Showing posts from April, 2014

Bad Bank Barclays

At Forbes, I explain how regulatory changes and a difficult trading environment have forced Barclays to consign half of its investment bank to the scrap heap. What is left looks very familiar, though.....

How not to solve the UK's housing problem

The UK’s Opposition leader, Ed Miliband, is to announce a program of changes to the housing rental market as part of his election manifesto. The key points will be: Three-year secure tenanciesRent rises limited to inflation or local average rent risesThe end of rental fees for estate agents The UK has a long and unhappy history of experiments with rent controls. Predictably, therefore, the Labour leader stopped short of describing the restricted rent rises as “controls”, preferring the term “rent caps”. The Government’s spokesman Grant Shapps, however, described them as “Venezuelan rent controls”. And the right-wing economics think tank the Adam Smith Institute, in a press release, reminded everyone how unhelpful rent and tenancy controls can be: they tend to drive landlords out of the private rental market, restricting supply and creating long waiting lists.

But I want to know where the “draconian” rent rises are that Ed Miliband considers need to be capped. Two years ago there was p…

Two posts on Greece

My last two Forbes posts are about the effects of austerity in the Eurozone periphery, and in particular Greece.

"Austerity and suicide: the case of Greece" examines recent research that claims to prove a direct link between government spending cuts and male suicide. Sadly it fails to do so because of inadequate data, but that doesn't mean there isn't a link - and it could be quite easy to prove in a different way.

"An Economics Lesson For Professor Sinn" takes apart Hans Werner Sinn's argument that rising debt/gdp levels in the Eurozone periphery are due to the European Commission failing to enforce the fiscal compact. When the economy is falling off a cliff, as it is in Greece, the only realistic way of stabilising debt/gdp is to stop the economy collapsing.

How to fleece a government, Irish style

I really can't resist this.

Via Brian Lucey comes this report that Allied Irish Banks (AIB) is having some difficulty servicing its debts.

AIB was bailed out by the Irish government in February 2009 when its share price collapsed due to severe  liquidity problems and loss of market confidence. It was subsequently nationalised when the collapsing Irish property market destroyed its solvency. Currently, the Irish government owns over 99% of its ordinary shares.

But it's not the shares that are the problem. In three weeks' time, AIB is supposed to pay a cash dividend on 3.5bn euros of preference shares held by the National Pensions Reserve Fund Commission (NPRFC). AIB can't afford to pay the interest on them, apparently, despite the fact that it made an operating profit of 445m euros in 2013.

AIB has a creative solution to this. Cash shortfall? No problem. Issue some ordinary shares to pay the interest. Sounds wonderful, doesn't it? But the NPRFC is a government organ…

A bad day for Barclays

Barclays’ AGM was a stormy affair. It started with protests about Barclays’ investment policies. For Barclays directors and shareholders, even getting into the Royal Festival Hall meant running the gauntlet of World Development Movement protestors, tax justice campaigners and other pressure groups, all with placards in Barclays’ corporate colours spelling out what they regard as Barclays’ misdemeanors. Colourful, and attractive to attendant journalists. Not the sort of publicity Barclays would have wanted on the day of its AGM.  

This was bad enough. But once inside the hall, directors received a distinctly frosty reception from shareholders. And with reason: the bank is proposing to increase executive pay substantially while keeping dividends on the floor, even though its shareholders coughed up an additional £5.8bn not long ago to meet a capital shortfall.
Sir David Walker, Barclays’ chairman, made a valiant attempt to defend the indefensible. He insisted it was due to competition fr…

So what exactly can the ECB do, anyway?

My latest post at Forbes considers what the ECB's alternatives are for easing in the Eurozone:

The ECB is not going to do QE, or indeed any other form of monetary easing at the moment. But they are talking about it. And for the moment, it seems, talk is enough. The Euro is up and bond yields are down, even for Greece (which isbravely attempting to return to the capital markets this week). European stock markets are worrying about the Ukraine crisis. It’s back to business as usual.But as Andrew Clare of Cass Business School caustically remarks, “markets won’t be satisfied forever with hot air”. Unless Euro area inflation somehow reverses its current downward trend – which seems unlikely, since the world is on a general disinflationary trend at the moment and the Euro area is hardly a stellar performer  – the ECB will eventually be forced to do more than talk.
Read on here.

UPDATE: The ratings agency Fitch is rather more positive about the ECB buying SME loan securitisations than I …

GDP and its critics

I've just finished reading Diane Coyle's excellent book on the history of GDP. For a measure that has only been used since the 1940s, GDP has amassed an extraordinary following. Whole economic theories now depend on it. 

But there are those who argue that GDP is fundamentally flawed and should be replaced. Sadly, some of them show a lamentable lack of understanding of accounting and the methods used to calculate GDP. For example, here is Steve Forbes:
GDP represents the value of all final products and services. It ignores all the steps that go into the making of these things. It’s sort of like looking at a carton of milk and paying no heed to everything that goes into creating that milk and getting the carton onto the store shelf.GDP thus gives a distorted picture of the economy. How many times do we read that consumption represents 70% of the economy and therefore it’s important to “stimulate demand” by increasing government spending?And he goes on to recommend using gross outp…

Why labour markets don't clear

New Keynesians argue that sticky wages prevent labour markets from clearing. I disagree - I think labour markets can eventually clear. But we don't allow them to do so, because the social costs of are far too high. At Pieria, I explain why this is. Read the whole article here.

On the persistence of inadequate ideas

For years now, I have been complaining about excessive focus on "diaphragmatic support" in singing tuition*. Although breathing involves the diaphragm, support of the vocal tone actually uses deep core muscles, and the diaphragm is not under voluntary control anyway so telling students to "support from the diaphragm" is pointless.

And yet the other day I found myself teaching diaphragmatic support.....because for one student, it was the right technique. She needed a counterbalance to her tendency to pull in her upper abdominals (shrinks the waist but is disastrous for singing). In effect, she was singing as if she was wearing a corset. And therefore she needed a singing technique specifically designed to counteract the constrictive effect of a corset. For her, it worked. For most people, it is unnecessary.

The point is that although support of the vocal tone does indeed come from deep core muscles, the diaphragm itself plus the intercostal muscles and upper abdomin…