Wednesday, October 29, 2008

RossBrandGate

I happen to think that Russell Brand is a moron and that Jonathan Ross' salary is seriously out of proportion to his actual level of talent. That said, it seems to me that this coverage of this idiotic prank phone call seems just a little over the top. It happened a while ago and the outrage only started when the tabloids started whipping up outrage, I reckon a sense of proportion is needed here.

On a completely different subject, I was very amused by this today.

Monday, October 27, 2008

Why did so many people stick their name on this Drivel?

On Sunday the following letter appeared in the Telegraph, it is signed by lots of people with important titles like "Chief Economist" it serves as proof that the vast pay packets they command are a sign of overdeveloped egos, not well developed brains.


Further to your interview with Alistair Darling, we
would like to dissent from the attempt to use a public works programme to spend
the country's way out of recession.

It is misguided for the Government
to believe that it knows how much specific sectors of the economy need to shrink
and which will shrink "too rapidly" in a recession.

Thus the Government
cannot know how to use an expansion in expenditure that would not risk seriously
misallocating resources.

Furthermore, public expenditure has already
risen very rapidly in recent years, and a further large rise would take the role
of the state in many parts of the economy to such a dominant position that it
would stunt the private sector's recovery once recession is past.

Occasional slowdowns are natural and necessary features of a market
economy.

Insofar as they are to be managed at all, the best tools are
monetary and not fiscal ones. It is inevitable that government expenditure and
debt naturally rise in a recession but planned rises in government spending are
misguided and discredited as a tool of economic management.

If this recession has features that demand more active fiscal policy, which is highly
disputable, taxes should be cut. This would allow the market to determine which
parts of the economy shrink and which flourish to replace them.

Dr Andrew Lilico, Europe Economics; John Greenwood, Chief
Economist, Invesco; Richard Jeffrey, Cazenove Capital Management; Dr Ruth Lea,
Economic Adviser, Arbuthnot Banking Group; Trevor Williams, Chief Economist,
Lloyds TSB Corporate Markets; Dr Nigel Allington, University of Cambridge; Prof
Philip Booth, Institute of Economic Affairs; Prof Tim Congdon, Author, Keynes,
the Keynesians and Monetarism; Prof Laurence Copeland, Cardiff Business School;
Prof Kevin Dowd, University of Nottingham; Prof Kent Matthews, Cardiff Business
School; Prof Alan Morrison, Said Business School; Prof Sir Alan Peacock, Former
Chief Economic Adviser, Dept of Trade and Industry; Dr Mark Pennington, Queen
Mary College, London; Prof David B. Smith, University of Derby; Prof Peter
Spencer, University of York



So, why is it drivel? That relates to the fantasy economics of paragraphs 2 and 3 and the belief that the economy involves entirely naturally. Anyone with half a brain can look at the economy and see that where the government has intervened the economy has adapted around it. It doesn't matter whether the government interferes in a free economy or not, the economy adapts to fit.

To back up this assertion, take a look at the South Korean steel industry, POSCO is the worlds third largest steel producer and a symbol of national pride among Koreans, it was originally created as a state owned enterprise by the Korean government. Now Korea has a gigantic steel industry, all as a result of a good government decision.

Rather than look at a public work and examine it from a pragmatic point of view: Will it be useful? Will there be a demand for it? Will it stand the test of time? Questions any business person would consider essential when considering a business venture these people have chosen to sacrifice pragmatism at the altar of free market ideology.

I would question whether this free market ideology actually has any benefit at all, once again Korea has grown massively over the past 50 years in spite of government intervention on a large scale. Furthermore, the idea that there is a natural tendancy for the free market to assert itself and create economic activity where it's needed seems flawed. In many developing countries where farming has collapsed there has been no rise in alternative economic activity to replace the collapsed industry. In the developed world we the market is now in 2008 giving us signals that the expansion of credit derivatives was a bad thing several years after the event. The market is no better at planning economic activity that the government.

In my view then, it's not a good letter it makes lots of spurious claims about the role of government in the economy. It makes suggestions based on ideas with a questionable factual basis and it deserves not the slightest consideration by the government.

Friday, October 24, 2008

Past Confessions, Comparison Websites and Mortgages

One of my previous employers was a company called Moneyfacts, a financial data provider who were in the business of gathering and selling information relating to financial products (mortgages, savings, loans & the like). It gave me a few unique insights into various aspects of the consumer end of the financial services industry that I thought were worthy of posts.

Moneyfacts began it's life in the late eighties as a regular newsletter listing all the mortgages/savings accounts and loans provided by the major banks and building societies. As the range of products expanded, the publication grew from a being a small newsletter to become a serious of monthly magazines, eventually backed up by comparison websites. They also provided best buy tables detailing the best products in certain categories. What I'm going to cover in this post is the role of comparison sites in the sale of mortgages.

By the time I came to work there, Moneyfacts had been eclipsed by several competitors, notably MoneyExtra and MoneySupermarket the reason for this was due to a business model (Moneyfacts eventually went the same way) based on selling customer leads to mortgage brokers*, it works like this.

The customer searchches for a mortgage, entering the criteria they are looking for, on the subsequent results screen is a list of matching products. Next each mortgage is a Proceed button, clicking it takes you a screen where you can hoose to contact the lender direct or to speak to a third party mortgage "expert" (a broker).

The brokers themselves would bid for specific leads. The winning broker would receive details of the website applicant and attempt to sell a product roughly in line with what they specified on the website. The expansion of comparison websites lead to a huge increase in the number of mortgages sold through brokers including some of the more questionable mortgage products.

I'm not particularly sure if there's anything particularly wrong with this business model. IFA's have been around for years although the comparison websites seriously increased the amount of business they received. As far as solutions go, I'm not sure, the big problem is that a lot of IFA's are more like salesmen selling products from a specific range of providers rather than actual advisors they have to be transparent on commission, but I wonder if this is enough.

As a start, I think it's important that sales staff on commission are no longer referred to as Independent Financial Advisers, both the "independent" and "adviser" words are misleading and should be reserved for people who genuinely provide imartial recommendations for a fee. This will do far more than putting this information on a "Key Facts Statement". Further to this, I think that the comparison websites should follow up on this and make sure that consumers are made clear that they are being sent to sales people, not experts. This may clip the wings of some financial businesses but is, I think, necessary to restore that finance remains honest.

* By a mortgage broker, I mean an Independent Financial Advisor (IFA) who sells mortgage products.

Tuesday, October 21, 2008

Blogroll Additions..

Laziness plus work have kept me from blogging for a while, but I've found the time to add a few links consisting of LEAP's left economics blog, PooterGeek, Never Trust a Hippy, Tom Miller, Snowflake 5 and Next Left (The Fabian Society blog).

Anyone else wanting a link, drop me a mail or leave a comment.

Monday, October 13, 2008

More Markets?

Over at Labour & Capital (who I've noticed has been kind enough to add me to his blogroll) a post about shorting that ended up in a discussion about the potential for shorting on housing. Nick Drew likes the idea and suggests some kind of market for housing, personally I'm not so sure, firstly because Nick is right wing capitalist type and second because I'm not sure it would give any great benefit.

First, I'll have a crack at how such an idea might work (this is unknown territory for me so it's just a guess). Obviously we can't go buying and selling bricks and mortar so I'm thinking a system of vouchers, the value of these vouchers tracks a housing index (so £1,000 of vouchers when average houses are £100,000 would translate to £1,500 worth when they are £150,000), a governing body redeems these vouchers against the purchase of a house and regulates the market and participants buy and sell contracts and options on these vouchers.

The relationship between such a virtual market and a housing market would not be exact, but likely to follow in roughtly the same vein, the market could drag prices up or down because it would reflect what housebuyers who participate in the market would be prepared to pay. It would go up and down with the housing market although there's likely to be some level of difference.

Regardless of whether my little setup above is on the ball or not, the big problem with the market is that it would allow additional participants not really interested in speculation more than bricks and mortar. The injection of speculative capital in the housing market would almost certainly drive house prices up generally, further to this if behavoir in other markets is anything to go by, we can expect this speculation to drive pro cyclical behavoir.

It seems to be an instinctive thing among city types that they seem to think inside a box that views a market as a solution to almost any problem. The problem seems to be that the most active participants are are likely to be middle men looking to make money rather than genuine producers and consumers. As I understand things, this kind of behavoir is exactly what happened in the oil and commodities markets driving up prices beyond actual realistic levels.

I would question whether we really need this kind of financial innovation and whether it ultimately gives any great benefit that could not be addressed created by other means. To me the idea of creating a new market for housing seems like more trouble than it's worth, further to this, I do wonder whether same is true for some of the other more exotic markets.

Friday, October 10, 2008

Let them go...

The financial system is in chaos the taxpayer is riding to the rescue and all of a sudden the idea that these city workers with their gigantic salaries and even bigger bonuses might be overpaid has moved from being the rantings of left wing, politics of envy madmen like me to commonly held popular opinion.

Despite the chaos, the city's PR machine appears to be in full on spin mode, here, for example. I can't believe the bloody cheek of these people! Not only are they suggesting that pay shouldn't be reined in, they're even saying that compared to equivelant workers in Asia they are underpaid.

Personally, I say, carry on, rein in the bonuses and if these people want to go, let them. I'm sure the financial firms of Asia will be falling over themselves to recruit all those people who did such a good job in London.