Are you sure you should be doing that?

Sunday, November 29, 2009

Vent for the Day

In a discussion thread was this gem. What do you think?

'Innovation requires imagination, which requires an atmosphere where people can do that freely. That's why freedom is always better and leads to the "great ideas."

It's the idea that's important. Whoever has the idea can always get the geeks to actually create it.'

That's nice. Have someone else do all of the work, and get none of the credit. That's why the US and UK are overrun with technical talent.

Charitable giving - is it cost-effective?

As money gets tighter, charities have to compete more for what we are able to give them. How do we know that our contribution is being used effectively?

In the United States, you can log onto Charity Navigator and get financial information and ratings on U.S. charities, but unfortunately there is no sister site for the UK, so we have to check our charities with other sources.

For example, let's take a worthy-sounding UK-based cause called the World Children's Fund. This is attractively presented on its own website, and I have had several slick mailshot approaches from them which made me feel emotionally coerced. But are they value for money? I could look them up on Charity Choice, which says "WCF ... has minimal overhead costs". However, this may merely be a wording supplied by WCF itself, so we turn to the accounts submitted to the Charity Commission, where it transpires that 29.1% of the funds raised have been spent on "Generating voluntary income". Compare that with the British Red Cross Society, which only spent 13.7% on the same category.

But that's only one way to do the figures. Calculating the proportion that goes on "charitable spending", I see that WCF manages 70% as against the Red Cross' 76%; and the Red Cross is a massively bigger outfit, so it might benefit from economies of scale. Yet according to Charity Navigator, Action Aid International achieves 84.9% for "program expenses", despite having a turnover less than half that of WCF's.

Well, we get down to complexities of accounting again. How many hands touch the money as it goes past, how much sticks to their fingers, how much ends up where it's needed? How detailed, transparent, honest are the accounts?

And it also gets philosophical: what are the needs you're trying to address? How well are you succeeding? And don't the people involved in running the charity have needs, too? Should they work for nothing?

UK-based Intelligent Giving tries to give a subtler approach to weighing up the performance of charities, and how well they report on what they're doing - see here for their judgment on the Red Cross, for example. Intelligent Giving also features a page listing other evaluation sites and foundations that screen beneficiaries and projects.

New Philanthropy Capital is another UK-based organisation researching charities; and their blog argues that we can be too easily diverted by expenditure issues and should re-focus on what we are trying to achieve.

In short, think about and research your giving carefully, as you would do with other important spending.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Saturday, November 28, 2009

No deal

Société Générale: how to invest if the credit crunch worsens

A new report (fourth quarter of 2009) from French investment company Société Générale (SocGen) looks at the potential threat to the world economy of mounting debt. It may be that the credit crunch is far from over.

On page 12, the report looks at how investments could be affected, in the worst case. If the scenario is correct, then over the next 12 months SocGen predicts the best gains will come from long-term government bonds, and agricultural commodities.

SocGen warns of debt's potential to collapse the world economy

SocGen - Worst Case Debt Scenario

Thursday, November 26, 2009

Could Dubai be the trigger?

Warren Pollock points out that the real danger lies, not in Dubai possibly deciding to default on its sovereign debt, but in the credit default swaps surrounding the debt, which may magnify the problem by 10 - 100+ times. If some of these huge side bets are wild ones not adequately backed by the gamester's capital, off we go - and off Pollock goes, for his well-earned beer.

Incidentally, he gives a lovely description of a quantitative analyst: a schizophrenic with an IQ of 160 who belongs in a rubber room, but since he's working for a financial firm and "no-one understands him, what he's doing must be right". Only a brighter quant could spot his colleague's errors. Quis custodiet, eh?
Don't know why, but this made me smile:

If you're feeling a little down today, and looking for something to be thankful for, be thankful you have not lent money to Dubai. Unless, of course, you have lent money to Dubai.

Wednesday, November 25, 2009

Breaking News - "Debtman" sunk

The following extract has been taken from news agencies, though Internet reception is currently poor on account of flooding and there may have been some scrambling of information. For the full story, click here.

British 'Debtman' Gordon Brown ditches in Atlantic

Not Philippe Naughton

The British political adventurer Gordon Brown found himself in deep water today after a failed bid to make the first long-range economic flight using a debt-powered wing attached to his back.

Brown, 58, planned to fly 7 years from the 2008 Credit Crunch to the 2015 General Election, at a speed of almost £120 million per hour, a flight that should have taken about 80 months.

Only a year into the flight, however, the British "Debtman" disappeared from TV feeds. Live pictures shortly afterwards showed him up to his neck in it, swimming around beside his Parliamentary pension golden parachute, while the IMF prepared to winch him to safety.

The reason for his failure was not immediately apparent to anybody except the blogosphere, but the British premier seemed to be unhurt and waved at a passing TV crew.

Sunday, November 22, 2009

The search continues


My hero!

Banks: "parasites... financial bastards... should never have lent the money in the first place... bankrupt them... nationalise them... cancel debt... or the economy will die... never-ending Depression."

Straight-talking Aussie economist Steve Keen, talking to teeth-clenched grinning, gonzo (but still on the money, in my opinion) "Wall Street are terrorists" Max Keiser.

Saturday, November 21, 2009

Steve Keen: we are facing a rerun of the 1930s

In a long and fairly technical presentation which, as an amateur I freely admit to not fully understanding, Steve Keen, one of the few professional economists to foresee the credit crunch, argues that there will NOT be a successful reflation this time, and instead we face a savage "deleveraging" as in the 1930s. Possibly worse, since the ratio of debt to GDP is worse this time.

Friday, November 20, 2009

Thursday, November 19, 2009

Dilution

It is generally agreed that our current financial mess was precipitated by the sub-prime mortgage fiasco. The system was already burdened by too much debt to absorb those new losses. The commentators have moved on to the American hobby of assigning blame: to President Clinton and the Democrats for forcing the banks to offer high-risk loans to the poor, the bi-partisan officials for deregulation, and to the poor themselves, for accepting 'free' money.

To me, a finance ignoramus, the real questions are:

a) How did a few million bad loans bring down such a huge system?

and

b) How did the system get so much debt?

The answer to a) seems simple. While the government could have paid the $500 billion or so in bad loans, or Wall Street could have given up bonuses for a couple of years, the way that the debt was securitized meant that each bad dollar in investment was multiplied by factors in the hundreds. All on paper, of course.

As for b), I note that Robert Rubin states that 'this could not have been foreseen'. I can only attribute this to a quasi-religious belief in the magic of the market. Several people that I know were worried at the trends over 15 years ago. Nominal house prices were rising faster than inflation and incomes combined, and too many people were using their homes as cash machines by re-mortgaging.

This fiat money was magnified many times by the system through derivatives, until we reach the current state. With a world's annual production of goods and services at about $55 trillion, there is an estimated $1000 trillion in derivatives. That is, we have mortgaged everything on the Earth for the next 18-19 years. That's what I call a sub-prime loan!

Homeopathic 'medicines' are made by diluting active chemicals with distilled water until no molecule of the ingredient is left. We appear to be actively approaching homeopathic wealth, diluted by paper.

Sunday, November 15, 2009

Strangling the goose

When the dust has settled on the Keydata case...

when Keydata and its directors no longer pay the taxman on profits, wages and dividends derived from a business that had, until the tax office got zealous and technical, apparently paid off all its debts, was showing a profit and had cash in hand;
when the former employees are claiming a complex array of benefits instead of paying income tax and National Insurance;
when PriceWaterhouseCoopers have sent in their final massive bill for services rendered;
when the investors, many worried half to death for months, finally (most of them) get massive collective financial compensation from the Government...

.. will this really look like a win for the Shylock approach to revenue gathering, and to regulation?

The British taxman has become a laughing-stock

Following the ridiculous 2001 sale of the taxman's own offices to a property company that smartly transferred the ownership to the tax haven of Bermuda, the British Treasury has made itself into a charity case and is asking for tax-deductible donations to reduce the National Debt.

Saturday, November 14, 2009

In a tizz about guns

I have enjoyed firing rifles when a youth in the Combined Cadet Force (joining was compulsory at my school in the 60s), but away from a range, firearms scare me. Their power has a deadly fascination, just as the Ring has, even for the good Gandalf. (It's said that the samurai swords made by Muramasa tempted men to shed blood.)

However, here in the UK post-Dunblane, we haven't actually banned handguns; only legal ones. What now?

The National Rifle Association in the USA (htp: John Lott) obviously has its own quite clear agenda, but their arguments don't seem easy to dismiss out of hand. Here are some extracts:

... Researchers, both public and private, have estimated total defensive gun uses at between 800,000 and 2.5 million times per year. To many, that's a difficult reality to accept since we don't hear the hundreds of armed citizen stories that should be reported daily...

... One of the first things we learn through analysis of media-documented self-defense episodes is that no place is "safe"—no matter the place, time of day, neighborhood or crowds, no matter how unlikely an area is for a violent confrontation...

...The most frequently reported crime prevented by armed citizens has been home invasion... Approximately 25 percent of documented defensive gun uses occurred in places of business...

... Many anti-gun advocates would grudgingly allow ownership of rifles and shotguns if they could ban all handguns. Armed citizens, however, beg to differ. Of stories identifying defender firearms, 79 percent involved handguns. Shotguns were used only 15 percent of the time, and rifles 6 percent. The message is clear: Banning handguns would remove the most common means of self-defense for most people...

... In confrontational shootings, studies show police hit their targets between 13 percent and 25 percent of the time. Of the incidents analyzed in this study, civilians hit their targets 84 percent of the time. This comparison does not account for the number of shots fired, only hits or misses. Nevertheless, it gives us a statistical basis to refute claims that only police should have firearms or that civilian shooters are largely ineffective in emergencies.

I'd like to pooh-pooh it all as gun-nuttery, but if opposing the right to bear arms, where would one begin?

What an irony that (allegedly) a man can single-handedly kill 13 and wound 31 on the biggest Army base in America, and be stopped only by a policewoman's pistol (or maybe a sergeant's, we're not sure).

Rude funnies that made my wife laugh

... especially the first and last. (htp: Paddington)
But as I once said to a lady, "If our needs weren't simple, how could you satisy them?" "Spot on," said a fellow male, breaking the thoughtful silence.




Friday, November 13, 2009

Frustration

Several international studies show the the US and UK populations perform woefully in science and mathematics, when compared with other industrialized nations. I have no doubt that this is contributing to our economic decline, which is supported by Sackerson's recent post on the health of the German economy.

Neurological studies show that talent in these areas seems to be genetic. However, the disregard for those with the talents, and the simultaneous embracement of the technology that results, is a cultural issue.

One does not have to look hard to see some of the enabling elements:

Popular culture has elevated all opinions to the same level. Sometimes, the level is based on the volume of the holder, or the number of adherants. Thus, the majority of the US public holds creationism at the same factual level as evolution theory, chiropractic as equivalent or better than evidence-based medicine, astrology equal to astronomy, and homeopathic medicines as better than those with active ingredients.

Our leaders make decisions based on the current polls and personal bias, even when the issues are highly technical, like defense, energy, medicine and education.

Our colleges of education teach that pedagogy trumps knowledge base. In other words, a 'good' teacher supposedly can teach material that they do not understand. Business colleges teach similarly that management skills are independent of the industry involved.

In higher education, we pretend that logic and analytical skills really don't matter, while claiming to teach 'critical thinking'.

I can give no better example than to summarize the discussion at a college meeting that I attended today. One highly-educated individual said: "It is all very well to have technical training (in science, technology, engineering and mathematics), but that is not 'real' education".

Sunday, November 08, 2009

The eye of the storm


Reds at St Catherine's College, Oxford

I haven't the time - or resources - to explore this fully, but there does seems to be plenty to find about a nexus of Marxists and revolutionary socialists at St Catherine's College, Oxford, starting as early as the 70s* and forming the background for Peter Mandelson and others with connexions to New Labour. I should be grateful for more insights.

*With much deeper roots - e.g. Terry Eagleton was a protege of Raymond Williams.

Life insurance securitization

It seems the next bubble could be “life insurance securitization”. The idea is to buy other people's life cover, that maybe they would otherwise let lapse. So you then collect on the insured, face-value payout.

This will lead to problems. When setting premium levels, insurers factor-in the likelihood that the policy will not be maintained up to the point of a claim. This helps them cut the premiums in what can be a very competitive market, especially in term (limited-period) assurance. If insurers find that securitization leads to more policies qualifying for a claim, it will mess up their calculations and they will have to up premiums for similar new policies.

There is also a strong chance that existing policies that do not have fixed,"guaranteed premium" rates will be reviewed and repriced upwards. This won't help already cash-strapped households hang on to a vital part of their financial safety net.

Many policies are already being repriced because of the underperformance of insurance companies' investments in recent years, so overall it looks like a bad trend could develop in life assurance costs and consumer uptake.

There are other dangers, as UK investors in some Keydata Investment Services products have discovered. Their "Secure Income Bond" suite of investments was based on securitized "key employee" term assurance and following a tax investigation into their legal documentation, the plans were disqualified from certain exemptions. The resulting retrospective tax charge was laid at Keydata's door, and busted them. The incoming administrators, PriceWaterhouseCoopers, have found £100 million of underlying assets are now "missing". The situation is further complicated by the fact that the assets of the Secure Income Bond were held by a company set up in the secretive foreign tax haven of Luxembourg. Britain's Serious Fraud Office has been called in, and investors now await a ruling this week by the Financial Services Compensation Scheme as to whether they will be reimbursed for losses in what was supposed to be a safe, non-stock market-related investment.

The potential is huge - the New York Times reports $26 trillion in existing life cover policies in the USA alone, of which maybe $500 billion could be in the market for securitization. And the potential damage is equally huge. Will insurance companies end up needing bailouts like the banks? Could the US economy survive a second giant hammer blow?

Derivatives players pocketing the chips?

"... total money and credit are contracting, [...] the world of derivatives and leverage is contracting despite our government’s best efforts to flood the system with money."

Reds under the chaise longue

Why would someone concentrate his academic research on how America has tried to counter Communism within its own country? But (and I think it more telling) why would the Labour Party notice and employ such a person?

Andrew Neather's PHD and a follow-up article surface in several places on the Web, e.g.:

"Popular Republicanism, Americanism, and the Roots of Anti-Communism, 1890-1925"
Duke University Ph.D. dissertation, May 1994

"Twentieth-Century Communism and Anticommunism: the View After the Cold War"
Reviews in American History - Volume 23, Number 2, June 1995, pp. 336-341

Linkedin.com supplies details of Neather's experience - a year working for Dennis McShane; another doing editing work for the Labour Party; nearly 3 years with Friends of the Earth; a year speechwriting at the Home Office under Jack Straw and David Blunkett; a year speechwriting with Tony Blair; and now he's with the Evening Standard, writing on wine, cycling, travel and local issues, as well as editing comments. (There seems to be a lacuna of a year (1994-95) between completing the PhD and starting with McShane, but doubtless it was some sort of gap year-cum-looking for a career.)

I think he's probably harmless, and the track record suggests a touch of the Green idealist and instinctive-moderniser-against-the-wicked-Establishment. If he were a "sleeper", he'd not have blurted out the stuff about Labour's secret motivations regarding immigration policy.

But "as the twig is bent, so the tree will grow": we have to look at beginnings, try to find some of the warning signs.

I recall a tiny incident regarding Peter Mandelson's college, St Catherine's, Oxford, at the time he was there (1973-76 - why did Peter matriculate at age c. 20?). I'd gone over there one evening (summer '75) with some friends to see a Ken Russell film, and we had a drink in the student bar first. Noticing us, somebody at the other end called out "bleedin' poors". True, but why say it?

It's not what someone does that is most revealing; it's the context, the belief that what they're doing is acceptable. St Catherine's was rather nice - newish, and expensively-designed, right down to the knives and forks (I kid you not). We were impressed; it was time when we still wore thick jumpers because college rooms were cold, and drank beer from large Party Seven cans at parties. Ever get the feeling that you've been let in by mistake, and wonder when you can afford better-looking shoes and clothes?

Privilege and socialism went together in those times. Posh Marxist meddlers dined at the Elizabeth or the Randolph, wore expensive blue boiler suits as a political fashion statement, spoke contemptuously at the Oxford Union of "the talking professions" that, of course, they would soon join. In the street, I overheard two chaps discussing what they would do when they graduated; one said it was a toss-up between joining his father's stockbroking firm or the IMG (International Marxist Group).

Power is sexier than money. In the old days, bored toffs could shag debs at the Hunt Ball, knock the necks off brandy bottles at two in the morning, test themselves against professional boxers; but ah, the chance to lead Revolution...

Don't look for revolutionaries among the likes of John Prescott, a former "bleedin' poor" who knows which side his bread is buttered; look for them among the drawing-room drawlers, the tea-table traitors, the Kim Philbys.

Who is to say that forty years from now, one of our deadliest enemies may not turn out to have been in the Bullingdon Club?

Saturday, November 07, 2009

More on Al-Collider

Terrorist bird shuts down particle accelerator with aerial bombardment.

Unless it just wanted a bit of Marmite on it?

The Pollitt Sanction

It's now reported that the bank bailout will (technically) add another £1.5 trillion to the UK's public debt, making some £2.3 trillion in all, as compared with GDP of maybe £1.4 trillion.

Time for conspiracy theory. Which of the following seems most likely?

Gordon Brown is authorising throwing more cash onto the bonfire because:

1. It alleviates a problem he himself, embarrassingly, allowed to develop as Chancellor
2. It will get us out of the mess, helping the economy recover
3. It will buy some feelgood leading up to the next General Election, limiting the damage to Labour
4. As a scorched-earth policy, it will leave Cameron nothing but blood, toil, tears and sweat and as soon as Cam has heroically dealt with it, in will come another 1945-style Labour landslide as the population again votes for what it thinks it deserves
5. It represents an "Iceland strategy", so effectively ruining the country that we have to throw ourselves into the arms of our communautaire pals on the other side of La Manche
6. As (5) above, but part of a grander plan to advance the cause of international Communism.

There are little conspiratorial threads we can weave together if we wish. For example, we read this week that Brown's candidature for the Labour slave state (sorry, safe seat) of Dunfermline East was sponsored by the TGWU's Jack Jones, now revealed as a traitor in the pay of the USSR at a time of great danger to our country. Could this have been part of the entryist approach of Harry Pollitt? Is Gordon Brown a man of Pollitt's stamp?


Like the Communists, one-eyed Wotan may fantasise that the destruction is merely part of the process leading to the Millennium, for after Ragnarök and the ensuing Flood, "... the world resurfaces anew and fertile, the surviving gods meet, and the world is repopulated by two human survivors."

And if he's wrong?

Friday, November 06, 2009

Santa Fe railway: the new Coke?

After two-and-a-half years, Warren Buffet has bought the rest of his railroad. Reasons?

On democracy in Britain

Following the Czech ratification of the Lisbon Treaty, there's excitement over the widened split in the Conservative Party and the possibility of forming a new party or coalition to wrest power from the professional political elite and restore democracy to the people.

I believe this is completely mistaken.

You will find:

(a) the tremendous power of apathy (look how Karl Denninger has gone from making a personal fortune in equities to crying uselessly on the blogwaves about politics);
(b) when (if) you have split a log, it can be split further, until there is nothing but kindling and splinters.

We do not have democracy in this country, as the ancient Athenians understood the term. We have "representative" democracy, which ultimately reduces the population to two classes:

(i) practitioners
(ii) petitioners

The most we can hope for is to influence one of the two great power factions that take turns to rule us. As David Cameron and co. now feel their vulnerability, our maximum influence lies in the threat to his potential vote. By looking as though we may indeed shatter his support into a hundred pieces and so end with a hung Parliament or even another Labour government, we can make him listen, instead of pretending to listen.

But it has to be a simple, single demand, with the promise that the fragments will gather around it. I would suggest simply, a referendum on EU membership per se, "in or out", and purely on the issue of democratic legitimisation.

The arguments pro and con can come later; in fact, must come later: if you hear bletherskites like Ken Clarke (he so reminds me of ex-Bishop David Jenkins), they're always trying to confuse the referendum with the benefits of EU membership, so as to prevent you from asking for the vote.

Going for the split now uses the weapon without uttering the threat, and will be uselessly destructive.

Wednesday, November 04, 2009

Black holes and the collapse of democracy

Last night I watched a Horizon programme about black holes. Experts don't understand them, and every galaxy has a giant one in the middle, weighing typically 0.1% of the mass of its host. Nothing can escape it as it continually collapses, and at its heart is a singularity where all the normal rules break down. Anything can happen at the centre; nothing is impossible.

And then I saw the ten o'clock news. The President of the Czech Republic, Vaclav Klaus, with the unhappy face of a Neville Chamberlain, had caved in and signed the Lisbon Treaty, the enabling legislation that takes Europe over the event horizon and towards "ever-closer union". Klaus wrote to his country's constitutional court:

“Twenty years after the restoration of our democracy and sovereignty, we are once again dealing with the question whether we should — this time voluntarily — give up the position of a sovereign state and hand over decision-making on our own matters to European institutions outside of the democratic control of our citizens.”

And so the millennarian (it had been planned to be complete by 2000) madness sweeps another into the host. At the centre, now irrecoverably detached from the rest of the universe, the club gathers, surrounded by advisers and servants of every kind, all determined to live as high and as absurd as Marie Antoinette tending her washed sheep, as we career chaotically towards economic breakdown and the loss of law, freedom and security. The transfer of wealth and power without consent - without our consent - is crime and tyranny.

Centripetal forces create centrifugal forces. The overweening power-seeking of the mediaeval Papacy hastened the move towards a Europe of sovereign states and religious fraction. Now, the forced bureaucratic union at the top of our group of societies will lead to greater disunion lower down, of which the BNP's Nick Griffin is merely a small, scruffy symptom.

In the middle ages, the walled towns developed internally; there sprang up strong-walled houses for the wealthy elite, to protect themselves not only from each other, but from the desperate, hungry, half-naked mob outside.

In the dream is denial, and in denial is defeat.