Saturday, 29 April 2017

Illiberal Britain

"Why have you changed your avatar?" asked a friend of mine.

Why indeed. Ever since I joined Twitter in 2010, my avatar has always been a picture of me, and my Twitter name has always been my own name. I've never wanted - or needed - to be anonymous.

So why now?

The image on my avatar is the Anarchist Cat. Here is what Wikipedia has to say about it:
The black cat, also called the "wild cat" or "sabot-cat", usually with an arched back and with claws and teeth bared, is closely associated with anarchism, especially with anarcho-syndicalism. It was designed by Ralph Chaplin, who was a prominent figure in the Industrial Workers of the World (IWW). As its aggressive stance suggests, the cat is meant to suggest such ideas as wildcat strike actionssabotage, and radical unionism.
A while ago, I added triple parentheses around my name in solidarity with the online Jewish community. Anti-Semitic elements on social media use triple parentheses to identify accounts they think are Jewish so that they can be targeted for hate attacks. I am not Jewish, but I have been the target of anti-Semitic abuse by people who (weirdly) decided I must be Jewish because I opposed their particular brand of racism. I know, first hand, how horrible it can be. So I added the triple parentheses to my own name in solidarity with the real Jews who suffer such hate attacks both online and in the real world.

And now I have added an image to my avatar in solidarity with another group. The people who are all too often called "traitors" for voting to Remain in the EU, and "saboteurs" for trying to overturn or water down the decision of 37% of the British population to leave the EU.

In the EU referendum last June, I voted to Remain - a traitorous act, according to some.  But after the vote, it quickly became apparent to me that only the hardest of hard Brexits would satisfy those who blame the EU, free trade and immigration for all their woes. I wrote about the need for a "nuclear Brexit" in the Financial Times last July. This was my conclusion:
It grieves me to say it, but the UK must now exit completely from the EU. Any form of mitigation simply dilutes the sovereignty for which the UK people voted. I know that cutting the ties completely is the most economically damaging approach, but in the end politics trumps economics. The UK’s democracy at home, and its standing abroad, are already seriously compromised. Attempting to evade or water down the decision of the people will only give a platform to the unpleasant face of nationalism, the hate-filled racism that is already beginning to show its face. For the sake of democracy and freedom, “nuclear Brexit” is the only remaining option.
But far from democracy and freedom being saved by the prospect of "nuclear Brexit", they seem to be under greater threat than ever. Headlines like these are markers along the path to an illiberal Britain:

I do not agree with those who are trying to overturn the decision of the British people on 23rd June, 2017. I think that flawed though the referendum was, it was sufficiently definitive for the result to stand. But I defend completely their democratic right to oppose that decision and to try to get it reversed. And I am appalled by the violent rhetoric used against them. So just as I added triple parentheses to my name in solidarity with Jews who are the target of violent anti-Semitic abuse, so now I add the Sabot Cat to my avatar in solidarity with Remainers who are the target of violent rhetoric and outright threats.

And I have changed my mind about "nuclear Brexit". A very hard Brexit is exactly what the illiberal, authoritarian elements in British society want. I think a very hard Brexit is still inevitable, simply because no government will have the guts to disappoint those who voted to end freedom of movement. But if we continue down the present path, it won't just be the end of Britain's membership of the EU - it will be the end of Britain as a tolerant, liberal society.

This YouGov poll reported in the Independent shows what Leave voters want to see restored in post-Brexit Britain:

Hanging criminals and beating children. The core beliefs of illiberal Britain.

Nor is the illiberalism of Leave voters limited to hanging and flogging. This is the election manifesto from a Scottish UKIP wannabe councillor:

She seems to want to restore the Britain of a bygone age, when women with children didn't work, discussing sex was taboo, schools offered a very limited curriculum, and there was not much in the way of retirement provision or benefits for pensioners. Oh, and Britain had the death penalty, of course. In some places criminals were even executed by guillotine.

Her views are pretty extreme: few Leave voters that I have encountered would support raising the pension age to 70, eliminating free bus passes and helping the old to die. But lots of the Leave voters I have talked to seem keen on sending young people to work in the fields instead of going to university: young "snowflakes" need to find out what "real work" is, apparently, rather than drifting around Europe pretending to study. I have also seen significant support among Leave voters for ending tax credits, slashing benefits for sick and disabled, and stopping all support of families with children. And I have encountered a lot of opposition to free nursery care, extended maternity leave and paternity leave.

I suspect much of this arises from the fact that Leave voters are in general older people who are angry that younger people have benefits that they did not have.  But there also seems to be a genuinely reactionary and intolerant undercurrent.

YouGov calls this undercurrent "authoritarian populism", and says it is characterised by three core beliefs:
  • cynicism over human rights
  •  anti-immigration
  • favouring a strong emphasis on defence as part of wider foreign policy.
In Britain these three characteristics together frame an anti-EU position.

Authoritarian populist views are more common among older voters, with the hardest views among those over 60:

Authoritarian populist views are also negatively associated with educational attainment:

So, to sum up, older and less educated people are more likely to have illiberal views than younger and more highly educated people. The trouble is, there are a lot of them, and they vote. YouGov says 48% of British voters hold authoritarian populist views to a greater or lesser extent. Liberal-left voters remain the largest single group in Britain, but they are outgunned by the combined authoritarian-populist forces.

But why must we listen to such reactionary voices? Why should we give up so much of what we have achieved, simply to appease the angry, intolerant old?

The Britain that I love is an open, tolerant, liberal society that welcomes foreigners, promotes equality and is generous towards the less fortunate. If working to preserve those values makes me a "traitor" and a "saboteur", then that is what I shall be. And when the death penalty for treason is restored, I shall walk to the guillotine with pride.

Related reading:


Tuesday, 25 April 2017

The Libor witch hunt

Since I wrote my post about the Bank of England's alleged manipulation of Libor before and during the financial crisis, something of a witch hunt seems to have developed. Certain people with axes to grind have jumped on the bandwagon set in motion by the BBC's Andy Verity and are aggressively promoting their view that the Bank of England's behaviour was fraudulent. Their argument is that the Bank of England has no business attempting to influence market rates, that those at the Bank who did this should be brought to justice just as traders who rigged Libor have been, and that businesses, households and public sector bodies that lost money when the Bank of England "talked down" Libor should be compensated.

This is arrant nonsense. Influencing market rates is what central banks do. It is called monetary policy, and it is the means by which they control inflation. If central banks could not legally influence market rates, monetary policy as we know it would be impossible.

To explain this, let's look at how monetary policy worked before the financial crisis. Prior to the era of QE and excess reserves, the principal tool that the Bank of England used to control inflation was the cost of funding for banks. If inflation expectations started to rise, the Bank of England would increase the cost of funding for banks, forcing them to raise the interest rates on loans and thus dampening consumer and business appetite for credit. When credit appetite is dampened, spending into the economy slows and inflation starts to fall. Conversely, if inflation expectations appeared to be drifting below target, the Bank of England would cut the cost of funding for banks, enabling them to cut interest rates on lending and thus stimulating demand for credit. Increased demand for credit would lead to higher spending in the economy, pushing inflation back up towards target. This is of course a much simplified explanation, and leaves out the considerable role of asset markets in interest rate management, but it will do for my purposes here.

The Bank of England's policy rate, known as the "bank rate" or "base rate", is the rate at which it will lend to banks against good collateral. But banks don't generally get their funding directly from the central bank - indeed approaching the central bank for funding carries a stigma, as the fate of Northern Rock showed all too clearly. Banks get their funding from each other, either directly or via money markets. Libor is the rate at which banks will lend to each other. Prior to the crisis, borrowing on the interbank market - unlike borrowing from the central bank - did not require collateral. So Libor was usually a few basis points above the policy rate, reflecting the higher risk that banks take when lending unsecured funds.

But it was important that Libor responded to changes in the policy rate. If it did not - or if it diverged wildly - monetary policy could not work. For example, suppose that the bank rate was 4% and Libor was 4.25%. To calm down rising inflation expectations, MPC raises bank rate to 4.5%. But what if the Libor panel banks submitted funding rates that collectively kept Libor at 4.25%? Clearly, if this happened, the increase in bank rate would have no effect on the cost of funds for banks. The Bank of England would have lost control of its main means of controlling inflation. It would be hardly surprising, therefore, if the Bank deliberately influenced the Libor submissions of panel banks to ensure that Libor remained closely coupled to the bank rate. After all, the Bank is responsible to the Government for ensuring that inflation remains under control. So monetary policy must work. Central banks influence market rates to make sure that it does. There is nothing fraudulent about this, no-one needs to be jailed for it and no-one deserves compensation for it. The witch hunters are barking up the wrong tree.  

This is bad enough. But there is a much worse scenario - and unlike my previous example, this one actually happened. Suppose that the bank rate is at 5%, but due to a market panic, Libor suddenly shoots up, to 25% or more? If the Bank of England took no action to bring down that rate, it would be negligent. Interbank funding rates at those levels are a heart attack for banks. Lending into the economy would come to a sudden stop, and the interest rates on variable rate loans linked to Libor would head for the moon, with disastrous consequences for businesses and households. Central banks are responsible for protecting the economy from major shocks like the failure of Lehman Brothers. They do so by influencing the behaviour of financial markets, including the path of key market rates. So of course the Bank of England capped the exponential rise of Libor after the failure of Lehman. It had no choice but to do so. I am frankly appalled at the witch hunters' claim that doing so was fraudulent. Verity, fortunately, has stopped short of making such a ridiculous accusation.

Since the financial crisis, the excess reserves created by QE have partly emasculated the bank rate as principal policy tool, and the interbank market is much reduced as market participants now prefer to lend against collateral. Now, repo rates are probably of more concern to the Bank of England than Libor. But perhaps, at some point in the future, excess reserves will have drained away sufficiently for monetary policy once again to be effectively transmitted via bank funding costs, and market participants will feel secure enough to lend unsecured. When that happens, Libor will return to prominence - and central banks will try to influence it. That is their job.

The Bank of England was in no way wrong to influence the path of Libor, or of any other market rate, in the pursuit of monetary policy objectives. Where it went wrong was in failing to be open and transparent about targeting Libor as a secondary policy rate. Lying to Parliament about the conduct of monetary policy is never justifiable. And nor is allowing others to lose their jobs and/or be jailed for acting on the Bank's instructions.

We need to distinguish clearly between manipulation of Libor by commercial banks and traders to flatter their own positions, and manipulation of Libor by commercial banks guided by the Bank of England in order to meet monetary policy objectives. Until that distinction is made, we cannot know whether the likes of Tom Hayes are innocent or guilty. There may have been a miscarriage of justice - or there may not.

The Bank of England must come clean about the extent to which it manipulated Libor, and why. There is no shame in being honest: indeed failing to tell the truth risks fatally undermining its credibility. The public deserves to know that when central banks are doing their job properly, there is really no such thing as a market rate.

And the Libor witch hunters must back off. Their antics are not helpful.

Related reading:

Libor and the Bank

Image: "Salem witch hunt begins" from

Tuesday, 11 April 2017

Libor and the Bank

Nearly five years ago, the former CEO of Barclays Bank, Bob Diamond, defended himself against accusations that on his watch, Barclays had deliberately falsified Libor submissions. To no avail: after widespread adverse press coverage, Diamond resigned.

Was this at the instigation of the Governor of the Bank of England and the head of the FSA? We will probably never know. But events yesterday make not only Diamond's resignation, but also the prosecution and jailing of traders and Libor submitters from Barclays and other banks, look distinctly odd.

The BBC's Andy Verity has revealed the existence of a recording which appears to indicate that the Bank of England and the Treasury pressured banks to "lowball" their Libor submissions during the financial crisis. According to Verity, the conversation, between a junior Libor submitter (who was subsequently jailed) and his manager, ran like this:
In the recording, a senior Barclays manager, Mark Dearlove, instructs Libor submitter Peter Johnson, to lower his Libor rates. He tells him: "The bottom line is you're going to absolutely hate this... but we've had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower." 
Mr Johnson objects, saying that this would mean breaking the rules for setting Libor, which required him to put in rates based only on the cost of borrowing cash. Mr Johnson says: "So I'll push them below a realistic level of where I think I can get money?" His boss Mr Dearlove replies: "The fact of the matter is we've got the Bank of England, all sorts of people involved in the whole thing... I am as reluctant as you are... these guys have just turned around and said just do it."
This is not the first time that Barclays has issued material purporting to show that the Bank of England was influencing Libor rates. Diamond's submission to the Treasury Select Committee included this file note recording a phone call between Diamond and Paul Tucker, then Deputy Governor of the Bank of England:
Note the last sentence. At the time, this passed largely unremarked - but in the recording reported by the BBC, Mark Dearlove makes a similar comment. Someone very senior in the Treasury seems to have instigated the Bank of England's request for Libor lowballing. The identity of this individual has not been revealed, though the Telegraph thinks it knows.

Libor manipulation is now a criminal offence - when it is done by banks or traders to boost their own profits. So the growing evidence that the Bank of England was manipulating Libor rates during the financial crisis at the behest of the Treasury raises some very serious questions.

Firstly, why would the Bank and the Treasury have wanted to manipulate Libor? It seems highly unlikely that this "lowballing" request, made during the worst financial crisis since the 1930s, would have had anything to do with flattering bank profits. So what might it have been about?

Well, at this time banks were dropping like ninepins. Several Libor panel banks, including RBS and HBOS, were already shut out of markets: their Libor submissions in no way reflected the real cost of market funding for them (which was effectively infinite). And market rates were heading for the moon, as suspicious market participants looked for the next domino to fall. It seems entirely reasonable to me that the Bank of England, prompted by a worried Treasury, would have tried to lower Libor to something more sensible than panicky banks would charge to lend to other banks they feared could collapse at any second.

Secondly, the note from Tucker shows that Barclays's Libor submissions were among the highest at that time. Normally, high funding costs indicate that the market thinks the bank is a poor risk: for example, Northern Rock's funding costs rose dramatically in the months before its collapse. So Barclays submitting higher Libors than other banks could have signalled to the market that it was next in line for a bailout.

We now know that Barclays was indeed in trouble at that time. To avoid the same fate as RBS, it went cap in hand to Qatar. The Serious Fraud Office is now investigating the shady equity-for-loan deal Barclays did with the Qataris. According to the Independent's Ben Chu, the SFO's findings are due in about a month. If the SFO decides that the deal was fraudulent, criminal prosecutions will follow. The timing is exquisite....

Did the Bank of England - or the Treasury - know Barclays was in trouble? Or did they merely suspect it was? Either way, did they pressure Barclays to reduce Libor submissions in order to ward off a market attack on a bank perceived as vulnerable, thus buying time for Barclays to find additional funds to beef up its dwindling equity?

This raises further questions about Barclays' behaviour. If Barclays was the source of the new recording, why wasn't it released five years ago along with the Tucker file note? Why has Barclays been sitting on this evidence? Why did Bob Diamond take the fall for Libor manipulation that appears to have been instigated by public officials?

But if the source was one of the participants, not Barclays itself, why did that person sit on the recording for five years? One of the people in that conversation was jailed. This evidence could have exonerated him, and others.

I think we need to know why this evidence was withheld for so long, and by whom. And we also need to know why it has now been revealed. Please don't tell me the old team had hidden it in a vault and the new team have only just found it. I don't believe it.

There are serious questions for the Bank of England, too. Why did Paul Tucker deny knowing anything about lowballing, despite the existence of the file note implicating him? His involvement in this matter destroyed his chances of becoming Governor. Why did he sacrifice his career at the Bank? Who was he protecting - and why?

I have previously asked why the FSA went ahead with fines and censure for Barclays and, subsequently, other banks when it appears they were acting at the behest of the Bank of England. The FSA must have seen the evidence Barclays presented to the Treasury Select Committee, though it may not have been aware of the recording. It therefore knew the Bank of England was possibly implicated. Hanging Barclays out to dry for an offence possibly committed at the behest of the Bank of England and the Treasury is hardly presenting a united front. Was the FSA distracting attention from its own failures by shafting other public institutions?

There is another matter, too. Back in 2012, Joseph Cotterill reported that the Bank of England was also suspected of Libor manipulation prior to the financial crisis, between 2005-2007. This is an entirely different - and potentially much more serious - matter than attempting to cap Libor to prevent bank meltdown in the financial crisis. It suggests that the Bank may have been treating Libor as a shadow policy rate. There is some justification for this: if the main monetary policy rate and Libor become significantly decoupled, monetary policy loses traction. So it may be that the Bank leaned on panel banks to adjust their Libor submissions if Libor appeared to be becoming unanchored from the policy rate. But if this is what the Bank was doing, it didn't tell anyone.

The Bank of England may or may not have had good reasons for manipulating Libor. But its officials had no reason whatsoever to conceal the Bank's actions. Lying to Parliament is totally unjustifiable - as is allowing people to be prosecuted, and serve jail time, for offences they may not have committed. The real disgrace is the web of lies that seems to have been woven by both Barclays and the Bank of England.

We may never get to the bottom of this sorry mess. But we should give it a damn good try. Five years ago, I called for an independent judicial enquiry into the role of public institutions in Libor manipulation . I repeat that call now. Let those who really made the Libor decisions, both before and during the financial crisis, be brought to account.

Related reading:

Libor rigging and double standards
So whose fault is it, then?

Tuesday, 4 April 2017

A dangerous Eden

I have been going to the gym. Seriously. For about a couple of months now. I'm doing weight training for the first time in my life, and cardio exercises, including - wonder of wonders - short bursts of running. I'm even paying for a personal trainer. It's a shocking extravagance, but I'm likely to find any excuse under the sun not to do my workouts unless I have someone telling me what to do and shouting at me if I don't do it. As one of my school reports said, "Frances does not enjoy physical exertion". Truer words were never spoken. Sporty, I am not.

So why am I doing this? It is all because of my family. Specifically, my father. He has serious heart problems, vascular deterioration in his brain and Type II diabetes. And I am a lot like him. 

Ok, so he is 83. But he was a lot more active in his 50s than I have become. Since I reduced my singing teaching and took up writing, I have become largely sedentary. Even gardening has gone, killed by a brutal combination of severe hay fever and asthma. And although I enjoy walking, I don't do it nearly enough. It is too easy to hop into the car even for short trips, and longer ones are a rare indulgence in a life dominated by work. 

I looked at my father - now slim, after drastically changing his diet when he was diagnosed with Type II diabetes. And I looked at me. And I did not like what I saw. I decided that if I wished to avoid heart problems and diabetes, I had to slim down and get fit. So I went to the gym. 

I am far from alone. In a recent panel discussion on the future of work, I asked the audience how many of them went to the gym. A forest of hands went up. It appeared that nearly everyone in the room, young and old, visited a gym. Slimming down and getting fit is fashionable among London office workers. 

But back in the nineteenth century, there was no such thing as a gym. Nor would people have visited gyms even if they existed. Even if they could afford them, they did not need them. For the vast majority of people, work itself involved physical exertion. It did not matter whether you were an agricultural labourer, a scullery maid, a cook or one of the thousands of people who worked in factories and mines up and down the land. Work was hard. 

There was a lot of it, too. People then worked longer hours than we do now: working days of 10-12 hours were typical. Most people started work when they were children, and continued to work well into old age. The state pension introduced in 1908 set the retirement age at 70 for both men and women. Prior to that, elderly people who could not support themselves were forced into workhouses - where they were, of course, required to work. 

Even for people doing desk jobs, such as Dickens' Bob Cratchett, work was physically harder than it is now. Offices were neither centrally heated nor air conditioned, and there was no concept of "ergonomic design". And Victorian ledgers were no light weight: any clerk lugging those around would have been doing the equivalent of modern weight training. Not to mention dragging in buckets of coal and logs to feed the open fire. 

Transport to work also involved what we would now regard as hard work. Most people would have walked to work, often some distance. Even richer people regarded walking long distances as normal: in Jane Austen's Pride and Prejudice, Elizabeth Bennet and her aunt and uncle decide to walk round the Pemberley park on discovering that it is "only 10 miles round". Admittedly, 10 miles proved too much for her aunt: but when Elizabeth marries Darcy, her aunt observes that a pony and trap would be the very thing in which to tour the park. Riding in an unsprung carriage (or pony trap) might have saved her feet, but it would have used every muscle in her body. Among richer people, horse riding was a common means of transport: but that too involves using muscles that many of us today don't know exist. 

In one episode of the BBC's "Victorian Slum" - a well-constructed "living history" programme showing what life was like in the Victorian slums of East London - the historian on the programme, watching young men struggle to lift heavy sacks of meal, observed that Victorian men were fitter and tougher than today's young men. Although their nutrition was far worse than ours today, and there was next to no healthcare, they were used to lifting heavy weights and performing physically demanding manual tasks. 

So for our forebears, gyms would have been superfluous. It was the daily grind of living that kept them fit. When they stopped work, they rested. And because there was much work, and little rest, they longed for a world in which there was much rest and little work. Freedom from toil has been the goal of mankind for millenia. 

We are hardwired to use our ingenuity to find easier ways of doing things. Our prehistoric ancestors directed their efforts towards making hunting and gathering more efficient: so they invented weapons with which they could kill much larger prey (and could therefore afford to hunt less often), and they invented ways of improving the productivity of plants, so that they need not forage so widely. Eventually, of course, they learned to keep the plants and the prey close to them, so that they could tap them whenever they wanted rather than having to find them. Of course, farming did not eliminate either food scarcity or hard work: but it made them more controllable, especially as humans devised ever more imaginative ways of preserving food.

Now, we create labour-saving devices that reduce the amount of physical effort required to keep a home clean, clothes washed and dinner cooked. We invent machines that eliminate the need for humans to exert themselves physically to produce food. We develop faster and more efficient ways of moving people and goods around. We speak of the "changing nature of work", as if it were something new: but in reality, the nature of work has been changing for generations, as machines have progressively replaced human muscles. Our worry now is that machines will replace not just our muscles, but our brains. 

But progressively replacing human brawn with brain in the world of work is already creating an unexpected problem. Freedom from toil isn't all it is cracked up to be. Our bodies need physical exertion to remain healthy. Sedentary lifestyles shorten people's lives

So, do we kick out the machines and do the work ourselves? No. We go to the gym. In other words, we pay to do physical hard work for which in the past we would have been paid. Some of us (me) even pay a personal trainer to play the role of the employer that would have told us what to do and shouted at us if we didn't do it well enough. 

The burgeoning fitness industry is a fine example of how the changing nature of work sparks new, previously unimaginable types of job. Who, one hundred years ago, would have foreseen that entire factories full of machines would be created not to produce goods, but simply to enable people to stay healthy? Even the treadmill of nineteenth century prisons and workhouses served a useful purpose: it generated energy to power mills. But as far as I know, no-one has yet tried to harness the physical energy that thousands of people waste every day in gyms up and down the country. Mind you, it is surely not going to be long before someone realises that gyms could be self-sufficient in energy and possibly even provide electricity to the local community. Who needs wind or solar, when you have a spinning class? 

We also re-create the food scarcity that was the lot of our distant ancestors. Our instinct is to seek out foods that were previously scarce but are now abundant, such as sugar and fat, but we know that indulging our preference is dangerous to our health. So we follow diet plans of varying scientific credibility, and consult dieticians who advise us on what not to eat. We voluntarily restrict both the amount and the variety of food we eat: we may even pay extra for foods that are produced in a less efficient (but more "natural") way. To the people of the "Victorian slum", this would have seemed extraordinary. 

Indeed, it would seem extraordinary to people in developing countries today. What I describe above are first world problems. At the same time as we are artificially creating hard work and scarcity to preserve our lifespans, our cousins in Africa are doing real hard work and experiencing real scarcity, both of which shorten theirs. The changing nature of work has made our lives too easy, while theirs remain as hard as ever. 

But perhaps, in the distant future, even our African cousins will be relieved of the necessity of physical toil, and benefit from the abundance that efficient machine production can deliver. Then our problems will be their problems, and they too will voluntarily pay to work and to starve. 

Who would have thought that the Eden of which we have dreamed would be so dangerous for us?  

Related reading:

Image from Wikipedia.