return to something I haven't read for a while, as I nearly always find something that I missed before. This was no exception.

In fact I don't know how I missed it before. On re-reading the report it is very evident that the ICB's recommendations for increased capital and retail ring-fencing have little to do with keeping banks running safely and efficiently. They are intended to make it easier and safer for them to fail.

And they don't mean just investment banks, either. The aim of the retail ring-fence is to enable government to take over the running of essential banking services (payments, access to deposits, lending facilities) for ordinary people and small businesses in the event of ANY bank failu…

Regretful criticism

I have never before written a blogpost in which I have severely criticised the writing of another person, and I do so now with a heavy heart. But I really can't let this nonsense pass.

In a blogpost a week ago, Richard Murphy called for nationalisation of the banks.  He said:

"Of course we can save the banks, again. We can print money. We will have to.

But this time let’s get real. This time we don’t lend them that money. Or give it to them as quantitative easing."

There are two howlers in here, of course:

-  We didn't "lend" banks money. We provided it to them in return for equity. As a consequence two   banks were fully nationalised and we have substantial equity stakes in two more.  As with all equity investments, there is no guarantee that we will ever get our money back - it depends entirely on the eventual sale price of the remnants of Northern Rock and our stakes in RBS and Lloyds TSB.

-  Quantitative easing was not "given" to the banks. It…

Why are they doing it that way, anyway?

In this blog I am stepping outside my comfort zone, so if I have made any glaring errors, please be kind! But in following the various horror stories, screams of outrage and complacent comments of "I told you so" arising from ATOS's assessments of fitness to work, one thing puzzles me. Why on earth has the Government engaged an external company to do this work, no doubt in return for handsome remuneration, when it already has a huge workforce that is more than capable of undertaking these assessments?

I refer, of course, to GPs.

GPs have access to patient medical records - which ATOS don't. For those claimants who are actually sick, their GP will be the person who manages their condition, refers them to consultants, deals with any aftercare following hospital admissions, sees them for repeat medical checks. Some of this work may well be done by practice nurses or health visitors, but the GP has ultimate responsibility. For those claimants who are disabled rather tha…

Lessons for GFC2 from GFC1

The other day I read the National Audit Office's analysis of the events in the run-up to the nationalisation of Northern Rock. For a Government publication it's surprisingly readable and I strongly recommend it.

You may think this is ancient history. After all, Northern Rock collapsed over four years ago now. But I think there are still lessons to be learned from this and changes that need to be made to the way the Treasury does things. We still have not devised a method of managing bank failure that does not leave ordinary people - bank customers and taxpayers - on the hook for debts incurred by irresponsible bank management. And the banking sector is still desperately fragile. We urgently need a satisfactory way of dealing with banking collapse.

Lesson no. 1: The importance of planning
Northern Rock was the first of the major bank bailouts in the United Kingdom. It is very evident from the NAO's report that neither the Treasury nor the Bank of England were remotely prepar…

Debate with me, don't silence me

Yesterday someone unfollowed me on Twitter. Well, this is no big deal, really - it happens all the time, and indeed the constant dynamic of following & unfollowing is one of the things that makes Twitter fun. But this one was different.

I was debating with someone who disagreed with something I wrote in my last blog. But instead of engaging with the argument, he complained that I didn't know what I was talking about, that I was "losing touch with reality", and finally sent me a direct message that he was dropping out of the argument. When I tried to reply to that message Twitter informed me that he was no longer following me.

Quite apart from the personal distress that this caused me, I find this behaviour very worrying. This is a person who influences people's thinking: he is a frequent writer and broadcaster, and has a considerable following on social media. And I am by no means the first person that he has unfollowed because of disagreement over politics or ec…

Managing Collapse

"Ah love, could thou and I with Fate conspire
                       To grasp this sorry scheme of things entire,
                       Would we not shatter it to bits, and then
                        Rebuild it closer to the heart's desire?"
                                                      Fitzgerald, Rubaiyat of Omar Khayyam

It seems to me that all the activity of the last three years by banks, governments and supra-national organisations such as the IMF has been aimed at one thing only - preventing the collapse of the international financial system.  To prevent that collapse governments have wrecked their economies and sacrificed the future of an entire generation. Yet as I write, the financial system seems to be in no better shape than it was three years ago. In fact if anything it is worse.

I have been arguing for some time now that propping up failed institutions only makes matters worse. If an institution is not viable, it will fail eve…

Black Thursday

As I write, it is four in the morning and I am watching the Asian stock markets falling. Yesterday both the FTSE100 and the Dow Jones crashed, and further falls are expected today. No-one seems to have any real idea why stock markets are collapsing around the world. But on one thing everyone is agreed - we have a worldwide financial crisis. Global Financial Crisis Two (GFC2) has landed.

The seeds of this crisis were sown in the Global Financial Crisis of 2008 (GFC1). In fact you could say that that crisis never really ended, it just calmed down for a while. We have been in the eye of the storm, but now the winds are lashing us again.

The reason why it has all blown up again is very clear. We didn't actually fix the problems that caused the 2008 GFC. All we did was move the problems to countries instead. Which makes things worse.

In 2008 many major banks, and one huge insurance company, failed due to assets turning out to be worthless, and massive uninsured liabilities. Other bank…