Blog Power

The political headlines of the last few days have been dominated by the news that the Prime Minister employs unpleasant people to do unpleasant things. Forgive me for not being surprised. However, it is good that the worst excesses of spin have been at least temporarily toned down. I take three important lessons from this:

a) The “new labour” Government project has mostly been about presentation, not implementation. True in the beginning (see Sultans of Spin, written 10 years ago) and true now – when almost none of the announced initiatives to help the economic problems have been implemented.

b) Blogs have become important. Not many of them – they are mostly (including this one) self indulgent – but a few are influential. My successful neighbour first introduced me to political blogs. There are lots, mostly just repeating predictable stuff about their interpretation of political events and not worth bothering with. I have settled on three I read regularly (although this blog has a feed from Total Politics magazine’s summary of latest posts from their top 25 political blogs):
Guido Fawkes. Guido is the blogger who broke the recent story, and incidentally a number of other scandals. I enjoy his blog: he is a libertarian who recognises the flaws in politicians (they are after all human), but despises the hypocrisy in so many of them. Most of his posts are not about serious issues – but some are, and they usually present new information (at least to those of us not in the Westminster bubble). He is not (despite some press comment) particularly right wing; he’s (to repeat the point) a libertarian.
Iain Dale. Iain really cares about politics. He networks furiously and therefore keeps up to date with most political issues. He is a conservative (in most ways, my sort of conservative i.e. a bit soft and cuddly). These two are the most widely read political blogs by a long way, and are anti Government. I think there are two reasons why the most popular blogs are not of the left: first, because the left is in power, and comments from an opposition are usually more interesting, and second because blogs are about freedom of expression, the left tends to be about centralised control. I have looked at various labour and liberal bloggers but they all seem full of the usual stuff you would expect. One exception:
John Prescott. I’ve always respected him as a genuine person. He has been mocked for his presentation – but you always know what he means. And his blog is equally straightforward in presenting an alternative point of view

c) Old media (MSM, or mainstream media in blog terms) like newspapers TV and radio have been shown to be at best ineffective and at worst unreliable in telling us what’s going on. Guido wrote about this in the Times (and on his blog): newspapers primarily nowadays write what they have been told to write by their informants. They do not generally apply a veneer of editorial control. The most blatant example recently was the Telegraph spinning the Labour line about the email scandal, apparently primarily because their journalists were drinking buddies of Labour’s attack squad. MSM is usually necessary to bring a story to fruition, as happened in this case, but too rarely does it initiate anything. Other examples: listen to the Today programme. Very rarely do its lead stories talk about what has happened and analyse that; they usually talk about what is going to be announced or happen and talk about what the initiator wants. This is called leading the news, but its really about unthinkingly spinning a line.

What to do? First, recognise MSM for what it is: the presentation of what people want to be presented, and assume its misleading, be it celebrity relationships or Government policies. Second, read/listen/watch more than one media channel, including the blogosphere. I haven't seen In the Loop yet - but I'm sure it will describe the inevitable outcome of the new labour project very well.

Or of course just get on with your life and ignore it all.

In a week when the Government now makes ISPs keep records of what we all read on the web, and a month when it has started to keep records of where we all go on holiday its very satisfying that it’s been caught out because it can’t keep control of its data. But that’s a subject for another day.

Is the end Nigh?

Prompted by a comment on a previous post, I went to see "The Age of Stupid".

It's a documentary, with a bit of drama, about climate change. The drama shows one of the last remaining humans in 2055 in an enormous tower in the Arctic, which was an archive of almost everything valuable that had ever been produced or found. The man had apparently created and collected the archive himself. It was enormous: the carbon expended in its creation kept me worried throughout the whole film. The documentary showed him selecting excerpts from a series of stories from 2007/8, interspersed with comments about climate change, big business and George Bush. The stories were about a trainee doctor in a Nigerian village next to an oil processing plant; an Indian entrepreneur launching a low cost airline; a couple of refugee Iraqi kids; a retired oil worker who survived Hurricane Katrina; a French mountain guide mourning the shrinking of glaciers; and a British wind farm developer. They were interesting stories presented in a brief and shallow way: the good thing was that unlike the rest of the film they alluded to the issue rather than shouted about it.

Would I recommend it? No. I’m not sure what the point of the film was: it had too many unchallenged sweeping allegations to convince anyone not already convinced about the dangers of climate change. And it did not offer solutions. But it was mildly entertaining (is that patronising enough?), so my rating, to quote the Hitch Hiker’s Guide about Earth would be: Mostly Harmless.

I think the issues around environmental damage are better set out, and in a more balanced way, in a book called Collapse (about how societies fail or succeed) by Jared Diamond; he gave an hour plus talk about the book a couple of years ago which is I think more challenging than the film. The book covers many themes and problems; my main take on it was that our biggest current worry should be over-population rather than carbon usage, and trying to manage birth rates globally would be our best chance of avoiding societal and environmental collapse.

The issues are also set in out in a less balanced way by Michael Crichton (of ER and Jurassic Park fame) in his book State of Fear (criticised by some for mixing science with a thriller and spoiling both aspects). My overriding thought from the book is that the main drive behind the climate change campaign is to increase the powers of the state by frightening people into submission. Although fear of terrorism has now been picked up as the main reason for state expansion and interference, the climate change campaign started before 9/11. And petty though they may seem in the bigger picture, replacing heat generating light bulbs with mercury filled low light bulbs and encouraging fly tipping and poor public health by restricting litter collections are examples of this.

I’ve always been nervous of people who cannot imagine they are wrong. I was a member of Greenpeace for many years (I still have the green umbrella with the “Stop Acid Rain” logo I used in the City, instead of a tightly furled black one) but left when they campaigned to stop Shell from disposing of the Brent Spar platform in what seemed to be a sensible way. They seemed driven by distaste for Big Oil rather than logic. That approach worries me about so much of the “carbon is evil” campaign. One of the telling scenes for me in Age of Stupid was the wind farm entrepreneur driving away from his country home in the middle of a wind farm free area of natural beauty (in his black BMW) saying that the reason people objected to wind farms was that they spoilt the view.

The reason I object to wind farms is not the view: it’s that they are ineffective; they wouldn’t exist in the scale they do if the Government wasn’t over-subsidising them compared with other energy sources.

So what would I do? To coin a phrase from our Prime Minister, it’s a global problem. So although they are full of soundbites and achieve little, we should participate in the various global conferences/agreements. But perhaps we could set an example by mostly communicating by video-link and email? We should be encouraging population control at the same time as trying to improve developing world healthcare. We should encourage the taxation of aircraft fuel to try to offset the real cost of flying. Nationally, we should be investing in nuclear energy and carbon capture coal power stations (if the figures add up for the latter). We should be providing more grants for micro-power generation at home. We should be encouraging refuse collection and not seeing it as a way for Councils to make money: bulk recycling is most efficiently done centrally – but we should make shops be responsible for their own packaging. We should not build a third runway at Heathrow; we can tax aircraft fuel on internal flights even if we cannot on international ones. We should establish a carbon trading system and as a nudge for the consumer and a sop for statists, charge for plastic bags.

But despite all this I suspect the solution to global warming will come from new technology of which we are not yet aware so both nationally and internationally we should support pure as well as applied scientific research.

A view from Europe

He says it better than I ever could:

http://www.youtube.com/watch?v=94lW6Y4tBXs

A quiz question

I don't normally gratuitously insult people I don't agree with - there's more effective methods than that. But this from today's Telegraph (via Guido Fawkes) appealed:

Q: What's the difference between Bernard Madoff and Gordon Brown?

A: One has drained fortunes from gullible victims, plundering their income and savings to create an illusion of prosperity. The other is going to jail.

Another difference: I met Madoff a few times many years ago. He was charming, switched on and positive. His misdemeanour was a genuine surprise. Brown's was obvious from the beginning.

Light Touch Regulation?

It is popular to say, in the financial field, that there was too little regulation.

The photo (of two colleagues) shows the amount of paper generated in a year by the UK's financial regulators in terms of new regulations, amended regulations ro consulations on regulation. Just think how long that would take to read, never mind understand and implement. And also - what good it did.

The problem hasn't been too little regulation, its been too much. And of the wrong kind. The mass of paper stopped regulators and firms from focusing on the real issues, but gave the impression of action. Bit like most of the Government's initiatives, really.

We know where you live

Not a comment about our surveillance society, but a concern about the balance of local responsibility for policies and a standard minimum acceptable level of service depending on where you live.

Today's Today programme featured two contrasting issues:
The Tories are about to announce plans for more local democracy.
John Suchet went public on the problems of Alzheimers, noting that some local authorities provide more care than others. The postcode lottery.

I don't have answers, but there is a real problem in this balance. At the moment most local authority funding is national not local, hence the imposition of central control. People chafe because central targets do not always match local priorities. BUT if you don't have them then postcode lottery problems get worse: we do not have national standards of service where people expect them. And this is particularly concerning as so many authorities have one dominant political party so the prospect of voter-led change is small. (Hence the argument for Mayors, but that seems a very unfortunate road to go down as it will just encourage outsize egos. My other worry with Tory proposals is I don't see how they will change the funding arrangements, and without changing that nothing will really change.)

I suspect the answer is to more clearly identify areas where national standards are needed, and to remove most other regional/central prioritisations. Also, to encourage dissemination of powers to Parish/Town Councils. And lastly to not allow councillors to stand for more than two terms. But that sounds like hard work rather than a quick announcement.

Worry of the Week

My biggest worry is not the economy, Palestine, Russia, Iran etc; it's this story from the BBC's website: the situation in Pakistan/India/Afghanistan seems very unstable and the development of an extreme State is a real possibility.

Because I'm worth it

I worked for an investment bank for about 18 years, and was therefore a part of the bonus culture which is now rightly being criticised (although as a support rather than front line person my bonuses were never big enough to be a cause for concern, except to me). I think I can comment on why the culture grew as it did.

People have written before about how the bonus culture works in banks; from the outside it is bizarre and worth a novella. The annual bonus round is a critical part of managing people and therefore the business. This is because rather sadly the bonus is how a generation of bankers came to value themselves: it was the principal measure of their worth as a human being. And this is how the current crazy position has come about. People think they deserve something even though they are part of an organisation which has massively destroyed value – and in some cases, requires tax-payers money just to continue to exist.

I’d distinguish bonuses for three types of people:
- The Board and top management. It is fair to motivate them by some form of long term bonus based on performance. Ideally this should be long term and based on long term increases in shareholder value. In this regard, they are no different to directors/top management of all companies. In 2008 most deserve nothing (a few banks globally, probably only one British one, have performed well and their management may deserve a reward for surviving). I say Bank boards are no different from other companies - but in one regard they are; as I discuss below, margins in banks and financial companies tend to be higher than normal companies. And perhaps schemes should not reward that extra profit.
- The front line people: traders, salesmen and so on. This is where there is most controversy. Traditionally they have been paid a bonus based on their performance - or the performance of their bit of the bank - each year. This is often a standard percentage of profit or revenue. This is like many salesmen or business getters in all companies: superficially it seems reasonable. But:
o Margins in banks tend to be artificially high;
o Many products sold are long term. It is not possible to tell whether or not they are profitable in just one year.
o Both bankers and banks underestimate just how much of the profit comes because of the franchise of the bank – its size, its customer base, its brand and so on. The real contribution by individuals is smaller than they think.
o Many banks see the profits made by more established ones and want to compete – and seek to recruit people to start new business areas. They offer inflated and often guaranteed bonuses to tempt them away. Usually, these new players never make their expected profits.

The problems at most banks have been caused by a small number of business units and a small number of employees. Most business lines have done reasonably well. Hence the temptation to pay some people. But most banks really don’t have the money: they have lost a fortune and depend on taxpayer support. There should be no bonuses at these banks.

(It’s not easy to implement this if there are contractual commitments. But if they really want, Governments can do things. The problem wouldn’t be there if the Government had been more decisive about nationalising the banks in a bad condition, transferring bad assets into a “bad bank” and putting the clean bank back into the private sector.)

- Junior and support staff. They have usually got a small bonus based on overall results and meeting individual targets. Effectively, this is part of their pay. But if it’s coming out of taxpayer money – as it is for a number of banks this year – it needs more justification than normal. Especially as those targets are often defined as selling products to customers who do not always need them.

The real problem of financial services in general and investment banking in particular is that, through the ages, the true value of their products are only known with the benefit of hindsight. And the time period is often long. But the bank usually has a much better idea of the price than the customer who will often therefore overpay resulting in the bank making above average margins, and then sharing that with their employees.

As it happens, in the last few years, the banks didn’t know the value of their products either; they misjudged the risks on the basis of flawed mathematics and artificially cheap money, and actually sold their products too cheaply and lost money when the truth became clear. This was made worse because they over-expanded – they borrowed and lent too much in relation to their capital, which meant that the losses have wiped out their capital. This over-borrowing was encouraged by regulators, supported by Governments. And in the UK, it made worse because the reorganisation of banking regulation in 1997 by our current Prime Minister removed a market focus from bank regulation.

The inherent problems were made worse by another factor which developed during the 1990s; the most profitable parts of banks appeared to be those that sold long term derivative products. Such products really could not be properly priced or even understood by many customers. They were frequently designed to create a false impression by ignoring the spirit and twisting the letter of laws by for example turning highly taxed profits into lower taxed ones, or delaying or bringing forward profits. Bankers engaged in such legalistic behaviour easily lost common sense and sight of the real world, and potentially their moral standards. The resulting culture of high hidden margins and payouts to employees trickled through to the rest of the banking system and also fuelled the "Master of the Universe" syndrome.

I’ve tried to explain why what at first seems reasonable grew into stupidity. This year, bonuses should be non-existent or small and certainly should not be paid by taxpayer supported banks. Going forward, shareholders can’t be relied on to control bank bonuses because of the lack of transparent margins and the incentives of competition and mis-pricing. The regulators need to:
- Restrict bank gearing so they cannot overexpand;
- Require capital to support "off-balance sheet companies"
- Separate investment from Retail banking. Customer deposits should not be used to fund high risk trading.
- Ensure bonus schemes are linked to long term profits; if they are not then capital required should be incresaed for that business unit (so less business can be done).

And customers should only buy what they understand and borrow what they can afford. I remain convinced that the finance industry has on balance done more good than harm – it has enabled the increase in wealth in the last few years – but at a cost much higher than it need have been. Regulators and bankers have a part to play in behaving more sensibly in future, but so do customers.

The Road to Hell

Chris Rea’s song was reportedly based on the M25, but the title could fit the A1 north of Newcastle. Not because it goes to Scotland (or indeed to Newcastle; both are worth a trip). But because it is hellish to drive on: mostly single carriageway, dangerous bends, traffic moving at very different speeds. Lots of delay, bad temper and death. I get a kick out of my hamlet (adult population: 3) being signposted directly from the A1. But I’d give that up for a decent road. (The picture isn’t actually the A1 but its close).
Dualling the A1 would be one of the most significant things which could help this area, by making it accessible and confirming it as main route to Scotland. The local MP, Sir Alan Beith has spent over 30 years in the job; he has certainly helped individuals but I can’t see any sign of him doing anything significant for the constituency. My own view is that he cannot because as a Liberal Democrat he has no influence. During his period Labour and Conservatives have been in power for roughly half the time each. They have not had to take this area seriously. To paraphrase the Liberal Democrat slogan in 2008: A Liberal Democrat vote is a wasted vote. It’s critical at the next election to get someone who can achieve something.
This point is made even more relevant by the Liberal Democrats’ latest economic policy announcement. It makes it clear that they would not spend money on upgrading the UK’s road network. So the Liberal Democrat support for the recently re-initiated campaign to dual the A1 is actually misleading: they do not want such projects to be funded. I hope Berwick upon Tweed electors both realise and remember that at the next election.

Why bother?

The Bank of England's half percent cut in its base rate last week is irrelevant in the real world. It will have minimal impact on borrowers, deter savings and do nothing to help get bank credit moving.

When the history of the "credit crunch" is written I believe the Bank will carry a lot of blame. Less than six months ago, it was still talking about the risk of inflation and the possiblke need to increase interest rates. It did not provide sufficient help or liquidity to banks when they needed it last Autumn, and it has still only done so reluctantly. Like the Government it has reacted too little too late.

This whinge was prompted by the Governor's refusal yesterday to apologise for being slow to act: I agree fake apologies aren't worth having but if he hasn't recognised the need in this case then there is a real problem

Choice is good for you

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.

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.

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.