The inflation-deflation debate

Sheffield-based analyst Nadeem Walayat demonstrates that, apart from a blip a few months ago, the long-term inflationary trend in prices continues. Whether you look at CPI or RPI (the latter includes mortgage costs), household bills are rising.

He also examines the trend in UK public debt, which again seems to be rising unstoppably. The Chancellor has predicted growth for the UK economy, but that growth is more than paid for by borrowing, so overall we will be worse off. Controversially, Walayat suggests that the motive is political: deliberate damage to the economy in order to leave the next (presumably Conservative) government "scorched earth". We must hope that British governments do not really operate so irresponsibly.

Walayat concludes with a look at some commodities that investors may choose as hedges against inflation: energy (natural gas), gold and silver. He offers some technical comments on fund charges and whether the way the fund invests is likely to track the real progress of the commodity's price. He feels that gold and silver funds correlate better with actual prices in these markets, though he warns that theft and fraud are always possible.

But the readers' comments are worth looking at, too. "Raleigh" points to an estimated $6 trillion reduction in the value of US housing, which more than offsets the recent $1 trillion increase in US government borrowing as a result of the banking crisis. His view, if I understand it correctly, is that such net deflation will put a downward pressure on prices and wages.

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.

Janszen: Gold is not overpriced

"Gold ads bug us from the TV and radio. To the new gold experts this means gold sentiment is now too bullish. We’re due for a crash.

Have they noticed that the gold ads are about selling not buying gold?"

In a long but well-worth-reading article, Eric Janszen of iTulip maintains that despite eight years of rising prices, gold is not undervalued, because the economic system is unstable. He points out that, for the first time in many years, central banks have started to buy gold.

Unlike many commentators, he doesn't support the notion that the dollar will collapse, because other major economies (e.g. China and Japan) have become dependent on the USA to buy their exports. Global inter-linking means that the coming bust will not take the same form as previous ones.

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.

Inflation and then a bust, by 2012, says Andy Xie

Andy Xie, a respected former Morgan Stanley economic analyst says that low interest rates (cheap money) will lead to increasing asset prices until the game simply cannot continue, whereupon there will be a massive, world-wide breakdown, which he expects in 2012.

But Xie's ex-employer thinks the credit crisis may hit Britain as early as next year (hat-tip to "Jesse").

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.

Could Britain go bust?

Britain's debtor weaknesses

Update: PIMCO has announced that it will be a net seller of UK bonds this year. The European portfolio manager is Andrew Balls, brother of UK government minister Ed Balls, so one wonders what the siblings may have to tell each other.
This week's Spectator includes an article by Irwin Stelzer, a noted economic commentator, entitled "Who would lend to a bankrupt Britain?"

Stelzer's comments follow recent developments in the market for "credit default swaps" (CDS) - insurance contracts that pay out if a business or government defaults on its debt. The premium (price) of the insurance reflects the degree of concern, and in the case of the UK, that concern has deepened.

CMA DataVision supplies information on the CDS market. Its third-quarter report on sovereign (national) debt assesses each country for the chances of a default within the next five years (CPD, or "Cumulative Probability of Default"), the cost of default insurance and what that means about creditworthiness. In this report (see page 14), the UK is rated as having a 4% CPD, with an implied credit rating at "aa+".

The top "aaa" credit rating is enjoyed by the USA, Australia and a small handful of European countries including ourselves, but things have moved on and it looks as though we are heading for a downgrading. The CMA report linked above covered the market for CDS contracts between July and September. On 7 December, the average CDS risk premium for the UK reportedly increased to 0.74% p.a. (85% higher than in the third quarter), which compares very unfavourably with the USA's premium at 0.32% p.a. This insurance repricing suggests that the UK's risk of default within 5 years may have risen to around 5.5%.

Are we going broke? Not yet, but our economy is not as strong as it used to be, and this is reflected in the price of gilts (government bonds, or Treasury securities). Gilts offer a fixed income for a fixed period, but can be bought and sold many times before their maturity date. Factors influencing their price include interest rates available elsewhere and the chance of default.

If gilts become cheaper, their fixed income is higher in comparison. The relationship of income to the traded price is called the "yield" - effectively, an interest rate. Immediately after British Chancellor Alistair Darling delivered his Pre-Budget Report to Parliament on 9 December, 10-year gilt prices fell and their yield rose from 3.81% to 3.85%.

The bond markets are, so to speak, the judges on Strictly Come Borrowing, and they are not impressed by the proposals they have seen. This, not bankruptcy, is the implication of CDS premiums, gilt yields and national credit ratings: we can expect to pay more for access to extra funds.

Since we are already so indebted, personally and nationally, an increase in interest rates will add to our burdens, at the same time that (in a recession) profits and tax revenues are decreasing; so Britain could have to borrow even more just to keep going. Spiralling debt and the growing reluctance of lenders could eventually force us to call in the International Monetary Fund as a lender of last resort, which we last did in 1976. That was bitter medicine, but still better than what would happen if we defaulted altogether and credit markets shunned us completely (or imposed loan-shark rates and terms).

However, we are very far from the worst case globally. The same third-quarter report by CMA DataVision named three countries that had a five-year default risk of over 50%: the Ukraine, Venezuela and Argentina. The annual CDS risk premiums for the first two were 12% and 11.25% respectively; both have since increased to over 13% per annum. Closer to home, Ireland's risk premium is 1.55%, Greece's 2%, , Lithuania's 3.2% and Iceland's 4.4%.

Although the USA is still regarded as a safe borrower, individual States are not: California's annual CDS premium is about 2.5%, reflecting an estimated 20% risk of default within 5 years.

British banks themselves now have a significant CDS premium, ranging from about 0.9% p.a. for Barclays to 1.4% p.a. for the Royal Bank of Scotland - the latter implies about a 10% risk of defaulting within 5 years.

So, no panic yet, but grounds for considerable concern.

Derivatives: a bigger worry?

A second worry is the state of credit default swaps themselves, and other "derivatives". The total amounts insured in this hard-to-understand market are vast, much bigger than any country's GDP. The USA's GDP is something like $14 trillion, but the CDS market is worth about $36 trillion - down from $62 trillion in 2008.

The derivatives market as a whole is much larger - an estimated $1,400 trillion in April 2009, many times the entire world's annual GDP. It's a mammoth global insurance/betting game, and if a major player comes unstuck it could destabilise finance, just as the collapse of Lehman Brothers and others threatened to do not long ago.

We think of insurance as reducing risk, but actually it's about transferring risk. Promises can turn out to be very expensive: the world's oldest mutual insurer, Equitable Life, suffered a major crisis because of a guarantee it made regarding minimum annuity rates for some of its pension investors; Barings, the oldest merchant bank in London, was destroyed by derivatives traded by its employee Nick Leeson.

The derivatives market is huge, interconnected and inadequately regulated. It is the fourth threat identified by Michael Panzner in his prescient book, "Financial Armageddon," which I reviewed in May 2007. Let us hope that this one can be neutralized in time.

______________________________________________

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.

The end of the dollar? But where else can we go?

The market is inherently unpredictable: if you think an accident is bound to happen, that still doesn't tell you when it will happen. However, this article by Paco Ahlgren takes the long view and maintains that the dollar must one day become worthless.

In the short term, who knows? In times of panic, many investors could run back to holding the dollar and temporarily boost its value.

Other countries are also weakening their currencies. Even the Euro suffers from flaws in the economies of some of its member countries, so although it may seem strong now against the pound and dollar, it too may be overvalued.

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.

Education or Indoctrination?

Sackerson directed me to the following article: http://www.overcomingbias.com/2009/12/school-is-propaganda.html

In response, I argue that we have public schools because (based on the data):

a) they are cheaper than private schools;

b) they out-perform private schools, on average;

c) it is better to educate than imprison;

d) education is the only modern means for social mobility.

Bringing down the Temple of Dagon

I listend to Radio 4's Any Questions? last Saturday and a question about bankers' bonuses reared its lovely head. And then the pundits fell down, one after another.

I can't answer the conundrum about the sound of one hand clapping, but I sure heard the sound of punches being pulled. Perhaps some of the speakers have banker friends; perhaps some are hoping not to alienate the Masters of the Universe in the weary stagger up to a General Election. But here's what I'd like to have said, and it proceeds from a simple question:

Did the bankers know the likely consequences of their actions?

If they didn't, they are incompetent and instead of dithering about the threat of the RBS' board to resign, the government should sack them and all like them. Doctors who are that bad at their jobs would be sued and/or worse.

If they did, they should be jailed. In my view, Max Keiser is not exaggerating when he calls them terrorists. They have wrought destruction on our economies and though the human cost may be hard to assess accurately, it is and will continue to be terrible.

So, why isn't it happening? A number of reasons occur to me:

1. It is convenient for politicians to have a few people earn (sorry, be given, legally steal) vast sums of money. The lucky recipients of this largesse can be taxed at 40% (or even 50% as under today's draft Budget proposals) and still have more than they can possibly eat, drink, wear or stick up their noses. "Tax doesn't have to be taxing", as that wretched radio advert chirrups.

2. Clapped-out politicians may one day be looking for a well-overpaid sinecure, like T--- B----. Best not to be too hard on your potential future employer.

3. Embarrassingly, the roots of the credit crunch are not (not merely) in socialist profligacy, but date back to the early 1980s. It was a so-called Conservative government, supposedly a convert to monetarism, that opened the floodgates of credit and tsunamied the economic "boom". Not a genuine boom, and now a very real bust. Criticising the present hapless bunch too sharply would beg a loud, sustained argument of "tu quoque" ("thou also didst so").

4. Just as an addict is partly responsible for the sins of the dealer, the consumer is implicated in the phoney house price rises and the spending spree. But I say that the Devil has the lowest place in Hell, because his knowledge was greater.

5. Nevertheless, if push came to shove, the bankers could point out that effectively, they were acting as the agents of a government determined to win re-election.

Very well, then. Let us have our punishment - we shall, anyway, and the next generation after us. But they must have theirs - the bankers, the politicians and the Fourth Estate that got too close and too cosy for too long.

Go for it.

Debt: UK economy worse off than USA's

This article from Credit Writedowns looks at the development of debt over a long time, in both the US and UK economies.

Two things stand out (see charts 1a and 1b):

1. US debt (as a proportion of national income) is a worse problem now than in the Great Depression of the 1930s.
2. The UK's debt burden is signficantly worse than America's.

Consumer indebtedness exploded in the early 1980s - see the the first chart on this site. Up to then, it had pretty much kept pace with the growth of the economy generally. This is a major part of how our economic problems have developed - a deliberate loosening of credit to restimulate the stagnant economy of c. 1982. The banks grew fat on the loan-financed consumer boom, and on the inflation of property prices.

Now, our governments are looking for a way out. Mass unemployment and bankruptcies will turn the voters against them, so they have tried to keep the banking system going with loans that future generations must pay off. Insiders will tell you that they don't really know what they are doing, but they are in a panic to do something.

Technically, we are experiencing deflation - the total amount of money plus credit in the economy is shrinking, as lenders and spenders have become more cautious. But just as with Dubai recently, foreign investors are losing confidence in our ability to repay debt, and the dollar and pound have become worth less on the currency exchanges.

In the UK, as in the US, we spend a lot on things that come from outside our economy, and some of them are hard to cut out - energy, for example. So while house and car prices may be coming down, other costs are still rising, in pound terms. And as economic problems continue, it is possible that the pound may have further to fall.

So a combination of a slowed-down economy with price inflation - "stagflation" - is a potential threat to the UK.

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.

Beware the stock market boom

Another commentator I follow is an American called Warren Pollock. Here he says you should think twice about investing at this time. Companies raise cash from you by offering shares; now they have money, and you have hope.

In 1999, I attended a monthly meeting for brokers where a representative from one of the investment houses gave his views on the boom in technology shares. According to him, what we we were seeing was nothing to what would come after - the "super-boom". This was what we were to think, so we could advise our clients to buy into his company's technology fund.

Fund management companies earn a percentage of the money invested with them, so according to them it is always a good time to invest - the bigger their fund, the bigger their earnings.

If you are an investor who bought your shares through a stockbroker and you got in at the right time (low price), you need to get out at the right time (high price), so you need another buyer who thinks the price will go even higher. If you bought via a collective investment (e.g. the unit trusts that underpin most ISAs), then you can simply sell your units back to the fund - which means the fund has to find the cash to give you. And if the fund doesn't find new investors, it will shrink. So, maybe, that's the time to send their rep round to the brokers.

So you can see that at least two groups of people have a vested interest in encouraging optimism in you, even when they may not feel it themselves.

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.

Can we trust government information?

This snappy clip from the Mint.com blog (tip of the hat to Nathan's Economic Edge) examines official U.S. unemployment criteria and argues that the real jobless rate is not 10% but 17%.

As governments on both sides of the Atlantic continue to flounder, perhaps we can expect more misleading information and carefully-biased definitions. The inflation rate looks like another good candidate for this kind of treatment.



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.

Britain faces stagflation, says Walayat

Sheffield-based market analyst Nadeem Walayat argues that Britain's debt burden will continue to increase, accompanied by inflation as the government prints more money and the pound weakens against other currencies. Interest rates will have to rise to attract further lending to the UK, and the result will be economic stagnation.

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.

China takes the long view

From Pension Pulse:

Keith thinks that all this talk of excess capacity in China is missing the bigger picture. He told me that China is planning and preparing for the future so they have every reason to over-invest now and build up their infrastructure aand stockpile the resources. It makes sense when you think about it; they saw all the mistakes the Western world made and decided its best to be better prepared for the future.

There are still problems in China, most notably the disparities between the rural and urban population, but they're making leaps and bounds in almost every area, including clean energy where China is securing first mover advantage in the market for renewable energy.

Could Japan inadvertently start a run on America's credit?

Florida-based professional investor Karl Denninger comments on a rumour that Japan is considering selling U.S. government bonds ("Treasuries"). He reflects that such a move could begin a run on U.S. Treasuries, and the largest holder by far is China, who some think may have up to $1 trillion of U.S. debt.

A selloff would put pressure on the U.S. to raise interest rates, and this could have a domino effect in other countries. Higher interest rates make businesses' finance tougher, as well as hitting their customers' disposable income and therefore reducing demand for goods and services. So a crisis of faith in America's ability to repay its debts, and to maintain the exchange value of the dollar, could plunge the world economy back into recession. The investment outlook in this scenario would not be positive.

Denninger is a long-standing Cassandra on the U.S. economy, but he has a fairly sizeable following in the American personal investment community and despite his tendency to express himself in stark terms, his views and information should not be lightly dismissed.

A further reason to take him seriously is what has been happening between China and its U.S. debtors. It's been said some time ago, that China has been selling the debt of U.S. States and corporations in favour of U.S. Treasuries, because the latter are fully backed by the American Government. In retrospect, this seems to have been a very prudent move, since a number of U.S. States are now having significant difficulty in balancing their budgets, owing to a shrinking tax income and rising bills for unemployment benefit. It's understood that China has also been selling longer-term Treasuries to buy shorter-dated ones, because the latter offer an earlier exit should America's credit rating and currency weaken. So the notion that China might suddenly need or want to sell off Treasuries, is not entirely implausible.

On the other hand, America is China's best customer and if the dollar fell sharply or consumer spending reduced even more severely than it has already done, this would hit Chinese exports and increase unemployment in China, which is already a significant problem. It is in both parties' interests to manage the situation. The wider picture, many believe, is a long economic decline in the West as the East develops markets closer to its home, but at this stage everyone will prefer an ebbing tide to a tsunami in reverse.

Perhaps we should instead expect a slowing in the rate at which U.S. debt to China is increasing; and maybe an increasing reluctance on the part of the Chinese to purchase new Treasuries when the old ones mature.

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.

News: North Korea steals from savers

See Denninger.

India: reasons to be cheerful?

A briefing from SimplyBiz (the IFA support company) gives reasons why India may be an economy worth watching in years to come.

The demographics are in favour (half are under 25), the system is entrepreneurial and there is a large class of well-educated people.

The country has not yet adequately developed the infrastructure to support a booming industrial economy, but the government intends to spend $500 billion in the next five years to remedy this - and half a trillion dollars buys a lot more in India.

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.

Is inflation on the way?

According to one commentator I follow, Japan has been pumping extra money into its system, seemingly with a view to making its currency weaker, which would make its exports cheaper and so stimulate extra demand.

If that was the plan, the first part of it seems to have worked, except in weakening the Yen vs the US dollar. The dollar went lower on world currency exchanges and Mr Pollock's reading is that the markets have started to wonder whether America will seek to do the same as Japan.

Pollock compares this situation to the beggar-thy-neighbour system between the two World Wars, when countries imposed tariffs on each other's exports to protect their own industries. Devaluing currencies was not so easy when they were backed by gold; now, nations can more easily expand their money supply to create inflation.

If other countries follow suit*, then the relationship of money to real things will alter and people will look to get rid of cash and buy things that will hold their value. Perhaps this is one of the factors behind the rise in the price of gold, but there's lots of other ways we could invest our money. Few are guaranteed to counter inflation, except products like National Savings Index-Linked Certificates; and even there we have the question of how the Government calculates the rate of inflation.

It is unsettling for the ordinary saver. Just when it seemed that "cash is king" and the prudent, frugal person was going to be rewarded by seeing prices drop (look at houses, cars, cruises, TVs and computers etc), the value of his/her money may be hit by inflation once again.

UPDATE (1st December):

* North Korea has just done something far worse. It has replaced the old currency with a new one, but only allowing a certain amount of the old to be changed into the new - effectively, a robbery of the larger saver.

UPDATE (4th December):

Koreans burning old money in protest, Korean government easing restrictions on converting currency (BBC) - (hat-tip to Credit Writedowns)
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.

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.

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

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.

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.

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.

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.

India: the coming superpower

Like I've been saying for some time; and now someone else thinks so, too.

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.

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.

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.

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".

In the news

Dimbleby overwhelmed by own bull

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?

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?

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.

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.

Two to muse on

Comets, life and the unimaginably vast Oort Cloud

Do Smart, Hard-Working People Deserve to Make More Money?

Andrew Neather: social experimentation and education

Correction: when I said New Labour encouraged immigration specifically to spite their political opposition and alter British social identity, the word "specifically" may be inappropriate, if by that you understand it to be the only, or principal, reason.

Certainly Andrew Neather is using the Guardian to deny that it was the main aim. And I don't see the Labour Government as a sort of Doctor Evil, cackling over their latest scheme to ruin the country. It's not that simple, that cartoony.

But Neather has already admitted that:

• Mass migration to the UK was a "deliberate policy"
• It "especially" suited "middle-class Londoners"
• "A driving political purpose" was the fostering of multiculturalism
• He (Neather) had "a clear sense that the policy was intended... to rub the Right's nose in diversity and render their arguments out of date", even though he himself thought that was going too far.

From what I've seen, read and heard, the political parties do relish giving each other one in the eye; perhaps that's why they can't clearly see the other consequences of their actions. And we need to be aware that driving motives are often not disclosed, even if they may have appeared in "earlier drafts". Indeed, the unstated motivation is often more important than the overt.

Education has always been a pit for these cockerels to fight in. In the nineteenth century, it was the Board Schools competing with, and seeking to supplant, the Church schools (and abolishing school prayers and hymns within my teaching career); in the twentieth, it was comprehensive versus grammar (since no-one dared go so far as to destroy the private schools). And, like Mao's Red Guard ripping up the bourgeois turf of parks, and Mao's peasants obediently exterminating the crop-eating birds (only to see the crop-eating insect population explode, disastrously), they bring in the reign of destructive ignorance and irrational hatred.

It is especially destructive in teaching, where individuals and society live with the consequences for generations.

When I came to Birmingham to train as a teacher, my first 3-week placement was at the George Dixon Grammar School. The boys' and girls' grammars had just amalgamated, and in the staffroom the women teachers still had their tea expensively served to them, whereas the male staff ran a separate, cheaper tea swindle. Two boys who gave another student teacher a mildly tough time (by the standards of that time) were instantly taken off the entry for English O-level as a punishment.

These decent, hard-working people could not have foreseen that within a few years, the Labour-controlled City Council would first build a new comprehensive smack on their cricket pitch (one of the finest in the Midlands), then amalgamate the grammar school with it, and then generally mismanage it with all sorts of fashionable political initiatives until it went into what is known as "special measures". An old-fashioned grammar-school-and-Cambridge-educated toughie, Robert Dowling (now Sir Robert) was brought in and the climb back began. I was interviewed by him shortly after he took over: the place was all echoes and empty rooms. 200 years of accumulated effort, expertise, tradition and dedication had come to this; for no good reason, and some bad ones.

I'm sure Andrew Neather is a decent chap - but both he and those he has worked with need to recognise that good intentions aren't enough. More and more, I see this government (and some before it) as resembling Homer Simpson, pushing a button on the nuclear generator console just to see what happens, and rewarded by the sight of people suddenly fleeing a wall of flame in the corridor.

You need, not just a good heart, but humility and caution.

Fears of a stockmarket correction

My trader's intuition is flashing warnings that the stock market might drop off a waterfall starting this week. - Charles Hugh Smith

But Marc Faber (htp: Jesse) thinks not - as the dollar weakens, the market adjusts upward. And he is convinced of the "Bernanke put", i.e. money will be thrown into the system to maintain the illusion that all is well. Longer-term, Faber (in that smiling way of his) gives it around 10 years before the dollar simply collapses as public finances run completely out of control.

Andrew Neather: privilege and principle

Andrew Neather is the subject of some fuss at the moment, since he revealed that New Labour encouraged immigration specifically to spite their political opposition and alter British social identity (Melanie Phillips is the latest prominent journalist to splutter a response).

To give the man his due, he is aware of the contradictions in his position. In the first article linked above, he argues for immigration, boasting of the mix in his children's school - but he does qualify it very briefly by a reference (my highlight) to the social exclusiveness:

"... in my children's primary school, the international influence is primarily the large numbers of (mostly middle-class) bilingual children, usually with one parent married to a Brit."

As it happens, I used to live in London - a flat in Mount Nod Road, Streatham - and I don't think Neather would want to send his children to the school opposite us, the way it was in the 1970s at least. My dad would regularly drift over to the bow window to check that his Morris Marina wasn't being vandalised. But maybe it's "middle class" now, what with the property bubble.

However, Neather doesn't live in that London, of course. He lives in a part where, according to nethouseprices.com, semi-detached houses have sold for between £400,000 and £900,000 this year. Melanie Phillips' comment seems justified: "In Neather's hermetically sealed bubble, the benefits of mass immigration were so overwhelming he couldn't understand why ministers had been so nervous about it."

I think the way that so-so socialists square the circle is to admit the contradictions cheerfully (brazenly) and ask you to concentrate on how things will be when they've finished. But what you do now, and its effects, are far more certain than a rosy, fuzzy future Golden Age. One might have hoped that a Cambridge education would have taught Neather not to think in that Johnny Head-in-air sort of way.

Alabamageddon

"People want to kill somebody, but they don't know who to shoot at" ...

Should I send this?

General Teaching Council for England

Whittington House

19-30 Alfred Place

London

WC1E 7EA

Sunday, October 25, 2009

Dear Sirs

GTC Registration Card

Thank you for my GTC registration card, received yesterday by post, which I return herewith.

The card appears to have no useful official function, other than to thrill the issuer, for I note its caveat that possessing it certifies nothing except the historic and now irrelevant fact of my registration with you at the date of the card’s issue. It serves no purpose for me personally, either: fortunately, despite advancing age, I still know who I am, who I work for and my teacher’s reference number.

For an English teacher, to be associated with this card is something of a liability. The motto on the obverse (“for children, through teachers”) is very modern in both literary and political styles, in that it conveys a fuzzy sense of generalized good intent and lacks verb, subject and any hint of how the undefined objective is to be attained (other than by treating teachers as instruments rather than as autonomous agents). I suppose we must be seen to keep up with the fashionable flight from literacy and from any disputable basis of fact or principle.

The reverse is embellished with a quotation from the “Code for teachers” (which, according to your media release dated 1 July 2009, has been created with reference to “an extensive process of public and professional consultation,” an exercise which had hitherto – and, I suspect, despite strenuous and costly effort on your behalf - escaped my notice). The excerpt reads, “Teachers’ knowledge, skill, judgement, creativity and commitment play a vital role in society.” As an example of stating the obvious it could scarcely be bettered. It is also infuriatingly patronising: I am forced to infer that my motivation is improved by jejune bureaucratic praise and recognition such as this. Its presumed intended effect is undermined by the fact that it is printed in two colours, as though, like my primary age pupils, I have such a short attention span that I cannot complete reading a sentence unless it changes its hue partway through.

Or is this chameleon-like transformation from maroon to blue intended as a political metaphor? In which case, the order of the colours should be reversed, for as you know, the GTCs were set up under an earlier Conservative government’s Teaching and Higher Education Act (1988), itself in part a response to the teachers’ industrial action of 1985, which in turn was a protest against the way in which the profession’s remuneration relative to that of other workers as established by the 1974 Houghton pay award slipped rapidly in succeeding years, to the extent that an article in Punch magazine in the 1980s, comparing workers’ pay, felt able to call teachers “dowdy underachievers” . A medical acquaintance told me years ago that the unstated purpose of the General Medical Council is to suppress and bully doctors, and some may think that the similarly-named General Teaching Councils have an analogous hidden agenda.

It is also regrettable that you should put yourselves (or should I say, us?) to such unnecessary expense when the country is running short of money. The minutes of the GTC for England’s meeting on 27 January 2009 reveal that, despite a registration fee of £37 per member and an expected total income of £21.44 million, your budget will be in deficit to the tune of £354,000. Surely it would assist your finances to desist from glossy, self-aggrandising mass mailings.

I think one could go further, in these straitened times: according to http://www.nethouseprices.com/ residential properties in Alfred Place have sold for an average £561,583 each in recent years, so if you happen to own your offices, the fast-recovering London property market should allow you to sell numbers 19-30, retain a healthy cash reserve and find a new location that would cost far less in staff pay, travel allowances and other perquisites. If you wish to be in closer touch with your unconsenting membership, you should know that the geographical centre of England is Meriden; but doubtless the Economic and Social Research Council could guide you to areas where wage levels are more competitive still. In the latter context, it is also worth remembering that there are some 200 million English speakers in India, where the average entry salary for a graduate is US$300 – 500 per month (E. Wayne Nafziger, “Economic Development”, 4th Edition, March 2006).

In short, while I must perforce acknowledge that I am obliged to be registered with you, please exclude me from every mailing possible, other than the one asking me for a cheque once a year; and please do what you can to be less of a burden on my, and my colleagues’, time and money.

Yours faithfully

Thy neck is as a tower of ivory

If only we could write the right rules, everybody would play fair?

In what may be an impish spirit of fun, economist Don Boudreaux argues the case for insider trading (and quotes Henry Manne, a law colleague at his university, on the subject). The article is published by "Chinese" Rupert Murdoch's WSJ (motto: "Making the world safe for men on yachts").

But what if you see your objective as, not fair play, but winning?

Alas, sporting teams are not composed of referees.

(Picture: An ivory tower, as symbol of Mary, in a "Hunt of the Unicorn Annunciation" (ca. 1500) from a Netherlands book of hours.)

Plantation

The Daily Mail and the Express splutter at some of the nuggets in the following article, which I reproduce in its insouciant entirety from the Evening Standard (if the latter insists, I'll delete it, of course, but to them I'd say, I am increasing your readership at no cost to you or financial benefit to myself).

What comes across to me, is how decisions with far-reaching consequences are taken, not for the country's general benefit or to help the suffering, sliding working class, but merely to spite the political opposition, or for a temporary tactical gain.

I am reminded of Henry VIII's "plantations" in Ireland - and after 400 years, they still haven't quite rubbed all the corners off each other.

Then there's Fiji, where indentured Indian labourers were imported for a minimum initial 10-year term, during which time (inevitably, and I assume, entirely foreseeably) they would marry, have children, become rooted. Would it have entered the calculations of the landowners, that such importation would also make it harder for Fiji eventually to throw off colonial rule and assume full independence? Who cared that tensions would build up, leading to coups in 1987 and 2000?

But then, the powerful elite have always treated us like the beasts of the field. Remember the Highland clearances, also. "Who cares for the future, as long as I can make a few quid and booze it up with willing lovelies?"

As a Spanish Classical scholar observes:

It seems that there existed in Greece an expression or proverbial saying which is preserved in verse in a fragment of a tragedy whose author has not been identified (Tragicorum Fragmenta Adespota, 513 Nauck):

ἐμοῦ θανόντος γαῖα μιχθήτω πυρί·
οὐδὲν μέλει μοι· τἀμὰ γὰρ καλῶς ἔχει.

When I die, let earth and fire mix:
It matters not to me, for my affairs will be unaffected.
___________________________________________________
Don't listen to the whingers - London needs immigrantsAndrew Neather

23.10.09

Amid the sound and fury over Nick Griffin, there's a sad but unnoticed fact: it has taken this fiasco to make politicians talk about the impact of immigration.

Yesterday MPs Frank Field and Nicholas Soames called for a 75 per cent cut in immigration and accused the Government of "clamping down" on any debate.

What's missing is not only a sense of the benefits of immigration but also of where it came from.
It didn't just happen: the deliberate policy of ministers from late 2000 until at least February last year, when the Government introduced a points-based system, was to open up the UK to mass migration.

Even now, most graduates with good English and a salary of £40,000 or the local equivalent abroad are more or less guaranteed enough points to settle here.

The results in London, and especially for middle-class Londoners, have been highly positive. It's not simply a question of foreign nannies, cleaners and gardeners - although frankly it's hard to see how the capital could function without them.

Their place certainly wouldn't be taken by unemployed BNP voters from Barking or Burnley - fascist au pair, anyone? Immigrants are everywhere and in all sorts of jobs, many of them skilled.

My family's east European former nannies, for example, are model migrants, going on to be a social worker and an accountant. They have integrated into London society.

But this wave of immigration has enriched us much more than that. A large part of London's attraction is its cosmopolitan nature.

It is so much more international now than, say, 15 years ago, and so much more heterogeneous than most of the provinces, that it's pretty much unimaginable for us to go back either to the past or the sticks.

Field and Soames complain about schools where English is not the first language for many pupils.
But in my children's south London primary school, the international influence is primarily the large numbers of (mostly middle-class) bilingual children, usually with one parent married to a Brit.

My children have half- or wholly Spanish, Italian, Swiss, Austrian, Croatian, Bulgarian, Congolese, Chinese and Turkish classmates.

London's role as a magnet for immigration busted wide open the stale 1990s clichés about multiculturalism: it's a question of genuine diversity now, not just tacking a few Afro-Caribbean and Bengali events on to a white British mainstream. It's one of the reasons Paris now tends to look parochial to us.

So why is it that ministers have been so very bad at communicating this? I wonder because I wrote the landmark speech given by then immigration minister Barbara Roche in September 2000, calling for a loosening of controls. It marked a major shift from the policy of previous governments: from 1971 onwards, only foreigners joining relatives already in the UK had been permitted to settle here.

That speech was based largely on a report by the Performance and Innovation Unit, Tony Blair's Cabinet Office think-tank.

The PIU's reports were legendarily tedious within Whitehall but their big immigration report was surrounded by an unusual air of both anticipation and secrecy.

Drafts were handed out in summer 2000 only with extreme reluctance: there was a paranoia about it reaching the media.

Eventually published in January 2001, the innocuously labelled "RDS Occasional Paper no. 67", "Migration: an economic and social analysis" focused heavily on the labour market case.

But the earlier drafts I saw also included a driving political purpose: that mass immigration was the way that the Government was going to make the UK truly multicultural.

I remember coming away from some discussions with the clear sense that the policy was intended - even if this wasn't its main purpose - to rub the Right's nose in diversity and render their arguments out of date. That seemed to me to be a manoeuvre too far.

Ministers were very nervous about the whole thing. For despite Roche's keenness to make her big speech and to be upfront, there was a reluctance elsewhere in government to discuss what increased immigration would mean, above all for Labour's core white working-class vote.

This shone through even in the published report: the "social outcomes" it talks about are solely those for immigrants.

And this first-term immigration policy got no mention among the platitudes on the subject in Labour's 1997 manifesto, headed Faster, Firmer, Fairer.

The results were dramatic. In 1995, 55,000 foreigners were granted the right to settle in the UK. By 2005 that had risen to 179,000; last year, with immigration falling thanks to the recession, it was 148,000.

In addition, hundreds of thousands of migrants have come from the new EU member states since 2004, most requiring neither visas nor permission to work or settle. The UK welcomed an estimated net 1.5 million immigrants in the decade to 2008.

Part by accident, part by design, the Government had created its longed-for immigration boom.
But ministers wouldn't talk about it. In part they probably realised the conservatism of their core voters: while ministers might have been passionately in favour of a more diverse society, it wasn't necessarily a debate they wanted to have in working men's clubs in Sheffield or Sunderland.

In part, too, it would have been just too metropolitan an argument to make in such places: London was the real model. Roche was unusual in that she was a London MP, herself of east European Jewish stock.

But Labour ministers elsewhere tend studiously to avoid ever mentioning London. Meanwhile, the capital's capacity to absorb new immigrants depends in large part on its economic vitality and variety. There's not a lot of that in, say, south Yorkshire. And so ministers lost their nerve.

I hope it's not too late now, post-Question Time, for London to make the case for migration.

Of course we're too small a country to afford an open door - but, by the same token, if the immigrants dry up, this city and this country will become a much poorer and less interesting place. Why is it so hard for Gordon Brown to say that?

Send the office cleaners into the City

Cleaning up the trading rooms physically could be the way to amend the traders' behaviour (htp: Overcoming Bias)

People are unconsciously fairer and more generous when they are in clean-smelling environments, according to a soon-to-be published study...

... The first experiment evaluated fairness. As a test of whether clean scents would enhance reciprocity, participants played a classic "trust game." Subjects received $12 of real money (allegedly sent by an anonymous partner in another room). They had to decide how much of it to either keep or return to their partners who had trusted them to divide it fairly. Subjects in clean-scented rooms were less likely to exploit the trust of their partners, returning a significantly higher share of the money...

Are the markets being manipulated?

I'm partway through a 1990s American TV programme (htp: Jesse) about the lead-up to, and aftermath of the Great Crash of 1929. At that time, share price manipulation was legal, everyone knew it went on and even the losers came back for more, hoping they would get out in time the next time round. And in the 1920s, buying on margin became possible, so that provided a fatal extra impetus.

You know all this, of course.

My question (and pardon my ignorance) is about the interaction of derivatives and stock trading today. A takes a huge bet with B that the share price of Widgetco will go down - what stops B from borrowing more cash, purchasing Widgetco in time to boost the price before the date of the bet, collects the cash from A and then sells his firm's holding in Widgetco? Even if now illegal (and I'm not sure of that), are there not ways and means?

And are there other tricks to catch the operator who goes long on a share, instead?

Lessons from history

The Debt Offensive began in 2007: Charlie hit us with everything he had. Cadres of underpriced risk were tunnelling under our lines, popping up when least expected and decimating our defences. We fought back hard, dropping cash from the Hueys, first $700 billion, then trillions, but it was no use. Sure, we beat him back for a while, took down a few banks; but the public couldn't take seeing it all on TV. It was the turning point. We had lost the will to win.

Bozos in Parade

Two related items in today's Parade Sunday magazine caught my eye.

1. In reference to an intensive 2.5-year program in Computer Science at Neumont University, a Professor of Higher Education at Boston College is quoted as saying "I'm sure that they turn out really great technicians, but how are these students going to fit into the real world?"

Given that the real world is populated by a large percentage of what appear to be idiots, she's probably correct. However, many of the future teachers that I have taught do not appear to know anything about English, Mathematics, History, Geography, or even a foreign language. For them, higher education appears only to be a way to a job.

2. A piece taken from a new book, begins "Humans are good at many things - typing, inventing stuff - but we're quite bad at assessing risk".

To begin, I wouldn't class being a competent typist with being an inventor, any more than I would compare driving skill with a concert performance.

At most 5% of the population in the industrial world actually 'invents things', or advances human knowledge. Most of the rest just use it. Has it occurred to these authors that the same idiots who use all of that technology without understanding might just be the ones who panic unjustifiably?