The Corruption of our Country

It's difficult to get away from the corruption in much of our Country's public life: MP's expenses, criminal behaviour (allegedly) by many in the media plus much unethical activities e.g. entrapment, secret recording of conversations and what many suspected - that the Financial Sector was and probably is incredibly corrupt. I do not sigh and reflect that it was always so and we do need to understand how we got here. 1986 is an important date in the de-regulation of financial markets. If we understand history and human behaviour we are drawn to the conclusion that what we have now is the inevitable ultimate end of the Thatcher (inspired by Hayek) neo Liberal economic and social experiment. Markets are there to be manipulated by large and powerful players and just as Diplomats are employed to lie on behalf of their country (see WikiLeaks) then corporate executives quite often perform a similar function for their companies. Remember the initial response of NI to the hacking scandal - it was a rogue reporter!. We now know this was not true and it is probable that many others in the business knew and at best silently condoned such actions. The pathetic PR which daily insults ordinary people's intelligence about these issues just shows how ex reality these people are!! The establishment rush to contain the crisis by incremental release of damaging information thinking that it will calm down if not blow over. Don't insult our intelligence any more! Most people now realise this is a charade designed to keep existing post holders and power wielders in position. Show some real backbone and clear out the criminal and immoral now this year!
I leave this post with John of Gaunt's speech about England beautifully given last evening by Patrick Stewart. Read it and weep for what our country has become!
 

William Shakespeare

Richard 11

Act 2 Scene 1

Gaunt. Me thinkes I am a Prophet new inspir'd,
And thus expiring, do foretell of him,
His rash fierce blaze of Ryot cannot last,
For violent fires soone burne out themselues,
Small showres last long, but sodaine stormes are short,
He tyres betimes, that spurs too fast betimes;
With eager feeding, food doth choake the feeder:
Light vanity, insatiate cormorant,
Consuming meanes soone preyes vpon it selfe.
This royall Throne of Kings, this sceptred Isle,
This earth of Maiesty, this seate of Mars,
This other Eden, demy paradise,
This Fortresse built by Nature for her selfe,
Against infection, and the hand of warre:
This happy breed of men, this little world,
This precious stone, set in the siluer sea,
Which serues it in the office of a wall,
Or as a Moate defensiue to a house,
Against the enuy of lesse happier Lands,
This blessed plot, this earth, this Realme, this England,
This Nurse, this teeming wombe of Royall Kings,
Fear'd by their breed, and famous for their birth,
Renowned for their deeds, as farre from home,
For Christian seruice, and true Chiualrie,
As is the sepulcher in stubborne Iury
Of the Worlds ransome, blessed Maries Sonne.
This Land of such deere soules, this deere-deere Land,
Deere for her reputation through the world,
Is now Leas'd out (I dye pronouncing it)
Like to a Tenement or pelting Farme.
England bound in with the triumphant sea,
Whose rocky shore beates backe the enuious siedge
Of watery Neptune, is now bound in with shame,
With Inky blottes, and rotten Parchment bonds.
That England, that was wont to conquer others,
Hath made a shamefull conquest of it selfe.
Ah! would the scandall vanish with my life,
How happy then were my ensuing death?

The biggest theft in History?

When the Governor of the Bank of England says that there isn't a liquidity problem in the context of lending to business but one of solvency what exactly does he mean and why hasn't there been more on this. Most Banks do not have enough capital to cover their liabilities i.e. they were and are bust! And if they claim they are solvent how come the Russians, Chinese and Indians do not believe them both by word and deed. (see various pronouncements from each of these governments in the past couple of years especially Jin Linqun - November 2011)[1] 

Well, of course, this is deeply embarrassing to the political and business class of Britain and Europe because it would make clear that there is more pain to come!  Taxpayers in Britain and Europe are going to have to fund these losses! Increasing liquidity as has just been announced today (19th June 2012) by the Bank of England - £5bn per month for at least the next 6 months in the UK does not solve the problem but may buy time. That is time to grow the economy so as to generate wealth to help fund the banks' losses. 

Another embarrassing aspect is the conspiracy of silence about the exact nature of those losses - what they are and how much of a loss they represent. Without transparency there will continue to be a lack of interbank confidence! That's right they do not trust fellow bankers. Without that confidence there can be no resolution of the problem - everything else is the equivalent of sticking plaster! (See particularly Liam Halligan over many months. [2]. What then happens - and I speak from personal experience ( I am legally prevented from disclosing full details) is Bank borrows from Bank of England at 2.5% and then lends to a platinum plated (public sector) project at 7.9% - the 5.4% then goes straight into the banks bottom line. Colloquially the public is being screwed again by the self same organisations who largely created this mess in the first place and they continue to pay themselves exorbitant and outrageous salaries and bonus's.

This conspiracy of silence (well speaking very quietly without emphasis and moving on very quickly) is a scandal since it is 4 years on from Lehman Bros.! If they do not know their actual liabilities now they are either incompetent or too scared to say. I very strongly believe the latter! Now politicians are not generally dumb so they will have worked this out and clearly their plan is fudge and muddle through rather than radical surgery and a rebuild of the control systems. From the political and business class this approach has (for them) a most desirable  consequence - it is the least threatening strategy to their position! Which brings me to the question posed by Niall Ferguson in Reith Lecture 1 19th June 2012 - have the pre-dominance of personal relations in politics and business so corrupted the institutions of government that decline is now inevitable? I believe we are very close to this! I just say in business and politics thinking of a job for life is corrupting - arranging it to be just so is corrupting - and is about obtaining and retaining power - remember Lord Acton on power!  So at least some pretty short term limits must be introduced for senior politicians  and not as Russia, I have in mind 10 years as an absolute maximum - of course politicians and some business people are arrogant - as Gordon Brown said of Tony Blair his exceptionalism about himself knew no bounds. Having seen many of them over the years this is invariably not justified! Moreover this attitude, which the insiders will say does not exist despite the overwhelming evidence on a daily basis, is profoundly undemocratic. We have the best educated and potentially best informed electorate in history yet we cannot be trusted to take more decisions?

So who pays:

It's the same the whole world over
It's the poor what gets the blame
It's the rich what gets the pleasure
Ain't it all a bloomin' shame?

Billy Bennett - 1930

This Music Hall song sums up how most people feel and why wouldn't  they? If you 

are on the minimum wage in Portugal and Greece then you have just had your 

income cut by 20%. They would like to know how they caused the financial crisis of

2008. Of course they did not! But their politicians are likely to be very culpable by 

not reforming and especially not securing the transparency necessary for markets 

to operate effectively and not collecting taxes from the rich! We should also not 

forget the contribution of massive de-regulation from the 1980's and light touch 

regulation have made to the financial crisis. Too many thought this meant they 

could do as they pleased and did so! This puts into context those who argue that

a significant part of the solution is more de-regulation? This cannot be right unless

you are a free market fundamentalist. No it is about designing systems that 

require appropriate behaviour and the failure to behave appropriately results in 

prohibition from that area of business. Anything less will not work and will 

encourage just the sort of corruption to which I referred to earlier.

What is the skeleton of appropriate behaviour - ask yourself these questions: 

a) is this action I am about to take about putting myself first before anything or 

anyone else?

b) will this action I am about to take strengthen the institution within which I work

or weaken and corrupt it?

c) does this proposed action increase or decrease transparency in the market 

place?

d) does this action have a purpose other than simply enriching me - e.g. will it 

create employment?

e) against the background of the moral framework within which I wish to work

is this proposed action the right thing to do? 

Notes and background references used in this article 

[1] http://www.theresilientfamily.com/2011/11/chicoms-call-european-socialists-slothful-indolent/

[2] http://www.telegraph.co.uk/finance/comment/9336435/Bank-throws-kitchen-sink-at-credit-problem.html 16^th June 2012

http://seekingalpha.com/article/666771-europe-the-problem-is-solvency-not-liquidity 19^th June 2012

http://www.link2portal.com/sir-mervyn-king-mansion-house-2012-full-speech

published 19^th June 2012

http://www.independent.co.uk/news/business/comment/satyajit-das-europes-problem-is-not-one-of-liquidity-but-rather-solvency-6281205.html 24^th December 2011

http://ineteconomics.org/blog/money-view/liquidity-and-solvency

6^th October 2011

 

The casual mendacity of Tony Blair

The media, in the main, seem to think today that Tony Blair gave a virtuoso performance at the Leveson Inquiry into Media practices and ethics yesterday. If that is the depth of analysis we can expect - have come to accept - it is no wonder the country is in dire straights with Cameron (self appointed heir to Blair) at the helm.
 I write this as a Labour Party Member and voter.
Two things Tony Blair said make clear his mendacity (if I am generous it could be self deception/delusion but these guys are highly intelligent so they say!!). So they know precisely what they are saying, what they are not saying and the impression they wish to give!
First he sought to say that the reality of politics in the UK was that they had to deal with the media. Even if true, which to some extent it is, that is not the same as according them (the media) special treatment!  So Mr Murdoch (Snr) was accommodated with three discussions prior to the invasion of Iraq! I don't remember having discussion with the then PM about it and I am a UK voter which is more than Mr Murdoch (Snr) - originally Australian but now a USA citizen so he can have a substantial interest in an American media company.
Second Mr Blair claims NI (News International - Mr Murdoch's company) never got anything from the government which he (TB) led. However since these people are very clever one does not have to be explicit - you will have worked out beforehand what was required and the requirement was to recognise the reality of political power in UK (in TB's view and many in New Labour). Hence although there was a demand from Labour for limitation of foreign ownership of UK media (the then Culture Secretary Chris Smith was working on it) TB saw to it that no legislation was put before Parliament. TB claims that to do so would have de-railed much needed reforms in Health and Education. I do not know of anybody in Parliament then or now who represents the Murdoch constituency (well maybe a couple but not enough to cause trouble).there was no legislation in the period 1997 to 2010 restricting the ability of NI (and indeed the media in general) to do as it wished. So TB's judgement is suspect to say the least.
Shame on Britain, shame on us all for allowing it to happen.

Sources used:
Daily Telegraph 29th May 2012
Independent 29th May 2012
BBC News 28th May 2012
Channel 4 News 28th May 2012
Published 29th May 2012
Revised 30th May 2012

Financial Regulation and the Corporate Psychopaths

"The dumbest idea in the world", so said Jack Welch former head of General Electric (USA), about shareholder value. He was talking about the guiding principle in capital and financial markets for at least the last 30 years. Never the less this is what we were told was necessary and behaviours complied or businesses declined. This is part of the discussion/struggle between the returns for lenders and the cost to borrowers. For that last 30 years the great economic boom sheltered many people from the reality that if growth stalled they could be in a lot of financial trouble. But we now know that it was unsustainable - the basics were wrong - if you like greed, incomprehensible financial products and the triumph of ego over common sense you had a ball and now everybody else pays.
This brings me to the current discussion of moral capitalism. I am not sure that the Ken Costa approach (see Sunday Telegraph 6th November 2011) is going to bear fruit - it strikes me as wishing things were other than they are: "You cannot legislate into existence a culture of honesty, integrity, truthfulness and responsibility and at the end of the day, it is precisely these values that we need.". He goes on to talk about reconnecting the separated parts of humanity - economic, moral and spiritual. However I believe it is evident that without a general agreement on the rewards for lenders and the costs to borrowers then the so called free market will determine price and, of course, since the market is amoral there is very little limitation on bad/unprincipled behaviour. Ken Costa does say there is a need for reform of the market and of government but does not specify any particular change. What we need to do is press for reform where the rules are very clear and which are equitable between lenders and borrowers. They are clearly not equitable now where banks get money in (often from Central Banks) at 2.5% and then seek to lend it out at 8% or much more.
Into this market world, where we (were) are told the almost exclusive objective is to maximise your profit, enter the Corporate Psychopath. Professor Robert Hare (Psychology, University of British Columbia - expert in criminal psychology and the study of psychopaths) identifies that about 1% of home sapiens have no conscience or empathy. He is quoted in the Independent (29th December 2011, Business Section p.49 Outlook, Brian Basham); "I should have spent some time inside the Stock Exchange as well. Serial killer psychopaths ruin families. Corporate and political and religious psychopaths ruin economies. They ruin lives.". Straying a little from their area of expertise Basham and Hare assert that never ending growth requires monsters. However I think this has the ring of truth. Basham goes on to say: "In attempting to understand the complexities of what went wrong in the years leading to 2008. I've developed a rule:<In an unregulated world, the least principled people rise to the top>And there are none who are less principled than corporate psychopaths."
From this, the type of regulation necessary becomes very strict. Since most psychopaths are incurable only controllable! Not only must there be the certainty of enforcement as I have said previously but also lifetime exclusion from (in this case) participation in financial markets plus as is the case in the USA the prospect of physical detention (prison). Developing the principles of moral capitalism and markets requires very strong political will which is rarely evident. But if lenders start by scaling back their demands (rates of interest) on the grounds of risk (I have seen Banks charge 7.9% interest for a gold plated investment backed by the British Government) but reaching sensible agreements with borrowers then we might stand a chance of avoiding a crash like that we have experienced in the past 4 years. Governments have to lead in this not follow irrational behaviour in markets. Transaction taxes, capital ratios and the like are sticking plaster compared with the necessity to get growth, pay off debt and, most important get people back to work. It is simply not sustainable as is the case in Spain where 50% of the under 25's are unemployed - the social consequences both indirect and possibly direct are much worse than this so called austerity cure which in truth gives enormous pain to the most disadvantaged but leaves the psychopaths untouched. These last 30 years have been good for some but it is for the life chances of those wanting to work now that we must plan. No generation should be left to rot!
By the way many of these psychopaths have infiltrated the public services - they must be identified and rooted out also! More later.     

Robert Hare               www.hare.org
Brian Basham            www.prweek.com/uk/
Ken Costa                   www.godatwork.org.uk

Financial Regulation Part 3

It looks as if the Euro and Greece have bought themselves some more time with the bailout at the end of last week. I am surprised at how little comment there has been about the €1019bn input from the ECB (European Central Bank) - this was in two instalments and took the form of cheap loans for Banks (€489bn in December 2011 and €530bn at the end of last month). There are probably a number of reasons for this - such as the need to provide support to banks adversely affected by the Greek "default", a signal that the euro was not going to be blown a way by the markets (well not yet anyway) and that such a well timed manoeuvre could out flank some Hedge Traders. However the other side is that this expansion of the ECB's balance sheet is backed by European (Eurozone directly) taxpayers!   
On BBC Radio 4 last Thursday a discussion took place in the Business about the bailout and Hedge Funds. If I heard correctly the Hedge Trader had made a loss on the Greek bonds but was covering himself by shorting the Banks. Might not have worked this time! The Hedge Trader was clear that it was not his job to moralise what was permissible in the market and even claimed that their activities encouraged the Regulatory Authorities to do their job better! This is just another version of that juvenile argument - question "Why did you do that?" answer "Because I can". There is no moral compass here as distinct from some in the City of London who believe that without it regulation will be severe and some activities will simply be outlawed. And some might say why not given the mess they got us into and the fact that it is Jill and Jack taxpayer who is taking the ultimate risk! This one has a long way to run yet.      

Executive Mayor for Salford

The non-voters won the referendum held on 26th January. The turnout was just 18.1% - with 17,344 voting for and 13,653 against. So while the proposition was carried 55.59% to 44.41% those figures represent just 10.12% of the electorate for and 7.98% against. My first point therefore is to question whether there is a mandate for such a change and to ask also should there be a threshold which must be achieved before any such proposition is carried - say 35% of the electorate voting. The turnout also strongly suggests that the proposition has not exactly set the world on fire let alone Salford.
One of the main proponents of the proposition was a Mr Berg who is not a resident of the City but who does own property in Salford. Mr Berg was prosecuted last year by the City Council and was ordered to tidy up a property in Irlam and costs were awarded against him (see Manchester Evening News 30th September 2011). Mr Berg is appealing that decision. The other main proponent of the proposition are the English Democrats whose policies do support elected Mayors as well as stopping mass immigration/asylum seekers, repeal of the Human Rights Act and withdrawal from the European Convention, leaving the EU and an end to political correctness (see www.voteenglish.org). They have been successful in one area - Doncaster. Their Mayor was described in the Guardian (www. guardian.co.uk 28th July 2011) as a "bumbling little englander". Reading some of the social media in the area there appears to be a strong opinion that this has been a disaster for the town and that they are a laughing stock.
On the general issue of elected Mayors an edition of BBC West Midlands (Night Mayor - 19th October 2006) declared that such referenda encouraged protest votes (this would seem to be the case in Salford) and allowed "mavericks and self publicists" to impose themselves on (at best) an apathetic electorate.
This angle would be supported here if one reviews the literature put out by those supporting the proposition. The case was not one for constitututional change but very simply anti-Labour e.g. "Do you want to half (?) your Council Tax?" and "Can you afford another 10 years of costly Salford Labour?" This is nothing less than ranting demagoguery. They are naive in the extreme and guilty of deceiving the electorate!
I shall be writing more following the selection of Ian Stewart as the Labour Candidate and Karen Garrido as the Conservative.

Effective Finanacial Regulation and behaviour part 2

It is clear that the financial crisis of 2008 was a failure of both the regulated and the Regulator(s)(this seems to be the overwhelming consensus). The behaviour of regulators also needs to be carefully considered. Of course system changes need to be made e.g. increases in capital ratios (see FSA.gov.uk) but these are not a substitute for effective regulation! Effective regulation has to be properly resourced and the regulated must know that enforcement is certain, serious breaches could lead to the closing down of a business and, where appropriate, custodial sentences would be applied. In the past the regulated knew that none of those three principles would apply.
Writing out of the equation so called "Trading Activities" - Hedge Funds, Commodity Trading and Foreign Exchange Trading which should not be compared with lending for investment in real world business - manufacturing, construction, infrastructure and retailing suggests differing taxation treatment with the latter much preferred to the former  (which in all honesty can only be described as gambling) in tax policies (this appears to be the position of the majority of EU States). This I suggest would make the regulation much easier. The downside, some would argue, is that all of these things together would make lending for the real economy perennially difficult (can it get more difficult than now - the consensus view is that banks are not lending because they are unsure or are unwilling to divulge their real liabilities see Liam Halligan, Sunday Telegraph Business 29th January 2012 p.B4). However I do not believe this to be a foregone conclusion as the differing taxation treatment referred to above would mean that returns on real economy projects could provide a better home for the surplus cash that is floating around (trade surplus nations and the effect of printing money.The behaviour of regulators would need to be different. We must find a way of containing the bureaucracy so businesses can operate well, while properly fulfilling the regulatory requirements. This therefore is not mainly about form filling, ticking boxes nor being in constant contact with the regulator. It is about exercising objective judgements. It is difficult to be completely objective if you believe your next career move is Poacher becoming Gamekeeper (or in this instance the reverse could apply equally).
Further in relation to behaviour - Regulators will have to be ultra professional (you really cannot have umpteen lunches and dinners and perhaps other "freebies" with people and organisations who you are monitoring for compliance with regulations - look at the recent case of the Inland Revenue - there may be nothing in it but it is well established in the public service that the perception is as bad as the actuality, something that seems to have been forgotten in the past few years). Consideration should be given to a restriction on those (obviously in positions of some considerable executive authority) leaving the regulator whereby they will not be permitted directly or indirectly through third parties from engaging in the businesses/industry which they were regulating. It would help in this regard if the government stopped messing around with Public Sector pensions with such requirements and restrictions as those proposed.
It is perfectly possible for these public policy objectives to be achieved what is needed is the will. 

Effective Financial Regulation is about understanding behaviour

I am prompted to write this piece following debates this past week about capitalism, irresponsible or otherwise, moral capitalism and perceptions of corporate behaviour. Newsnight on BBC2 Thursday sought to portray the current discussion as a choice (battle?) to have capitalism or something completely different. Something completely different did not emerge. UK politicians (Cameron, Clegg and Miliband {E}) spoke about moral markets and corporates ripping off customers. This post is about what I see as the deeper and more systemic failures of our form of capitalism and markets. The UK politicians seem to be preparing us for changes at the margins rather than very much more rigorous regulation.   
Niccolo Machiavelli makes a very insightful observation in "The Prince" (p.15 OUP World Classics 1984) (although talking about power it applies because today controlling money is power) that:
"The desire to acquire is truly very natural and normal thing; and when men who are able do so, they will always be praised and not condemned; but when they cannot and wish to do so at any cost. herein lies the error and the blame.". Understanding this piece of work in a contemporary context would, I believe lead us to designing better and more long lasting regulation in the Financial Sector. He is saying the desire for acquisition is what most of us wish and that many would praise those who succeed but that to do so regardless of the consequences if one has not been successful is a grave error. Now the desire to acquire is constrained by both personal character, personal circumstances and external factors so there need to be rules of behaviour which are explicit and the knowledge of the certainty of enforcement.
It is simply woefully insufficient to say (on Newsnight) as Ellie May O'Hagan (UK Uncut) did that it is not their job to suggest an alternative. There was an honest input from Julie Meyer (CEO Ariadne Capital) who acknowledged that there were bad people out there - perhaps as many as 5% involved in the Financial Sector (that is an awful lot of people - 37500 in the UK alone). This suggests both the need for rigorous regulation and the certainty of enforcement. The market does deliver benefits but light regulation has not worked and the sooner UK politicians realise that the market itself is agnostic about morality if not amoral and it is us who need to impose morality on it to make it work for the benefit of us all not a very small minority. There needs to be stringent requirements such as if there is a serious breach of standards licenses to operate could be withdrawn. The resources necessary for effective investigation and enforcement have to be provided (and don't give us all this eyewash about stifling the market because we now know who pays  - Jill and Jack in Britain pay).  So Messrs Cameron, Clegg and Miliband (E) could we please have some honesty about the real issues - we make the rules that could result in "moral" markets and responsible capitalism and not just look at the consequences whether that be rail fare increases, bank charges or parking fees. If we do not its only a matter of time before the next crash.    

Welcome

Welcome to this blog. The journal will be concerned with political, social and economic issues mainly in the UK but also abroad. The blog will endeavour to comment on the various issues with a rigorous eye on the evidence base to support what is being said. Comments will be most appreciated.