Tuesday, October 27, 2009

Guido the Banking Lobbyist

An unfortunate consquence of being a political activist is that I have to indulge Paul Staines' ego by actually reading his blog. What I read today made me angry.

UPDATE : Labour's Lord Myners, who really ought to know better, is now (Thick of It style) pushing a rival plan this morning. Forcing investment banks to reduce their fees for capital raising. He seems to want to further erode bank profits. How are the banks expected to rebuild their balance sheets?
Does Guido actually understand how investment banking works? Investment banks shouldn't need to rebuild their balance sheets because they don't provide the money themselves, they act as facilitators matching those with cash to those who want it and take fat fees for this job.

Now, it's true that in these times the traditional "investment bank as an agency" model is a rarity with most banks being a larger banking conglomerate. However, it should be still be noted that the purpose of the investment bank is to find capital to fund it's customers, if it is charging excessive fees in order to shore up it's parent bank's balance sheet that smacks of an absolutely massive conflict of interest.

From what we can read into Guido's post, it seems clear that he either does not understand what in investment banking is or he is not worried about this conflict of interest. If it's the latter then he's being little more than a political lobbyist demanding that that the banking gravy train continues unabashed.

Friday, October 23, 2009

Tories Translated

Mervyn King's speech has started off something of a spat the Gordon Brown and Alistair Darling. The whole "small banks" idea is subject for a more considered post, for now though I feel a translation of the Conservative position is in order:

Mr Osborne said Mr King's speech was "powerful and persuasive", although a future Conservative government would only break up banks into retail and "casino" operations in the unlikely event that all other major countries did the same.
What it should read is:

Mr Osborne liked Mr King's speech because he had a go at the government, although a future Conservative government has absolutely no intention of breaking up banks into retail and "casino" operations.
Hope that clears things up.

Thursday, October 22, 2009

In Support of the Postal Strike

I'd just to say briefly that I fully support the strike actions of the postal workers today and tomorrow for one very simple reason. I don't want to see a world where reasonable working conditionas, job security and a safe retirement are considered an unreasonable thing to ask for.

Monday, October 19, 2009

Err.. No Tim

Tim Worstall's getting on his high horse about the FSA’s Mortgage Market Review and it's call for the end of self-cert mortgages (or liar loans). It's quite amusing.
But to ban them? To say “no, you may not lend your money as you wish”?
I didn't think it was the bank's money myself, I thought it was our money but that's another argument. Why on earth are self cert mortgages a must, what on earth is wrong with regulating to insist on proof of income? If you can't prove your income, rent, it's what most people do if they find themselves unable to get a mortgage.

Self-cert mortgages are not a niche product, they're a very common one here's Stephanie Flanders:

Thus the FSA's decision to single out self-certified mortgages for abolition - and all other products which do not require proof of income. These accounted for a shocking 49% of mortgages in 2007, a large number from specialist lenders
And next from the report itself:

No other country that we assessed for comparative purposes featured a similarly significant NIV (non-income verified) market segment, with the exception of the USA and Ireland, both of which have experienced a boom in mortgage credit and house prices followed by a severe reduction in both
So, we have a pretty good indication that this was a common practice and that the end results were disasterous. It's not hard to see why either, financial innovations meant that lenders could move most of the risk off their balance sheets and on to another party. Lenders were no longer incentivised to examine the risk, the whole system was dysfunctional. It's not a move that's a tad silly, it's entirely sensible.

Saturday, October 17, 2009

A More Complete Hannan Critique

PragueTory has suggested that my initial critique of Dan Hannan lacked depth, so allow me to offer a more extensive argument against the "state intervention caused the crisis" idea.

Interest rates were left too low...
At the time interest rates were low, the Bank of England was in a serious bind. On one hand, British manufacturing was struggling and crying out for cheap credit, on the other hand we had a slowly growing housing bubble.
Assuming that the BoE did not exercise any kind of policy influence over the banks and that interest rates were set at a market rate decided by the banks themselves and that this rate would have been higher what we are likely to have seen is a lower housing boom but also higher unemployment due to the adverse effect of expensive credit on manufacturing.

The relationship between interest rates and credit is more complex than simply lower = more credit, higher = less. As an example, the European Central bank had consistently lower interest rates than the UK, yet we witnessed nothing like the same kind of housing boom in Germany or France. Whatever the causes of the current financial crisis, it would be very hard to put it down to simple matter of interest rates. Interest rates alone just don't explain the problem. Further to this it has to be asked if Hannan somehow managed to miss endless discussion on the role of credit derivatives in causing this crisis.

Every Action taken by the Government has been either ineffective or made things worse..
It's hard to know exactky what he is referring to here, but let's go through a few:
  • Guaranteeing deposits at Northern Rock - Stopped the run on Northern Rock, I'd say that's a plus
  • Nationalising Northern Rock & Bradford and Bingley - Both seem to be doing alright under national ownership no savers at either bank have lost anything
  • Recapitalising the banks - Has kept the supply of credit flowing and ensured that a number of businesses have agreed new finance deals
  • Quantitative easing - Has not caused runaway inflation, has lowered gilt yields and has kept credit flowing
It's hard to see what the hell Dan Hannan's on about.

Tax Havens = Countries with more Competetive Tax Rates
Let's take the example of the Caymans, by Dan Hannans view the Caymans should be attracting international investment by the bucketload and have many many highly competetive businesses. Why then, if this country supposedly attracts so much foreign investment is the major industry of the islands tourism? Why are the country's exports worth only 0.12% of GDP if so many foreign firms want to invest here? Hannans argument here is bull.

Reform? Aren't things bad enough already
Is the man so blinkered by ideology that he can't see the need for changes to the way we regulate finance? The buildup to the crisis is marked by several clear steps where certain regulatory changes were made that allowed certain financial activities to take place. The need for reform is obvious.

Thursday, October 15, 2009

This Man is Insane

This is one of the most ignorant, ill informed speeches on the financial crisis I've ever heard. Why on earth do the Tories worship this man?

Tuesday, October 13, 2009

On the Nobel Prize for Economics

The Nobel Prize for economics is an interesting one, in a lot of cases it's been given to people who have got things very very wrong, such as the chaps who went on to form Long Term Capital management (which was a disaster). It's no wonder that there are some who would like to see the back of this particular prize.

This year though, I'm really pleased about the choices of Elinor Ostrom and Oliver Williamson. As far as Williamson goes, I'll admit to not actually read any of his work but he's often been cited in a good number of the economics books I've read so I know a little about his work. Ostrom on the other hand is a bit of a mystery to me although I find this post by Paul Romer quite reassuring. Also interesting is the opinion of Stephen Dubner at Freakonomics, who points out that Ostrom is a political scientist rather than an economist by trade and suggests that this might ruffle a few feathers.

What I like about both winners is that both have an institutional view of economics (indeed Oliver Williamson coined the term New Institutional Economics). This view takes a far closer look at the structures and institutions within our political economy and what behaviors they encourage through the various incentives they provide (including, but not limited to the market). Williamson puts it well here:

the problem of economic organization is properly posed not as markets or hierarchies but rather as markets and hierarchies.
There are several things that appeal to me about this economic viewpoint, though it doesn't reject the market entirely it rejects the primacy of the market. It realises both the limits and the benefits of the mechanisms of the market and accepts the need for governing structures where the market is not up to the job. Finally, it's a viewpoint that seems to understand the importance of politics, the need for political representation and the importantance of democracy in shaping our political economy.

Sunday, October 11, 2009

I'd just like to say..

That David Blanchflower is very very right.

And the multitude of ignorant Tory trolls posting below the article are very very wrong.

Saturday, October 10, 2009

Being "Honest" on Debt

I indulged in what could be called a mini rant the other night when one of my friends suggested that the "Tories may be evil, bit at least they're being honest about debt"

What set me off about this comment was that it was exactly what the Tories wanted people to think. The Tories have been talking up the issue of national debt, they have also frequently accused Britain of having the largest budget deficit going into the recession in full knowledge of the fact that many people don't know the difference between the words "deficit" and "debt".

The Tories rhetoric on debt ignores the point that in fact Britains national debt was the second lowest in the developed world going into the crisis, it further ignores the point that gilt yields are at record lows. Further to this it ignores a lot of the complex issues surrounding debt. When talking about the national debt it's worth considering several other important factors. As well as the national debt, you need to consider consumer debt and business debt, you also need to consider the value of assets.

The point of all this is that when the government spends money that money has to go somewhere. Every pound of government debt will go on a journey through the economy until it either A) goes abroad or B) ends up in someones savings*. The result of all this is that while the government picks up more debt, businesses and consumers will actually find themselves in a better position. We can already see this happening in the form of higher UK household savings.

The Tories simplistic posturing on debt ignores the many complex issues surrounding government debt and debt more generally. They are not being honest at all, they have misleadingly raised concerns over government debt and acted as if this is the central challenge facing our economy, this just isn't true.

Monday, October 05, 2009

Tax Cuts in the Interests of Tax Lawyers

I see George Osborne is offering new tax cut for new businesses started in the first two years of Tory government, these businesses will pay no employers national insurance for the first 10 employees.

If (and it's still an if folks) we do get a Tory government I see a raft of new businesses being started for the sole purpose claiming this little tax cut. This tax cut looks like it could be gamed to high heaven and I can almost see the tax lawyers rubbing their hands at the juicy fees they'll be claiming for advising on the creation of these new "tax efficiency" structures.

Sunday, October 04, 2009

In Support of Tim Ireland

In the last few days, I've been at the Labour Party conference and just have not found the time to blog at all. I'd like to write something about my conference experiences at some point, however, I'd like to kick things back off with a defense of Tim Ireland at Bloggerheads. I'll be backing it up to a letter to Charles Clarke (my MP).

So, first the background. A while back a few post appeared on the online internet community ummah.com of a suspicous nature, they looked as if they were intented to stir up trouble and to goad some of the contributors into expressing extremist viewpoints. Tim documents it here, but long story short, none of the contributors took the bait. However, a nasty story about the message board did make it into a story in the Sun about British Jews who were the target of Muslim Extremism.

At this point, let me just introduce Tony Woodley to just show precisely what I think of The Sun more generally:

The story was fabricated, the web postings that fueled this stories were made by Glen Jenvey, who was also responsible for passing the story to the Sun. The story was a complete fabrication. Further to this the individuals behind this were part of a network who had for a long time been feeding stories to the press of dubious quality (more here). This network also had an involvement with Patick Mercer MP (the former Conservative Shadow Homeland Security minister). All of this is exposed here in this story.

It was Tim's detailed investigative work and blogging that brought this story to light, and it's damn good that he did. He exposed that a major british newspaper and a leading politician were being led astray by these people. The idea that group of fabricators can get themselves into a postition where they could influence government policy is truly shocking.

Anyway, as a result of all this has taken a lot of flak, his repeated questioning has had him labelled a "stalker" (NOTE: People who repeatedly ask awkward questions about a person's use of political influence are called "Journalists"). He's also been the victim of some vicious internet rumours, taken a lot of abuse and even had people posting his home address online.

Now, it's hard to deal with the unkown rumour mongers, Patrick Mercer MP however is a different matter and can be held to account for his conduct in this matter so I'd like to finish off by adding my support for Tim and suggesting that people join in Tim's campaign on this subject.

Friday, October 02, 2009

Telling the Truth is not a Smear

This post from Iain Dale really brought on the red mist for me. What David Milliband said was not a smear, it was the truth. The Conservatives have joined a coalition of parties in europe that includes the Latvian "Fatherland and Freedom" party does hold an annual march parade for veterans of the Latvian SS and while it may be true that those marching did not participate in the atrocities,their membership of it should be a badge of shame, not a cause for celebration.

A political coalition is about shared values, there may be some disagreements over minor issues, but this is not one of those. Eric Pickles may have fought antisemetism in the past, but right now his party believes it shares common values with a party that celebrates one of the worst crimes in human history. Saying this is not a smear, it is simply stating a pure, simple fact.