Tuesday, 31 March 2009
G20 - The Simple Mans Guide
There are three broad streams of thought to the thinking of the G20 powers. One is the Anglo-Saxon model, which derives neither from the Angles nor the Saxons but from the diverse hotch potch operating from London and New York of easy money and fancy financing. This can be called Enronomics after the famous Enron, the very model of a modern major company, that sadly hit the rocks before the Age of Bail Out dawned. It is not so much a policy of unintended consequences, as to hell with consequences if we get out with our money first, and then shut the door on the taxpayers. This applies to the UK and the USA.
The other is the German (oops Euro!) model, which actually owes more to the ancient tribal lands of the Angles and the Saxons and their habits of careful frugality and ordered community. This group demands care and careful regulation, and avoiding high risks in the handling of money. It is dull, slow, and demands discipline and does have its downsides.
The third is the Eastern Group, and these are likely to be running good old fashioned Mercantilist Systems. This may entail colonising recalcitrant entities, or at least taking over key sectors of their economies. In the UK we have sold off so much of our economic base, that there is not much left to sell, so if we fall prey to this, we do not have much more to lose.
None of this will emerge in the communiques, or in the media (they do not understand it). We will get some headline items. Some tax havens, in due course, and after careful analysis and reporting, will allow some information to be made available. This will give the High Net Worth Income community ample time to rearrange their affairs with those tax havens who stay outside the pale, new ones, or those Mercantilist powers who offer them a warm welcome.
In the meantime all my living costs are going up sharply, my income is going down, life is becoming more complicated, and I could be arrested if my refuse bin is the wrong colour. Just like nearly everyone else, with the exception of a lucky few...........well we know who they are.
Thursday, 26 March 2009
G20 - Minding Your Manners At Table
It is alleged that the Credit Crunch really began with an AIG subsidiary hedge fund in Curzon Street, Mayfair, London, trying to pile it just too high. Mayfair, home to many different peoples in the past, is now the graveyard of the UK hedge fund industry. But as a district with a long history, there have been others in the past. Just along Park Lane is Hertford Street that has two blue plaques celebrating past lives.
One is for the Irish dramatist, politician, and theatre owner, Richard Brinsley Sheridan, whose fortunes rose and fell even more dramatically than his theatre productions. At one stage, the duns had gained entry and removed his china and silver as security for his debts. Unluckily, he was shortly to hold a private dinner for a number of leading politicians of the time. So he agreed with his creditors that they would lend him back his own china and silver, and the condition he had to accept was that they appointed the waiters. So the men who served at table were a number of Bailiffs, suitably dressed and washed for the occasion.
Across the street from Sheridan is where a close connection with his family lived, Jeremy Sneyd, Private Secretary to Lord North, and effectively then head of the tiny Civil Service. Sneyd grew up on the same patch in Ireland as Arnold Nesbitt, MP a close relative and city speculator who was one of the dealers who provoked the Credit Crunch of 1772, the one that lost Britain the American Colonies when the taxes had to rise to cover government borrowing.
Perhaps the IMF should provide the crockery, the cutlery, and the waiting staff at the not quite celebratory dinners that the G20 are due to attend in London soon. Given that the other blue plaque on the street is for General John Burgoyne, I think that President Obama should insist that the Special of the Day has to be Boeuf a la Bourguigonne.
Wednesday, 25 March 2009
A Taxing Problem
Nassau, in The Bahamas, has an excellent museum devoted to the pirates and buccaneers of the past, those pioneers of free market principles, democracy,and racial and gender equality. They too imposed taxes on travellers to support their finances. Unluckily, they were blown away, by the weight of shot rather than influence, by the naval forces of Britain and Europe with their heritage of greedy government, elitism, and dirigiste policies. Now the locals have the OECD to contend with, as well as a complaining UK and EU.
The fiscal problems of The Bahamas are more complex than may appear, and the economy fragile. There are few real options open to the government in its search for revenue to support a full range of modern services for its growing population augmented by the many refugees from Haiti. Given the structure of the population, the types of employment available to the people, the narrowness of the base for taxation, and the way things work, it is very difficult to see how how an effective income tax regime could be imposed.
Moreover, in a small nation scattered over many islands the bureaucracy necessary to the task would be a costly item, and is likely to have very limited success. Sales taxes are certainly a burden, especially for those on lower incomes. The problems are to improve the earnings of the poor, to reshape sales taxes, and to strengthen the retail sector. There is no scope for industry or agriculture on any scale. So the emphasis has to be on service employment and on an international basis. This is highly tax sensitive. Also the educated and experienced local people engaged in the financial work would be welcome anywhere in the world, and Miami is only an hour's journey.
So dealing with the tax havens will not be a simple business. If the clamp down on finance is to be successful, many, like The Bahamas, are going to need a good deal of support. The major musical theme of the Nassau Museum is the old ditty "Over The Hills And Far Away". If the posturing of the EU and OECD, and others, result only in enforced tax changes, then that is a song which would be sung by almost all of the existing tax base of The Bahamas as well as most of the population, by sheer necessity.
So what would London do? Reopen Execution Dock?
Monday, 23 March 2009
Three Naughty Pigs
Last week Global Witness (dot org) published a major report "Undue Diligence" on How Banks Do Business With Corrupt Regimes. It deals with several well known banks and the manner in which they handle monies taken from corrupt regimes, largely the rulers and their families, and the associated elites. As many of these countries have large proportions of their populations living in dire poverty, with rampant disease, and few if any modern services away from certain urban centres, it makes grim reading.
What is more worrying is the potential implications of this report. These are just the few where evidence has emerged in publishable form. What else is going on in these banks, and the many associated banks and agencies? Moreover, looking at the top echelon of executives and directors, many are close to our own government, and embedded in its financial operations.
As the drugs trade commands so much money, and is now so interconnected with other non-legal and legal economic activities, just how close are some of these people to each other? It is curious that whilst I face obstacles in moving money from one account to another in the same bank, along the road in the local gaol, the place is awash with drugs freely bought and supplied.
It is a strange world where people, including prison inmates, can access illegal drugs much more easily than I can get my electricity meter read, and where the money for these can be transmitted far more effectively than I can extract a reliable billing from my utilities.
Friday, 13 March 2009
Systemic Risk And The Circus
There has been a lot said about risk, systems breakdown and the rest, and it all seems very complicated. But not necessarily. Think of jugglers in a circus, several, each with three items acting independently. If one or two fail to keep it up, the others will remain in action. When they begin to interchange, however, this changes and the risk of failure rises according to the complexity. If the interchanges are relatively simple and supportive, a failure could leave most of the jugglers effectively in action, although some could be compromised.
When the interchanges become complex however, the risks rise substantially, since then each becomes dependent on the other. If a failure occurs most could be affected, although some might remain more or less functioning, and they may revert to independent action. However if the Ringmaster is not watching carefully, or loses interest, or finds other things to do, then the risks increase dramatically. The jugglers may try to speed it up, or to add extra items to spice up the action. They begin to deliberately advance the risk, putting each other under pressure, shutting their eyes, or inventing new ploys to test the others.
Then a failure becomes almost certain, and it is not a case of "if" but "when" and how bad. The risks are such that most of the jugglers will fail leaving only one or two carrying on, but in a limited fashion. Then the Ringmaster has to step in, with his assistants to sort it out, if they can. The worst thing they can do is try to juggle themselves, or to supervise the juggling in detail. The real need may be to reduce the number of jugglers, getting rid of the high risk ones, and curtail the actions of the others. What the Ringmaster must not do, is to tell a surviving active juggler who is managing, let us say Lloyd, and tell him that as well as doing his own job would he kindly pick up the the items that HBOS has strewn around the floor, and add them to his act. This will not work, and Lloyd will quickly become inactive.
In the circus, of course, when things in the Ring go badly wrong, or a disaster occurs, the standard procedure is to Send In the Clowns. They may well try juggling of course but it will be only a crude comedy turn with the items flying all around the Ring. It may or may not raise a few laughs, but it is all the Ringmaster can do while be dances round the Circus trying to persuade the audience that this is the show they paid for. So will our present bunch of clowns be able to do a bit of juggling, and will the audience stay to watch?
Thursday, 12 March 2009
Wednesday, 11 March 2009
There's No Place Like Home
There is a good deal of heavy breathing in the media after announcements of the large amounts of money about to be sluiced into the housing market, notably by RBS and other banking subsidiaries (owners?) of the British Government. Given the substantial holdings of property assets by the members of the London Mediocracy, our governing political and media clique, and the obsessions of key centre swing voters in the most marginal constituencies this comes as no surprise. So bust banks to borrow, and then lend as if there were no tomorrow?
So what kind of lending? A long time ago the conventional mortgage deal was two and a half times the real major household source of income. No second income, no overtime pay, no bonuses or commissions. Even with these limits for the average household money was tight. But then, state taxation, local taxation in towns, food prices, clothing prices, and motoring costs were all relatively higher than has been the case for a decade or two now. There has been a note of horror at the suggestion that mortgages could now be limited to only four times joint incomes, loosely defined. It seems that six or seven times has been the norm.
The government plans seem to be based on the assumption that households will have the benefit of the low price levels of the past. This is not going to be the case, notably on taxation, incomes are already being squeezed. Moreover, as much spending in the immediate past has been on credit, if that is curtailed what happens? With low interest rates, many savers are pulling out, and few other people are going to be able to save. How is the government going to sell all its loan tranches at low interest levels and with sterling at significantly low value?
Does the government really think that buyers can take on the financial burdens and debt as in recent years? A lot of mortgage lending has been in remortgages, second mortgages, second and third homes, and equity release schemes. The government is crying housing shortage when half the homes in rural and coastal areas, or more, are priced out of the reach of the local population. In the mean time the buy to let sector has bombed, rentals are curtailed, and allegedly there are three hundred thousand flats vacant and nearly a million homes unoccupied.
This is not a policy, it is simply a gadarene rush to be first to the lifeboats by a selfish elite.
Sunday, 8 March 2009
Digging For Victory
The day the bank bailouts broke out, the missus said to me, “So what are you going to do to save the economy?” “It isn’t up to me!” I said, “What can I do about it in any case?” “Well,” she said “you can make a start, and my hair needs cutting.”
So after we cut each other’s hair, normally free, gratis, and for nothing, this time we exchanged cheques for £1000 each. “There,” she said, “that’s a nice boost for the GDP” “But what do we do next?” I asked, and she had an answer for that, well she always does have an answer.
So we go down to at Thresher and Porbeagle Financial Services, Cookiecutter House and meet a gent’ called Fred Sands. Nice chap, the sort of Scottish burr in the voice you like to hear on the customer services helplines telling you there is nothing they can do to help, who makes us an offer we could not refuse. They had only just set up after he had left his old firm to improve his prospects.
Grabbing the cheques from our hands, he told us he could immediately lend us up to £100,000 to spend as we wanted, or to take part in a wonderful investment deal that had only turned up on his laptop that very morning, limited offer, closing in half an hour, so we had to make up our minds quick.
He wrote us a cheque on the spot for the £100,000, gave to us, and then snatched it back, saying it was now an asset and collateral for buying £5 million pounds worth of rented garages in Arizona, Beijing, and Moscow, and these would become the assets for investing in a lot of Hedge Funds, who would do a lot of other lending. Because all the loans were assets, and not what my father told me, income was guaranteed at fifteen per cent, and the whole value would grow at least thirty per cent a year, so we could soon have our villa, yachts and all the rest, and even get invited to a Paris fashion show.
I tried to tell the missus that I was happy with our caravan at Bognor, but she would not listen, all it would cost us she said was trivial money, small change, for all the administrative fees and bonuses, and I should be grateful for everything. Then she went into the back room with Fred and came out smiling in a way I hadn’t seen since she was a part time barmaid at “The Dragon’s Head”.
So we have now “kick started” the economy and Fred says with luck I could get a knighthood and the missus will then become a lady, at last. “It will all be worth it,” she said, “and Fred even gave me a tenner, for the service economy he called it.” When I told my neighbour, Jim, he gave me a funny look, asked for his lawnmower back, and told me not to bother with Christmas Cards this year as he was a bit short.
Apologies to Rob Wilton and Michael Williams.
Saturday, 7 March 2009
Where's My Dinner?
We do not "know" how many people the planet can sustain or on what basis. We can only estimate. It is argued that after the Toba eruption of about 75,000 years ago we were reduced possibly to only thousands in Africa. Before then we cannot know the numbers subsisting on a hunter gather basis. It may have been over a million or two, but we do not know. All that the archaeologists and paleontologists can suggest is the size of territory certain numbers of our hunter gather forebears needed, and these are thought to be greater than expected, in that humans could use up an area quite quickly, and it was this that caused the movement across landscapes that was integral to their survival.
Friday, 6 March 2009
An Icelandic Saga
Molly Scott Cato is a reader in green economics at the Cardiff School of Management
Thursday, 5 March 2009
Quantitative Easing And Rates Of Interest
There is enough informed comment on the Bank of England decision to cut interests and trying to pump money into the system. My recommendation is to watch a DVD of the old musical "Paint Your Wagon", which portrays a community bent on gain and its final collapse. I quote:
Gold Gold Gold Gold Gold Gold Gold
Gotta dream boy
Paint your wagon
And come along
Where am I goin'?
I don't know
When will I be there?
I ain't certain
What will I get?
I ain't equipped to say
But who gives a damn?
Who gives a damn?
Who gives a damn?
We're on our way