Sometimes I wonder if I am cut out to be a Conservative: I was disappointed to hear the Competition Commission had forbidden BBC ITV and Channel 4 from launching Kangaroo, a one stop portal to view their programmes over the internet. Because something so useful and popular would prevent competition.
Why wouldn't consumer usefulness come first?
I'm not sure that competition and choice is always helpful, particularly where consumers have much less information than suppliers. Competition authorities for example took directory enquiries and made it a disorganised mess; and just how many types of orange juice or Ribena does a supermarket shelf really need? And are mobile phone tariffs a consumer benefit? And the Competition Commission has over the years given backing to Tesco's monopolistic control of our shopping and destruction of high street services.
I'm probably just a grumpy old man.
Wednesday, 4 February 2009
Tuesday, 3 February 2009
Protectionism 1,2,3
Hard times make people more selfish, even if selfishness indirectly harms them more. It’s a live topic at the moment which has prompted three thoughts:
What shall we do?
Nick Robinson in his blog, and John Humphrys in his interview with Lord Mandelson yesterday morning highlighted an apparent difference of thinking between cabinet ministers Alan Johnson and Peter Mandelson on how to deal with the “British jobs” issue. This was taken as important – the interview often focused on it. But why does it matter if two people disagree? It surely must be normal for people to have different views and there should be no shame in such disagreements being public until a final line is decided and implemented. Much of what has gone wrong in politics is the spin and tightly controlled flow of information. Different thinking is good.
Four legs good, two legs better
I was going to comment on the “drafting for sale” scandal at the House of Lords: that although politicians criticise the old fashioned nature of the House of Lords, suggesting that it should therefore move to an elected chamber with rules similar to the House of Commons, the alleged offenders were in fact elected MPs who had been transferred to the House of Lords to get them out of the way. And that having a wholly elected upper house would be more likely to create even more legislators divorced from the real world and with no experience of real life.
Then I discovered Rachel Sylvester had said this, much more eloquently than I could, in the Times today.
So I will just express concern about one of the ideas - to ban MPs from having outside jobs. I can see that a good MP should be busy. But MPs today live in a protective bubble with an increasing number never having had a proper job. Having MPs with outside experience can be a good thing.
Any restriction on outside jobs should be accompanied by a restriction on the amount of time MPs can serve – perhaps 2 terms. And perhaps that term restriction would be a good thing anyway. It would make MPs more independent and likely to hold the Government to account.
Any restriction on outside jobs should be accompanied by a restriction on the amount of time MPs can serve – perhaps 2 terms. And perhaps that term restriction would be a good thing anyway. It would make MPs more independent and likely to hold the Government to account.
Lessons of history
The “great depression” was made worse because of protectionism. This is well know. The “Smoot-Hawley Act” is a watchword for the perils of protectionism, a foolish act by short sighted Congressmen. And yet... Democratic Representatives have inserted similar terms into the Obama stimulus programme. So far, the President has not said he will veto these terms*. If enacted as is, much of the good of the programme will be restricted. Why do people not remember the lessons of history?
We see similar short sighted actions by Labour unions in the UK, complaining about foreign workers. Fortunately so far all three parties have correctly pointed out the benefits of the free movement of labour in Europe. But as the Government’s poll ratings continue to be bad I wonder if they will hold the line?
* Although about an hour after writing this he started a round of interviews to say that he did not like the Buy American clauses. I'm sure there was no connection: he was trying to get his Presidency back on track after his picks for Cabinet started fading away. It's good he has accepted protectionism is unhelpful. It will be interesting to see if he can continue to command the high ground, and the debate, now that the first flush of euphoria is over, he has admitted mistakes in Cabinet selection and the Republicans are being stupidly unco-operative. I hope so.
We see similar short sighted actions by Labour unions in the UK, complaining about foreign workers. Fortunately so far all three parties have correctly pointed out the benefits of the free movement of labour in Europe. But as the Government’s poll ratings continue to be bad I wonder if they will hold the line?
* Although about an hour after writing this he started a round of interviews to say that he did not like the Buy American clauses. I'm sure there was no connection: he was trying to get his Presidency back on track after his picks for Cabinet started fading away. It's good he has accepted protectionism is unhelpful. It will be interesting to see if he can continue to command the high ground, and the debate, now that the first flush of euphoria is over, he has admitted mistakes in Cabinet selection and the Republicans are being stupidly unco-operative. I hope so.
Sunday, 18 January 2009
Sunday news comments
1. Saving the (banking) world. Again.
As always, the news is full of another set of initiatives to help the banks lend. And, as always, the BBC's Robert Peston seems to be fully briefed by the Treasury in advance about what is going to happen. This must be news management: it obviously can't be a leak otherwise the Met would have arrested him for endangering the security of the country.
I don't like to comment on anything without seeing the details but it does look as though this will be yet another largely ineffective but complex initiative. It does not seem to tackle the main problem - making the banking system free of doubt. This can only happen if the bad assets are removed, and in a way which is not up to the banks to fudge. This might wipe out bank's existing capital - which would punish shareholders rather than taxpayers - but what remains will be good enough to enable new capital to be raised and would leave a banking system invetors can be confident in. Why hasn't it already happened? I would guess a combination of bank lobbying and Gordon Brown not wanting to admit that his Autumn exercise was a waste of time.
One part of the initiative, reducing the cost of the capital already injected will be helpful - but only by making what had previously been done effective. As always, too little too late.
2. Ken Clark.
Its very tedious to read about "senior conservative activists" objecting to Ken Clark's return. He may be lazy - Tebbit's view - but he's also credible, smart, a proven effective chancellor who bequeathed a good economy to Brown in 1997 and most of all someone who can relate to people. Who cares if he wants to join the Euro or sign up to a European constitution? Most people don't want to and the Tories won't follow that approach.
It can't be right to lock out good people simply because they occasionally say something embarassing or have different views.
As always, the news is full of another set of initiatives to help the banks lend. And, as always, the BBC's Robert Peston seems to be fully briefed by the Treasury in advance about what is going to happen. This must be news management: it obviously can't be a leak otherwise the Met would have arrested him for endangering the security of the country.
I don't like to comment on anything without seeing the details but it does look as though this will be yet another largely ineffective but complex initiative. It does not seem to tackle the main problem - making the banking system free of doubt. This can only happen if the bad assets are removed, and in a way which is not up to the banks to fudge. This might wipe out bank's existing capital - which would punish shareholders rather than taxpayers - but what remains will be good enough to enable new capital to be raised and would leave a banking system invetors can be confident in. Why hasn't it already happened? I would guess a combination of bank lobbying and Gordon Brown not wanting to admit that his Autumn exercise was a waste of time.
One part of the initiative, reducing the cost of the capital already injected will be helpful - but only by making what had previously been done effective. As always, too little too late.
2. Ken Clark.
Its very tedious to read about "senior conservative activists" objecting to Ken Clark's return. He may be lazy - Tebbit's view - but he's also credible, smart, a proven effective chancellor who bequeathed a good economy to Brown in 1997 and most of all someone who can relate to people. Who cares if he wants to join the Euro or sign up to a European constitution? Most people don't want to and the Tories won't follow that approach.
It can't be right to lock out good people simply because they occasionally say something embarassing or have different views.
Thursday, 15 January 2009
The time for action is NOW! (initiative no 245)
Clearly we are in an economic mess. It’s not immediately relevant as to whose fault it is, and of course there are many causes: it’s not just “America” and the occupants of No 10 Downing St are not innocent. But the focus should be on helping the situation.
I can’t understand why so many presumably smart people in the Government, the Treasury and the Bank of England are doing so little (although talking so much). I talked about the irrelevant budget a couple of months ago. And until today nothing has happened since. Although there have been plenty of commitments, presentations and initiatives.
Lots of things are wrong. But the really critical point is that the banks are unable to lend money. Not because they don’t want to – it’s how they make money, it’s how they can rebuild their capital. It’s because they haven’t got enough money to lend. Yes, the Government has put money into some banks and nationalised a couple of others. But (understandably) it wants that money back and it’s charging a lot for it. So it’s not really any help. In addition, it was designed to cope with expected losses on the existing assets banks had, not to support new lending. So it’s really misleading for Ministers to express anger that banks aren’t lending having been given public money. They knew from the beginning that it wouldn’t help. And I’m a bit surprised the LibDems have started to say the same thing.
Last week’s reduction in interest rates by 1/2% was just silly. After the major reductions so far the impact on business will be minimal, as it will be for households because of the cap on rates reductions. But further reductions will harm both savers and the rebuilding of bank capital, both critical for the long term success of the country. The major problem is, as noted above, the supply of loans, not the price. The Bank and the Government seem blind to this. (They are not alone: a coherent view opposed to mine was set out by Kaletsky in the Times: I think he misses the point that savers are prudent: if you fine them or even just reduce rates to nil, they won’t rush out to spend all they have. In fact they will probably save more because the economy must be so bad).
How do you increase the supply of loans? I have written before on the need to cleanse the banking system by setting up a bad bank to absorb the rubbish assets. And at last people seem to be talking about it.
But in the short term, providing a series of loan guarantees would probably help the most. This was suggested by the Tories ages ago....and at last the Government has announced a plan for something similar. But to me it’s another misguided effort, too little too late. It’s focused on small businesses so it won’t help small businesses with big customers or suppliers. It’s bureaucratic, by demanding too much information and process, obviously having been developed by people without business experience. My guess is it won’t work well.
It’s not helped by the focus on presentation. Tuesday evening’s news and comment was all about the plans – as were early Wednesday morning’s, because of leaks and briefings to favoured journalists. But the details weren’t announced until Wednesday morning. So all the commentators could do was talk about what the Government had wanted leaked. And now the details are out, its old news. Especially as by co-incidence the decision on Heathrow’s third runway was announced this morning. So the inadequacies of the guarantee scheme aren’t properly explored. Just why do the media fall for this? Why don’t they wait to see the real story?
I can’t understand why so many presumably smart people in the Government, the Treasury and the Bank of England are doing so little (although talking so much). I talked about the irrelevant budget a couple of months ago. And until today nothing has happened since. Although there have been plenty of commitments, presentations and initiatives.
Lots of things are wrong. But the really critical point is that the banks are unable to lend money. Not because they don’t want to – it’s how they make money, it’s how they can rebuild their capital. It’s because they haven’t got enough money to lend. Yes, the Government has put money into some banks and nationalised a couple of others. But (understandably) it wants that money back and it’s charging a lot for it. So it’s not really any help. In addition, it was designed to cope with expected losses on the existing assets banks had, not to support new lending. So it’s really misleading for Ministers to express anger that banks aren’t lending having been given public money. They knew from the beginning that it wouldn’t help. And I’m a bit surprised the LibDems have started to say the same thing.
Last week’s reduction in interest rates by 1/2% was just silly. After the major reductions so far the impact on business will be minimal, as it will be for households because of the cap on rates reductions. But further reductions will harm both savers and the rebuilding of bank capital, both critical for the long term success of the country. The major problem is, as noted above, the supply of loans, not the price. The Bank and the Government seem blind to this. (They are not alone: a coherent view opposed to mine was set out by Kaletsky in the Times: I think he misses the point that savers are prudent: if you fine them or even just reduce rates to nil, they won’t rush out to spend all they have. In fact they will probably save more because the economy must be so bad).
How do you increase the supply of loans? I have written before on the need to cleanse the banking system by setting up a bad bank to absorb the rubbish assets. And at last people seem to be talking about it.
But in the short term, providing a series of loan guarantees would probably help the most. This was suggested by the Tories ages ago....and at last the Government has announced a plan for something similar. But to me it’s another misguided effort, too little too late. It’s focused on small businesses so it won’t help small businesses with big customers or suppliers. It’s bureaucratic, by demanding too much information and process, obviously having been developed by people without business experience. My guess is it won’t work well.
It’s not helped by the focus on presentation. Tuesday evening’s news and comment was all about the plans – as were early Wednesday morning’s, because of leaks and briefings to favoured journalists. But the details weren’t announced until Wednesday morning. So all the commentators could do was talk about what the Government had wanted leaked. And now the details are out, its old news. Especially as by co-incidence the decision on Heathrow’s third runway was announced this morning. So the inadequacies of the guarantee scheme aren’t properly explored. Just why do the media fall for this? Why don’t they wait to see the real story?
The Do-Nothing Party
The current Labour jibe against the Tories.
And I must admit I’ve been worried that they have not been getting to grips with the economic situation.
But last week I went to hear William Hague speak to a group of people in Tynemouth (some party activists and many with opposing views) but all connected in some way with the economy and/or supporting people. The purpose was to present (at the same time as six other shadow ministers around the country) the practical initiatives the party wanted implemented, and to establish from those present other ideas to feed back. The weather was gorgeous and the view from the conference room over the Priory was fantastic. But I still listened.
He didn’t raise my obsession, a bad bank, but there were a lot of practical ideas. Some:
- Raise pensioners personal allowance
- Stop house repossession for non-mortgage debt
- Cut National Insurance to cut employment costs
- Create tax break for new jobs (since copied)
- Create a loan guarantee scheme (part copied)
The guy sitting next to me, employed in the third sector, said he was not a natural conservative but he was impressed a) at the practicability of some of the ideas and b) with the desire to consult.
I came away encouraged that the party is starting to come out with coherent and practical ideas to sort out the economy: it doesn’t really matter if they are picked up by the Government because implementing them will improve matters.
And I must admit I’ve been worried that they have not been getting to grips with the economic situation.
But last week I went to hear William Hague speak to a group of people in Tynemouth (some party activists and many with opposing views) but all connected in some way with the economy and/or supporting people. The purpose was to present (at the same time as six other shadow ministers around the country) the practical initiatives the party wanted implemented, and to establish from those present other ideas to feed back. The weather was gorgeous and the view from the conference room over the Priory was fantastic. But I still listened.
He didn’t raise my obsession, a bad bank, but there were a lot of practical ideas. Some:
- Raise pensioners personal allowance
- Stop house repossession for non-mortgage debt
- Cut National Insurance to cut employment costs
- Create tax break for new jobs (since copied)
- Create a loan guarantee scheme (part copied)
The guy sitting next to me, employed in the third sector, said he was not a natural conservative but he was impressed a) at the practicability of some of the ideas and b) with the desire to consult.
I came away encouraged that the party is starting to come out with coherent and practical ideas to sort out the economy: it doesn’t really matter if they are picked up by the Government because implementing them will improve matters.
Grown up politics
I have no liking for Baroness Vadera, Brown’s sidekick promoted to business minister, having seen earlier in my working life her lack of ability. But she made a slip in an interview on TV by attempting to answer a question as she thought rather than by blandly batting it away. For that she was roundly criticised by the Opposition as being uncaring, out of touch etc.
This sort of criticism is childish. If we want politicians to be more than party hacks speaking a cloned language then people have to be allowed to speak their minds without being criticised for it. Focus criticism on actions and policies, not on “misspeaking”.
This sort of criticism is childish. If we want politicians to be more than party hacks speaking a cloned language then people have to be allowed to speak their minds without being criticised for it. Focus criticism on actions and policies, not on “misspeaking”.
Wednesday, 14 January 2009
Hello Again
I can’t quite believe it’s nearly two months since I posted something here. What’s my excuse? I’ve been busy; I’ve been away; I’ve had Christmas. But all that applies to most people who blog and they’ve managed to keep up to date. Nothing to write about, perhaps? Not really, as this is meant to be a mostly political blog and there’ve been some pretty major political and economic events. I suppose it’s a question of priorities. So here’s a quick update of random events, before another post about the economic situation:
- I went to Nice. It was Nice. (Although unfortunately I had flu and it rained). I stayed with
some friends who have escaped to the sun after spending years in Frankfurt. They seem to have settled in well but their dog hasn’t. It seems most unsettled, obviously a good German dog wondering what on earth it is doing in a strange country with different language and customs. But any sign of recession doesn’t seem to have hit that part of the world yet: it’s just so comfortable. When we landed after the flight back, the expensive looking 40ish lady next to me was spotted by the older lady in the row in front. “Hello! ..... Where are you spending Christmas?” “Aspen”. Well, of course.
- I’ve booked my skiing holiday. I’m travelling with Jet2.com – they fly directly to an airport close to the resort. I hadn’t used them before, I was impressed with the return flight cost of £11. But of course after taxes, baggage charges etc the total was over £120. Why do they bother? Why not just say what it will be the beginning? The total is almost as much as my business class BA flight to Nice. And I resent the cost a lot more.
- I’ve got an i-phone. Readers may remember that I’m fond of gadgets although incapable of understanding them. But this is a fantastic gadget, probably the best and easiest bit of technology I’ve used. The best part? A picture of a zippo cigarette lighter I’ve downloaded. If you flick the phone, the lighter opens. If you touch the flint, it lights – and the flame moves about if you move the phone. What more do you need from a phone? (Mobile phone reception is so bad here the phone bit is actually a bit unnecessary).
- I went to Scotland for Christmas, back for New Year. I hate New Year (although I like the Northumbrian expression Old Year’s Night rather than New Year’s Eve) and the feeling you should be assessing the past and cathartically looking towards the future. 2008 isn’t a year I want to look back on. Political failure; rotten weather; economic collapse; unsold houses; poor golf. I went to the neighbours’ outdoor party just before midnight which was good fun: drink, distant fireworks, cheesy music. I almost got out my “cigarette lighter” but decided that would be just too tacky.
- I’ve just been to the London Art Fair. Plenty of “I don’t know much about it, but I know what I like”. I hadn’t been for a couple of years. It all seemed more spacious – implying galleries taking more space – and a couple of friends who are dealers expressed pleasant surprise at how well they were doing. It was mostly the “accessible” (a word meaning you can recognise what it is) work which was selling, implying normal rather than fashionable buying. London was the crowded inefficient disorganised mess it always is, although I am sure Boris, having tidied his hairstyle, is also working on that.
Two topics in the London local paper have some national interest:
o The question of who paid for Peter Mandelson’s latest house (it doesn’t seem to have been Peter Mandelson) could run and run or just fade away – too soon to say.
o The furore over a third runway at Heathrow. Its hard to see why the Government wants to build this when Heathrow is so clearly not capable of handling current volume never mind more, and when efforts should be going into a new airport and high speed rail networks. As always, I suppose it’s so they can say they are doing something (not the same of course as actually doing something).
So that’s the last couple of months.
- I went to Nice. It was Nice. (Although unfortunately I had flu and it rained). I stayed with
some friends who have escaped to the sun after spending years in Frankfurt. They seem to have settled in well but their dog hasn’t. It seems most unsettled, obviously a good German dog wondering what on earth it is doing in a strange country with different language and customs. But any sign of recession doesn’t seem to have hit that part of the world yet: it’s just so comfortable. When we landed after the flight back, the expensive looking 40ish lady next to me was spotted by the older lady in the row in front. “Hello! ..... Where are you spending Christmas?” “Aspen”. Well, of course.- I’ve booked my skiing holiday. I’m travelling with Jet2.com – they fly directly to an airport close to the resort. I hadn’t used them before, I was impressed with the return flight cost of £11. But of course after taxes, baggage charges etc the total was over £120. Why do they bother? Why not just say what it will be the beginning? The total is almost as much as my business class BA flight to Nice. And I resent the cost a lot more.
- I’ve got an i-phone. Readers may remember that I’m fond of gadgets although incapable of understanding them. But this is a fantastic gadget, probably the best and easiest bit of technology I’ve used. The best part? A picture of a zippo cigarette lighter I’ve downloaded. If you flick the phone, the lighter opens. If you touch the flint, it lights – and the flame moves about if you move the phone. What more do you need from a phone? (Mobile phone reception is so bad here the phone bit is actually a bit unnecessary).
- I went to Scotland for Christmas, back for New Year. I hate New Year (although I like the Northumbrian expression Old Year’s Night rather than New Year’s Eve) and the feeling you should be assessing the past and cathartically looking towards the future. 2008 isn’t a year I want to look back on. Political failure; rotten weather; economic collapse; unsold houses; poor golf. I went to the neighbours’ outdoor party just before midnight which was good fun: drink, distant fireworks, cheesy music. I almost got out my “cigarette lighter” but decided that would be just too tacky.
- I’ve just been to the London Art Fair. Plenty of “I don’t know much about it, but I know what I like”. I hadn’t been for a couple of years. It all seemed more spacious – implying galleries taking more space – and a couple of friends who are dealers expressed pleasant surprise at how well they were doing. It was mostly the “accessible” (a word meaning you can recognise what it is) work which was selling, implying normal rather than fashionable buying. London was the crowded inefficient disorganised mess it always is, although I am sure Boris, having tidied his hairstyle, is also working on that.
Two topics in the London local paper have some national interest:
o The question of who paid for Peter Mandelson’s latest house (it doesn’t seem to have been Peter Mandelson) could run and run or just fade away – too soon to say.
o The furore over a third runway at Heathrow. Its hard to see why the Government wants to build this when Heathrow is so clearly not capable of handling current volume never mind more, and when efforts should be going into a new airport and high speed rail networks. As always, I suppose it’s so they can say they are doing something (not the same of course as actually doing something).
So that’s the last couple of months.
State Sponsored Terrorism
I find it depressing just how many commentators are giving unquestioning support to Israel’s attempted destruction of Gaza. Neither side deserves unquestioning support.
The sad thing is that Israel’s move seems driven by the short term political considerations of their elections and the need for the Kadima and Labour parties to demonstrate toughness rather than any sort of long term consideration of how to resolve the Palestinian situation. The current campaign is going to delay a solution, and increase global tension. The US is obviously the main funder and supporter of Israel: hopefully, even if he cannot publicly do so, the new President can quietly use his political capital to put pressure on Israel, and to work with Iran, to slowly improve matters.
Having said that: where should he prioritise his time and his political capital?
- Pakistan?
- Palestine?
- Somalia?
- Congo?
- Sudan?
- Zimbabwe?
- China?
- All the others I haven’t thought of?
- Or even domestic financial matters?
Not easy. Where’s Jack Bauer when you need him?
I would vote for the first and the last of that list, by the way.
The sad thing is that Israel’s move seems driven by the short term political considerations of their elections and the need for the Kadima and Labour parties to demonstrate toughness rather than any sort of long term consideration of how to resolve the Palestinian situation. The current campaign is going to delay a solution, and increase global tension. The US is obviously the main funder and supporter of Israel: hopefully, even if he cannot publicly do so, the new President can quietly use his political capital to put pressure on Israel, and to work with Iran, to slowly improve matters.
Having said that: where should he prioritise his time and his political capital?
- Pakistan?
- Palestine?
- Somalia?
- Congo?
- Sudan?
- Zimbabwe?
- China?
- All the others I haven’t thought of?
- Or even domestic financial matters?
Not easy. Where’s Jack Bauer when you need him?
I would vote for the first and the last of that list, by the way.
Tuesday, 25 November 2008
A Foggy Day (in London Town)
Fog helps me play golf better. When I can’t see the threats of gorse, bunkers, rough etc I worry less. I swing more smoothly. The ball is more inclined to go where I want it to.
The same thing cannot be said for driving a car. You need to see where you are going. Otherwise you have to go slowly and everything jams up.
And I think there is a connection here with what’s wrong with the banking system. Banks hold lots of assets – mainly loans and investments they have made.
In the “good times” it didn’t really matter if the values were a bit foggy and unclear because everything went well and business grew. The ball, in their terms, went where they wanted it to.
Now, however, it does matter. The lack of knowledge about the value of assets banks hold worries other banks and investors because they don’t know just how big losses will be, whether the banks can repay their debts and more relevantly how likely a default will be. The assets (loans and investments) of most banks are much bigger than their customer deposits (which are mostly Government guaranteed), so they need money from other banks and investors. And the price of money (the interest rate) depends in part on how likely it is you will get it back. And if you can’t price it, people won’t lend. This is the main reason the banking system is jammed up.
So far Governments and regulators have done almost nothing to sort this fundamental problem of a lack of clarity. I may be missing something, but it’s obvious to me that until they do the financial system won’t be able to support the economy properly.
Yes, they have pumped liquidity in. Yes, they have said they will put our money into recapitalising the banks. Others have commented - this link is to Robert Peston - on why this so far hasn’t stopped banks from being nasty to small businesses and householders.
But almost no effort has been put into trying to create asset values for all the dodgy loans and investments so everyone can see just how bad the problem really is. Until there is a cross industry initiative – it could be a “I’ll show you mine if you show me yours exercise; it could be an auction; it could be Governments buying them (as the US originally intended to do last month) – the problem won’t get fixed. I’m not opposed to the other stuff – at worst it’s harmless, at best, helpful. But this is core. I’m surprised more comment isn’t made about it.
Until the fog lifts we’ll be stuck.
PS Since writing the above, the US has announced a further $800bn package which seems primarily aimed at this problem. Good, if it is implemented in this way.
The same thing cannot be said for driving a car. You need to see where you are going. Otherwise you have to go slowly and everything jams up.
And I think there is a connection here with what’s wrong with the banking system. Banks hold lots of assets – mainly loans and investments they have made.
In the “good times” it didn’t really matter if the values were a bit foggy and unclear because everything went well and business grew. The ball, in their terms, went where they wanted it to.
Now, however, it does matter. The lack of knowledge about the value of assets banks hold worries other banks and investors because they don’t know just how big losses will be, whether the banks can repay their debts and more relevantly how likely a default will be. The assets (loans and investments) of most banks are much bigger than their customer deposits (which are mostly Government guaranteed), so they need money from other banks and investors. And the price of money (the interest rate) depends in part on how likely it is you will get it back. And if you can’t price it, people won’t lend. This is the main reason the banking system is jammed up.
So far Governments and regulators have done almost nothing to sort this fundamental problem of a lack of clarity. I may be missing something, but it’s obvious to me that until they do the financial system won’t be able to support the economy properly.
Yes, they have pumped liquidity in. Yes, they have said they will put our money into recapitalising the banks. Others have commented - this link is to Robert Peston - on why this so far hasn’t stopped banks from being nasty to small businesses and householders.
But almost no effort has been put into trying to create asset values for all the dodgy loans and investments so everyone can see just how bad the problem really is. Until there is a cross industry initiative – it could be a “I’ll show you mine if you show me yours exercise; it could be an auction; it could be Governments buying them (as the US originally intended to do last month) – the problem won’t get fixed. I’m not opposed to the other stuff – at worst it’s harmless, at best, helpful. But this is core. I’m surprised more comment isn’t made about it.
Until the fog lifts we’ll be stuck.
PS Since writing the above, the US has announced a further $800bn package which seems primarily aimed at this problem. Good, if it is implemented in this way.
Did someone just say something?
I wasn't going to bother to comment on the Pre Budget report because it seems to me to be irrelevant to the real world. But East Anglian Troy asked, so I shall provide (rather like the Government?).
What actually happened?
The Chancellor was more honest about Government finances, or rather the scale of the debt we all face. He did not include all the hidden stuff, like public sector pensions or the Public Finance Initiative funding which will come back to haunt all those new hospitals and schools over the next few decades, but he did talk about the rest.
But most people had already suspected just how bad things were.
He announced some helpful matters for small businesses, although I suspect the most significant (the £1bn facility) will require many bureaucratic hoops to be gone through before it is accessible. And he announced a 13 month small cut in VAT. Most businesses will probably not pass that on, so it will help maintain their margins and therefore employment levels.
But why not do something useful? Like cut NICs to keep people in jobs? Or increase tax allowances to take people out of the tax net completely?
And then he also announced tax increases from 2011 (after the next election, so hoping people won't notice). The increase in higher rate tax will probably lead to no change in tax revenues, the higher NICs will make people worried. And he increased tax on alcohol, cigarettes and fuel to offset the VAT cut. The last is particularly disappointing for those living in rural areas.
So this was as much fiscal penalty as stimulus.
So in summary: as many people have suggested, new labour has gone, we face a big recession and the public finances are in a mess. But that was true on Sunday as well as today: yesterday's statement was not really necessary. He hasn't wanted to annoy his client state (see Simon Heffer on that one); he doesn't have the money to make much of a difference and what he has done is mostly a wasted effort.
As I had noted earlier, markets did not seem to think the UK was well positioned. Nor, now, does the OECD: they predict Britain will have the deepest recession of any major eceonomy next year.
Perhaps the most interesting aspect was that George Osborne, the shadow chancellor, apparently spoke well in reply. And this after Cameron gave a good speech (I thought) at the CBI conference. My sense has been that the Tories have, ever since Northern Rock, not provided a consistent and coherent response on the economy. Could this be the start of effective economic opposition? I hope so...
PS - since writing the above I see on Channel 4 news that tucked away in the small print of the pre budget report there is a small section on public sector pensions, although it does not deal with the capital cost.
What actually happened?
The Chancellor was more honest about Government finances, or rather the scale of the debt we all face. He did not include all the hidden stuff, like public sector pensions or the Public Finance Initiative funding which will come back to haunt all those new hospitals and schools over the next few decades, but he did talk about the rest.
But most people had already suspected just how bad things were.
He announced some helpful matters for small businesses, although I suspect the most significant (the £1bn facility) will require many bureaucratic hoops to be gone through before it is accessible. And he announced a 13 month small cut in VAT. Most businesses will probably not pass that on, so it will help maintain their margins and therefore employment levels.
But why not do something useful? Like cut NICs to keep people in jobs? Or increase tax allowances to take people out of the tax net completely?
And then he also announced tax increases from 2011 (after the next election, so hoping people won't notice). The increase in higher rate tax will probably lead to no change in tax revenues, the higher NICs will make people worried. And he increased tax on alcohol, cigarettes and fuel to offset the VAT cut. The last is particularly disappointing for those living in rural areas.
So this was as much fiscal penalty as stimulus.
So in summary: as many people have suggested, new labour has gone, we face a big recession and the public finances are in a mess. But that was true on Sunday as well as today: yesterday's statement was not really necessary. He hasn't wanted to annoy his client state (see Simon Heffer on that one); he doesn't have the money to make much of a difference and what he has done is mostly a wasted effort.
As I had noted earlier, markets did not seem to think the UK was well positioned. Nor, now, does the OECD: they predict Britain will have the deepest recession of any major eceonomy next year.
Perhaps the most interesting aspect was that George Osborne, the shadow chancellor, apparently spoke well in reply. And this after Cameron gave a good speech (I thought) at the CBI conference. My sense has been that the Tories have, ever since Northern Rock, not provided a consistent and coherent response on the economy. Could this be the start of effective economic opposition? I hope so...
PS - since writing the above I see on Channel 4 news that tucked away in the small print of the pre budget report there is a small section on public sector pensions, although it does not deal with the capital cost.
Wednesday, 5 November 2008
The price of everything, the value of nothing
One of the people on my Venice trip mentioned an EU defence minister’s summit he had assisted in the 1980s – it had been in Venice and co-incidentally HMS Britannia had been there as well, with the Queen Mother in residence. She had invited the various ministers for a drink with consequential positive effects on the UK’s negotiating position. Putting aside how much more tasteful Brittania was compared to Russian mega yachts, it reminded me just how stupid we had been to decommission her. The cost – was it £10m a year? And what an ambassador for the country. There won’t be a world leader who wouldn’t appreciate a State Dinner on board.
Our Government does not seem able to look at social costs and benefits, to look at the wider value of what it does. Given that it uses other people’s money it should. Another much more important example is the inability to value the wider social benefit of post offices to their community – urban as well as rural – when considering how much of the network to keep. In one way or another, that lost benefit will have to be provided in other ways, probably by a combination of Local Councils and the NHS, at an extra cost. A Minister recently commented that the decision on the future of the Post Office Card Account, used for receiving benefits and pensions, would solely be determined by commercial factors. Yet if it is taken away from post Offices up to another 3,000 may have to close.
And yet another example which has prompted this post: Citizen’s Advice Bureaux across the country perform a valuable service for people needing help. (I write as a trustee of a local CAB). Part of their funding comes from legal aid as they help people particularly with debt and welfare issues. The cost of criminal legal aid has gone up so much recently that other legal aid has had to be cut back. This has partly been achieved by a complex formula which saves up to 9 months cash flow and therefore hurts the providers of legal advice by that much.
In addition the Government plans to have contracts with groups covering large geographical areas which can cover at least three areas of law, and appear to accept lowest cost bids. Two examples show the problems with this: in Gateshead, the contract was awarded to a group that has got into financial problems; in Hull, the contract was awarded to a for profit organisation and the loss of revenue for the local CAB means it may have to close, seriously disadvantaging local users.
It is probably too late for policy to be changed, although the effect of withdrawing funds and increasing administration for the CAB does not comply with the Government’s announced policy on helping not hindering the Third Sector. But the bidding process needs to take account of any previous record of successful service provision and the importance of stability of service as well as absolute cost. The key is “value” rather than “lowest cost”.
Our Government does not seem able to look at social costs and benefits, to look at the wider value of what it does. Given that it uses other people’s money it should. Another much more important example is the inability to value the wider social benefit of post offices to their community – urban as well as rural – when considering how much of the network to keep. In one way or another, that lost benefit will have to be provided in other ways, probably by a combination of Local Councils and the NHS, at an extra cost. A Minister recently commented that the decision on the future of the Post Office Card Account, used for receiving benefits and pensions, would solely be determined by commercial factors. Yet if it is taken away from post Offices up to another 3,000 may have to close.
And yet another example which has prompted this post: Citizen’s Advice Bureaux across the country perform a valuable service for people needing help. (I write as a trustee of a local CAB). Part of their funding comes from legal aid as they help people particularly with debt and welfare issues. The cost of criminal legal aid has gone up so much recently that other legal aid has had to be cut back. This has partly been achieved by a complex formula which saves up to 9 months cash flow and therefore hurts the providers of legal advice by that much.
In addition the Government plans to have contracts with groups covering large geographical areas which can cover at least three areas of law, and appear to accept lowest cost bids. Two examples show the problems with this: in Gateshead, the contract was awarded to a group that has got into financial problems; in Hull, the contract was awarded to a for profit organisation and the loss of revenue for the local CAB means it may have to close, seriously disadvantaging local users.
It is probably too late for policy to be changed, although the effect of withdrawing funds and increasing administration for the CAB does not comply with the Government’s announced policy on helping not hindering the Third Sector. But the bidding process needs to take account of any previous record of successful service provision and the importance of stability of service as well as absolute cost. The key is “value” rather than “lowest cost”.
Obama hype
You may have heard that there has been a US presidential election and a Senator Obama has won. I think:
a) the UK media, especially the BBC, over-reacted. I wonder just how much their coverage cost? I wonder if they work in "Ross" units; I would guess the coverage cost many Rosses. And it needn't have done. They were also too pro Obama in their coverage and analysis. A lovely excerpt where Dimbelby could not cope with this being pointed out is in this link
b) this was the right result. McCain showed his class in his concession speech. But his choice of Sarah Palin was a disaster. And Obama has shown inspirational qualities, and can reposition America.
c) I am worried about the hype. Could he be another vacuous flake like Tony Blair? I don't think so, but expectations are probably too great and therefore disappointment could follow. A lot will depend on his choice of advisors and key aides. And we must remember he is not a character in a TV series who thanks to the writers can always show good judgement, but a (relatively) normal human being.
d) Voter turnout at 64% was larger than usual, 140m+ was a record, people queued for hours. Yet Obama only got 52% of the popular vote. This doesn't seem to me to suggest a revolution in America's thinking. Don't get me wrong: I think Obama is very good news. But clearly he also enthused a lot of people to vote against him.
a) the UK media, especially the BBC, over-reacted. I wonder just how much their coverage cost? I wonder if they work in "Ross" units; I would guess the coverage cost many Rosses. And it needn't have done. They were also too pro Obama in their coverage and analysis. A lovely excerpt where Dimbelby could not cope with this being pointed out is in this link
b) this was the right result. McCain showed his class in his concession speech. But his choice of Sarah Palin was a disaster. And Obama has shown inspirational qualities, and can reposition America.
c) I am worried about the hype. Could he be another vacuous flake like Tony Blair? I don't think so, but expectations are probably too great and therefore disappointment could follow. A lot will depend on his choice of advisors and key aides. And we must remember he is not a character in a TV series who thanks to the writers can always show good judgement, but a (relatively) normal human being.
d) Voter turnout at 64% was larger than usual, 140m+ was a record, people queued for hours. Yet Obama only got 52% of the popular vote. This doesn't seem to me to suggest a revolution in America's thinking. Don't get me wrong: I think Obama is very good news. But clearly he also enthused a lot of people to vote against him.
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