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Showing posts from September, 2011

A new name for an old game

This is Part 2 of a two-part post reviewing Finance for the Future's paper proposing so-called "Green Quantitative Easing (QE)".

PART 1 of the post, "A Doomed Assessment", reviews Finance for the Future's assessment of the Bank of England's Quantitative Easing programme in 2009-10.

PART 2 reviews Finance for the Future's proposal for government investment in the economy specifically to further green objectives as outlined in the New Economics Foundation (NEF)'s Green New Deal. I would like to make it clear that, as I am neither an economist nor an environmentalist, I am not concerned with the merits of the Green objectives themselves. I am merely commenting on the financing proposal. For a discussion of the Green objectives and their potential economic impact, I'd suggest you read Simon Cooke's blog.

BACKGROUND AND SUMMARY OF PART 1

Part 1 of this post can be found by following the link above. I admit it is pretty wonkish and therefore hard…

A doomed assessment

This is part 1 of a two-part post reviewing Finance for the Future's paper proposing so-called "Green Quantitative Easing". The paper was produced in December 2010 (although I have only just seen it) but the ideas it contains are widely promoted, so I thought a critique would still be in order.  I make no apology for the technical language I use in this review, as the concepts in the paper assume a fair understanding of finance and economics.

PART 1 of the report is an assessment of the Bank of England's Quantitative Easing programme in 2009-10.  PART 2 is a proposal for government investment in the economy specifically to further green objectives as outlined in the New Economics Foundation (NEF)'s Green New Deal. I shall follow the same structure in this review.

I would like to state before I start that this review is in no way intended to be a criticism of the authors, Richard Murphy and Colin Jones. I would also like to issue a personal disclaimer. I am neither …

The growth illusion

Let's face it, we are in a mess. According to the BIS, the UK is the most heavily-indebted nation in the developed world, with total public and private debt amounting to something like 350% of GEP. Our economy is on the floor, unemployment is rising (particularly among young people) and would be even higher if it weren't for the fact that people are taking part-time jobs instead of the full-time ones they really want. Housing is still overvalued, first time buyers and young families can't afford to buy properties, and even if they could banks don't want to lend to them. Fuel costs are astronomical, food costs are rising, wages are flat. Businesses are going bust and individuals are going bankrupt.

Even worse is what's happening across the Channel. I, for one, am exceedingly glad that the UK did not join the Euro, which appears to be intent on blowing itself apart with an explosive mixture of market panic, economic mismanagement (by everyone, not just Greeks) and p…

Trolling, cyberbullying and constructive debate

There has been much discussion recently regarding the phenomenon known as internet "trolling", following the conviction of Sean Duffy for posting offensive messages on Facebook about young people who had died. The BBC's article on trolling to my mind confused it with cyberbullying, but I agree there is a considerable overlap: both cyberbullying and trolling involve deliberate, malicious attacks on an individual, and it is not clear at what point trolling metamorphoses into its far nastier and possibly illegal cousin.

Wikipedia defines "troll" thus:

"...someone who posts inflammatory, extraneous or off-topic messages in an online community, such as an online discussion forum, chat room or blog, with the primary intent of provoking readers into an emotional response or of otherwise disrupting normal on-topic discussion"

Urban Dictionary is subtly different:

"one who posts a deliberately provocative message to a newsgroup or message board with the inten…

On risk and safety

At the Keynes vs Hayek debate at the LSE on 26th July, Shiv Malik (from the audience) asked a question which stopped the panel in their tracks.  He commented that Hayek could be regarded as representing the desire of people in the 1930s for freedom, and Keynes as representing their need for security. And he asked whether people of today are looking for both freedom and security.

Needless to say, the panel did not answer his question - though many economic writers of today are indeed attempting to bridge this divide. But it reminded me of a song that some of my students sing, and the conversation I always have with them about the meaning of the song.

The song is "Dona, dona" by Sholom Secunda and was originally written in Yiddish. Only the verses are relevant and I reproduce them here in the translation recorded by Donovan in 1968.

On a wagon, bound for market, there's a calf with a mournful eye.
High above him there's a swallow, winging swiftly through the sky.

"St…

Trading losses and takeovers

It appears UBS has lost some money - about $2bn - due to unauthorised and highly risky trading on financial markets. Not for the first time, either.

As a result of this, there are now even more strident calls for UK retail banking to be ring fenced to prevent these sort of losses from impacting on retail customers. This tweet from the BBC's Robert Peston is typical:

"UBS's $2bn rogue-trader loss has not come at a great time for those who argue investment banking and retail banking should remain integrated"
This is, of course, a particularly stupid comment. UBS doesn't have a UK retail banking operation so wouldn't be subject to the ring fencing proposals anyway. But does the UBS experience strengthen the case for the likes of Barclays to be required to ring fence their retail operations?
I had a quick scan down Wikipedia's list of banks that have made serious trading losses. Now, admittedly, Wiki themselves say this list is not complete, so it may be that an…

Monetary Policy RIP

So the markets were disappointed that Bernanke didn't announce Quantitative Easing (QE) round 3 for the US.

And the markets were disappointed that the Bank of England's Monetary Policy Committee (MPC) didn't announce a second round of QE for the UK.

Both Bernanke and the MPC have in effect said "monetary policy is dead in the water". Base lending rates are on the floor and neither has come up with any measures to reduce real interest rates further. Yes, Bernanke did suggest that there were some other measures the Federal Reserve could take to depress interest rates along the yield curve and so encourage investment. And neither the MPC nor the Fed have ruled out further QE at some point. But their reluctance to act suggests that they are now - belatedly - doubting the wisdom of throwing more money at the markets in the hope of stimulating demand in the real economy on either side of the Atlantic.

And about time. Business investment is low and consumer spending is…

Where were you on 9/11?

As we approach the 10th anniversary of the destruction of the Twin Towers, many people will be asking that question - where were you when the planes hit?

I'll tell you where I was. Just about to get into a taxi, heading for the airport. To get on a plane.

No, I wasn't in New York. I was in Edinburgh. At the time I was working on a project for RBS, designing and implementing a computer system to enable them to produce consolidated financial and regulatory reporting on something rather more robust and auditable than an Excel spreadsheet. I was dividing my time between London and Edinburgh, and on Tuesday September 11th 2001, I had been in Edinburgh for two days and was about to fly home. Just as I was leaving the office, someone said to me "have you heard the news?" I looked round, and on the computer screens were the images of the smoking twin towers.

I still got on that plane. It was the weirdest flight I have ever been on in my life. Everyone knew, of course - but …