I keep newspaper cuttings to help me keep in touch (this is particularly difficult in the UK due to the excess of comment in our media over actualities and the tendency of many journalists to mix up the two and sometimes to try and set the agenda). Some snippets from the past couple of weeks:
"I believe the markets are rigged"
Brad Katsuyama
Independent 23rd April 2014
This is a review of both a book (Flash Boys by Michael Lewis) and the actions of Brad Katsuyama a financial trader. In essence Mr Katsuyama is saying that in High Frequency Trading (HFT) the market can never be transparent and meet the principles of openness and equality of information (at the time of the deal) as between seller and buyer. He claims that the algorithms used whereby trades are made in thousandths of a second mean that transparency is impossible and that therefore the market is rigged. It has become a race between mathematicians programmers as to who can produce the best system. Negotiation and the application of judgment have gone to be replaced financial and technological arms race! This is without judging whether these trades provide and socially useful purpose other than to enrich the players at the expense of everybody else - pension savers, manufacturers and ordinary folk.
Formula 1 boss Bernie Ecclestone has avoided a potential £1.2bn tax bill as a result of a secret deal with HMRC.
By Darragh MacIntyre BBC Panorama
http://www.bbc.co.uk/news/uk-27144637 28th April 2014
The deal involved a payment of just £10m, according to legal transcripts obtained by BBC Panorama. Revenue & Customs spent nine years investigating the Ecclestone family's tax affairs before offering to settle in return for the
payment from the family trusts in 2008. Mr Ecclestone said he paid more than £50m in tax last year. Panorama's investigation goes back to 1995 when Mr Ecclestone secured ownership of the lucrative TV rights of Formula 1. Shortly afterwards he moved this prize asset offshore, giving the rights to his then wife, Slavica. She transferred them to a family trust in Liechtenstein, before selling them for a huge profit, free of UK tax. It may be the biggest individual tax dodge in British history, and is legally watertight provided Mr Ecclestone did not set up, or
control, the trust. If he had done, Mr Ecclestone has admitted, he could have faced a tax bill of more than $2bn - or £1.2bn. Barrister and tax expert Jolyon Maugham said this was a "pretty substantial" loss of tax. "I'm certainly not aware of anything else remotely approaching that sort of magnitude, in my fairly extensive experience."
UK tax authorities spent nine years investigating the Ecclestones' tax affairs before agreeing a settlement. HMRC does not comment on individual cases, but Panorama has obtained evidence from the previously unpublished transcripts of interviews conducted by a German public prosecutor. One of the lawyers who helped run the Ecclestone family trusts, Frederique Flournoy, told the prosecutor: "In summer 2008, the Inland Revenue offered to conclude the matter if we paid £10m. We decided to pay up." According to Ms Flournoy's evidence, the Ecclestone family trusts earn around £10m in interest every six weeks. Mr Ecclestone says he gave away his fortune to avoid inheritance tax laws that he considered to be "very unfair" at that time. Having gifted the assets to his wife, Mr Ecclestone can't receive payments from his family's offshore trusts. But Ms Flournoy told the German prosecutor he's been receiving payments from his wife since his divorce: "Mrs Ecclestone received disbursements from the Trusts. In other words, she also has a personal asset. That is also the basis on which the divorce ruling fixed the payment amounts to Ecclestone." When asked how high the divorce payments were to Mr Ecclestone, she said: "I don't know the exact figure, however it must be
around $100 million a year."
Mr Ecclestone said his divorce was a "private matter". He says he has always paid his fair share of tax and that he is "proud to be British and proud to make my contribution by paying my taxes here."
Slavica Ecclestone's lawyer said her estate planning was based on legal advice and that she was entitled to privacy in her tax affairs.
A lawyer for the family trusts said Mr Ecclestone has not exerted any control over the management of the trusts. He said the transcripts from the German prosecutor contained errors.
A spokesperson for HMRC said: "The way in which HMRC settles and assures tax disputes has been completely overhauled in recent years, making the process more transparent. "The effectiveness and propriety of such settlements is overseen by a Tax Assurance Commissioner, who publishes an annual
report covering all large settlement cases."
Reproduced without comment.
Hobbling of RBS will cost us dear
Ian Marten
Sunday Telegraph 27th April 2014
Bailing out RBS cost the British taxpayer £45.2bn. Last year RBS made a loss of £8.2bn. Martin takes the view that vetoing bonus payments will make it very difficult for the bank (actually the Investment Bank Arm) to be sold without a substantial loss to the taxpayer. He asserts that all agreed at the time of the rescue that the government would allow RBS to operate as a normal commercial Bank (wasn't that precisely what got us into this mess in the first place?). We then have the tired old arguments about exceptional talent and their requirement for exceptional rewards. If it were truly exceptional there wouldn't be thousands of them! The notion that such neanderthal payment systems do not adversely affect behaviour and contributed to the crisis of 2007/08 is so far removed from reality and understanding of human behaviour as to be a missive from the planet Zog! And no this is not "anti-capitalism" as claimed in the article but a realistic evaluation of how we are where we are and what is required so as to (as best we can) see that it does not happen again. Apologists for continuing with the failed and failing system need to wise up. Away from the metropolitan melee people have seen through this nexus of finance/media/government/city which ignores ordinary people. Hence a veto of bonus payments is right because a start has to be made in reforming this broken model!!
City reeling as disputed US research strikes again
Independent 23rd April 2014
This is really a re-run of the value/accuracy (or otherwise) of the Rating Agencies dispute. A research organization produces a piece of work which results in a 53 per cent drop in a company's share price. Intended or not it cannot be denied that this must be market sensitive information. Yet it appears this can be done without redress.
Now what these examples show is that the market, capitalism, financial operations are actions by people. Bad behaviour will occur where there is the likelihood that there will not be a penalty. Therefore it is not so much the "isms" that need to be addressed but more what is acceptable behaviour and what is not. This is very squarely in the field of politics and no amount of carping will alter that. Perfect competition and transparent markets - equality of information between seller and buyer are principles which have to be upheld and vigorously pursued relentlessly. What has happened in the past few years and is being argued for as the right policy for the future is patent nonsense! So it is not "anti-capitalist", its pro fair markets and equality before not just the law but in dealings with organs of the state.
