29 September, 2007

John Bercow

Now here's a strange story. Mr Bercow is a short, noisy, self-important man who was for quite some time a firebrand of the right. Then he met a girl, of leftish tendencies, got married and went wet. In fact he went very wet indeed, with the speed and totality of a Pauline conversion.

Soon Bercow's name became whispered as a possible defector to New Labour and he accepts a job from Gordon Brown. Speculation reaches fever pitch as Labour insiders whisper there will be a further couple of defections during the conference season.

Then we learn from Conservative Home that he has been readopted by his constituency.

So, the good Conservatives of Buckingham have decided that a man with will-o'-the-wisp political views, who has accepted a job from the Labour Party (showing him to be either dishonest or incredibly naive) is the best person to represent them.

It defies belief. Really, I sometimes think these people are determined not to form a government.

28 September, 2007

General Election

I think Gordon Brown would be mad not to call an election. Things can only get worse for him:

  • the UK is in no position to meet a recession with borrowing so high;
  • at the moment, due to clever spin, the people think the Northern Rock debacle was the Bank of England's fault
  • house prices may go down next year
  • the only way to cover over the European Constitutional mess is to put it in the small print of the manifesto that he'll sign it only if his (unspecified or vague) reservations are met.
  • No one has a clue what Cameron is about
  • A short election campaign means the Tories' financial advantage is reduced (there are laws about how much you can spend during the campaign)

However there is the nature of the man. On the surface he is a big noisy bully but underneath that a nail-biting ditherer. I wonder if he'll chicken out and go for 2010 when it all just might have blown over?

27 September, 2007


Today an outraged Mr Mastella claims that people are trying to destroy him. For going to a football match! Bliss! Or rather Bless!

No, Clemente, they are trying to destroy you for taking a huge airbus to see a football match and charging it to the taxpayer.

Apparently he once came to a dinner in our village here in Umbria, in an 8-car motorcade, bigger than that President Bush uses.

26 September, 2007

The B-side and the F-word

It will surprise few people who know and love Italy that the most important news item at the moment (other than the football, obviously) is the Lato-B controversy. Literally the 'B-side' it is a matter of whether the contestants in the Miss Italia contest should have to turn round and show their bottoms while dressed in swimsuits. On the one side, if I can put it that way, this is as close as Italy gets to feminism, whereas on the other a well known photographer and judge in the competition has issued a separate title to the young lady with the best bottom, the prize being a modelling contract for some jeans (if I can find out the details of this I shall make the information available to those who want it). The poor winner, Silvia Battisti from Verona, did not win the best bottom section and to make matters worse many people are saying she is too thin and that the third placed contestant, Ilaria Capponi from Salsamaggiore, Lazio should have won. Many of the people complaining are of course from Lazio. It seems only a matter of time before the matter is discussed in the gravest terms in parliament. I thought Miss Umbria was nice.

So it is all the more surprising that the second most important news item (sorry, third) is to do with politics and the constitution. A well known comedian, Beppe Grillo, has started to rail against the political class, its cost, its corruption and its self-perpetuating nature. Recently it has been observed that Italy's parliament costs as much as Britain, France and Spain's combined, and the presidential Airbus was seen to go south from Rome to Campania to pick up one Clemente Mastella the justice minister and his son, then head north to Milan for a football match. They were on a massive junket at the taxpayers' expense. Italian MPs get free entry into football matches and to the cinema, and recently one was heard proposing that they should get free ice cream, because the heat was making it difficult for him to think.

So Grillo's proposals, from his movement which is roughly called the F-word (it is V in Italian) are these: that nobody who has had a criminal conviction should be an MP (currently around 10% of Italian MPs have been convicted of a serious crime), and that people should vote directly for their MP rather than him being appointed on the party list system. Not so radical, you might think. But this is revolution by Italian standards. Grillo is very popular, although ironically he is of the left and his movement is highly damaging to Prodi's left-leaning coalition.

It seems likely, although on the face of it hard to believe, that Berlusconi will start campaigning on an honesty ticket. Watch this space, this one will run.

25 September, 2007

La Vendemmia

Well, the vendemmia is done. It's backbreaking work (not for me of course, I get to drive the tractor) and it took me a day to recover (from the lunch afterwards). We managed to overcome the breakdown of the crusher, and, for once, to avoid any major flooding in the cantina, and have a shade more than 500 litres in the tank, which will, in a week or so, be technically wine, but will not be drinkable for many months. This is on the low side of our production expectations, there having been almost no rain this year, but the quality is excellent.

The guys who help are marvellous - for some of them this is their sixth year - and they do it all for a pleasant day out in the Umbrian sunshine and a boozy lunch. Having avoided the agricultural wages problem, I have this example to pass on about avoiding inspectors, export licences and tax: we drink it all here (and give it away, of course).

I am still learning about winemaking (and about grape growing) and so there is a fair bit of finger crossing going on at this time. In 2003 and 2005 the wine caught a disease (possibly my fault) and we lost everything. But all being well we should have about 60 cases of pleasing red wine for ourselves and our guests.

I've tried sailing, golf, cricket and map collecting to name but a few hobbies but I can honestly say this is the best.

24 September, 2007

EU Referendum

The Sun today invites its readers to subscribe to a petition for a referendum on the constitutional treaty. Now, the Sun prides itself on backing the right political horses ('It's the Sun wot won it!') and Gordon Brown is at the moment the fancied political horse.

So I think it unlikely that this petition would have emerged without consultation with people 'close' to Gordon. Which means Gordon has decided to call a referendum. But when? On the same ballot paper as the General Election? Surely not?

21 September, 2007

More soon

As we all look aghast at the Government's attempts to foist blame for the crisis on the Bank of England, and Gordon Brown ponders an early election, it is time for me to pick my grapes.

More when it's over

18 September, 2007

Northern Rock

It would seem that Alastair Darling's first problem as Chancellor has been flunked badly. Meanwhile Brown has gone down to periscope depth, even though nobody really imagines he allows Darling to think for himself.

The response to the crisis by Bank of England Governor Mervyn King was right from the outset. The government will provide enough money for the money markets to operate, and will act as lender of last resort, at moderately penal rates, to those banks who find themselves short.

Just think about it: this is no more than common sense. If I had started a bank on completely fictitious grounds, I should not now be claiming that it was a market phenomenon which had brought a run on it. It is the job of a banker to be cautious against the onset of bad times. Failure to do so is nothing more than bad banking and banking with bad bankers is stupidity and the taxpayer should not bale out the bad or the stupid.

What people haven't paid enough attention to is Northern Rock itself. It is a Labour bank, inasmuch as such a creature might be supposed to exist. At the time of the miners' strike in 1984 NR declared that it would maintain the miners' mortgages, ie subsidise their political views. You will find NR giving money to a number of charities equally espoused by the Labour Party; it is a bank of the Labour heartlands in the North, its customer base Labour election fodder.

There was no need for Alastair Darling's guarantee announcement and it is about time someone questioned why he made it. I hope it's not necessary but can we imagine the same thing happening to Cheltenham and Gloucester?

15 September, 2007


Poor Pakistan. Ayub Khan, Yahir Khan, Zia Ul-Haq, Pervez Musharraf - it has had more than its fair share of military leaders over the years. There are hints now that things may change, but it seems as likely as not that the country will be let down again.

The military - civilian pendulum seems to keep time with the alternation of authoritarianism and corruption, Islam providing a backdrop of varying intensity.

Zulfikar Ali Bhutto took the country into civilian rule but was as autocratic as any dictator. I remember him being questioned in an interview about the particularly bloody put down of some civilian unrest and his reply - along the lines of 'you've got to be tough, it's the only language these people understand' - would have got a colonial administrator transferred back home. Bhutto was wealthy, Shia, corrupt, socialist and murderous. When the military under Zia ul-Haq took over he was imprisoned and hanged for the murder of a political opponent. After Zia was recalled by his maker (mysterious plane crash) the government alternated unstably from Bhutto's daughter Benazir to Nawaz Sharif. Both have been charged with corruption and sent into exile. They are now returning - Nawaz returned and was sent back the other day, Benazir has announced her return today - and one can't help feeling Pakistan deserves better.

I knew Benazir a bit at Oxford in the 1970s (her father had also been an Oxford man). There were persistent rumours then about her voracious sexual appetite, and a Malaysian journalist once told me he had reliable reports (!) that her cries of pleasure could be heard at some distance. I could only reply that my college was half a mile from hers and I heard little or nothing.

My memories of Benazir are of a young woman self-obsessed almost to the point of insanity. You could see a little of the Hitler, a little of the Nasser. Others, I know, felt differently, but if there was also a little of the Ghandi she managed to keep it well in check. I should personally regard her as a most unsuitable leader for a country in such turmoil and of such strategic importance. The corruption questions remain but presumably will be forgotten.

It is said that Benazir has done a deal with Musharraf, and it is said that Musharraf will drop her if he doesn't need her, and it is said that the West would rather have Musharraf with Benazir as a puppet prime minister. Who knows? As I said, Pakistan deserves better. What about Imran Khan? At least he could bowl.

14 September, 2007

Northern Rock

To begin, Northern Rock is not bust, or going bust, and The Guardian's comment this morning 'Crisis of confidence could engulf banking sector' is, in my opinion, the sort of cheap sensationalist rubbish that this self-righteous newspaper often criticises in the tabloids.

Northern Rock was a building society, and I suppose most people, including its customers, think of it in that way. People keep their savings in it and it lends these out to people who want to buy homes. However in the late '90s Northern Rock decided to become a Mortgage Bank - the difference being that it would get its money from all over the place, in whatever way was cheapest and most suitable. At the time financial instruments, swaps and derivatives and so on, were becoming more and more prevalent and this seemed more attractive. Nowadays only a quarter of its mortgage lending is financed by customer deposits.

And even from the security point of view this was not such a bad idea. You can withdraw your savings from a building society any time you like, but it is committed to someone else's mortgage it has lent your savings to for the full 25 year term. This is the traditional banker's problem of borrowing short and lending long and for example some longer term funding in NR's balance sheet might well make it better.

Now NR didn't traditionally have the most prestigious client book but it doesn't appear to have been dabbling in 'sub-prime' in America or even here. What has happened is that it has run into a hiccough over its usual everyday funding and the credit squeeze caused by the sub-prime business has led to its having to go to the Bank of England as lender of last resort.

Note that the Bank of England doesn't find NR's management guilt-free and so it has charged its penal rate. NR has been stretching the limits a bit with buy-to-let mortgages and overly high loan to value ratios. Again applause from this blog to Mervyn King the Governor for not just underwriting incompetence by bailing everyone out cheaply but fulfilling its function of keeping the credit markets alive.

A part of the problem - and where the banks are guilty - is that they don't know how to account for some of these instruments - or to put it another way they don't know what level of risk they are running. If at the end of this affair there is an inquest, that is where it needs to be directed.

12 September, 2007

green Politics

The trouble with David Cameron is that sometimes you feel he needs to be given a break and sometimes, as just now, you feel he should be given a kick in the pants. The stupidity, having recently made a couple of decent speeches, of suggesting that people be charged for parking their cars at supermarkets and that the little red standby light be banned really makes you wonder. To add to this someone didn't monitor the posts to WebCameron and a flood of comments was published, bearing the full force of the public ridicule.

The truth is that there isn't much public support in green politics - particularly this brand where we are all somehow guilty or, as Jeremy Hardy neatly put it, 'telling us to use both sides of the toilet paper'. The importance, at the beginning of his time as leader, in going green was one of flavour, of general perception, enabling him to say something that wasn't about the usual Tory bugbears of immigration, tax, law & order, and dragging away some support from the Lib Dems.

Now he needs to attack the government's record and make solid new proposals on the things that matter. He could do no better than to read the Sun: this morning's leaders 'The Sun Says' are about the little girl who was savaged by a pit bull and her awful family, the victory of the Metric Martyrs 'This was not a pointless battle' and the NHS 'As Chancellor, Gordon Brown vowed not a penny would be spent without reform. Cash was spent anyway. Now he is PM and we want the reforms he promised. Without asking taxpayers for an extra cent until they are delivered.'

The Sun knows what its readers want to hear and David Cameron needs the Sun's support.

11 September, 2007

How it started

A couple of people have asked me what this sub-prime stuff is, so here goes.

Most people pay their debts. In fact the vast majority do, and those credit card companies which offer you a card even if you've got judgments against you make good money.

There was a lot of money washing around the American banking system, following the US government's having loosened monetary policy after 9/11 (in case there was a run on the banks) and not tightened it again, and the banks decided to lend money to sub-prime borrowers (a euphemism - everyone is sub-prime, it means dodgy) ie lower their credit standards, knowing that most people pay their debts.

Here's the good bit. The banks are regulated as to how much they can lend without raising more capital, but they wanted to do more of this stuff (egged on by the mortgage brokers who, not taking any risk themselves love it), so they sold the loans they had already done, trousering the fees, natch. That is to say they put Fred Bloggs' mortgage and Jack Sprat's mortgage into a company (the asset of the company is the right to receive interest and repayment from Fred and Jack) with thousands of others and sold the company. OK so far. Most people were paying their debts so the default rate was low and the company worth not much less than the total of the mortgages. There are thousands of these companies with billions of $ of loans in them.

The people who buy the company borrow money to do it. The debt they issue (ie their IOUs) is rated highly by the credit ratings companies because the original loans had collateral in Fred and Jack's houses (these IOUs are called collateralised debt obligations or CDOs, meaning not actually with collateral but with the flavour of collateral) and these CDOs are floating round the market attached to all kinds of other clever financial products. That is to say they are owned by people far removed from the mortgage business.

The rest of the saying is this: Most people pay their debts if they can afford to. Interest rates shot up in the US and the first people who couldn't pay were the sub-primes, obviously. And their houses, the collateral, weren't worth much now, obviously. But the people who lent them the money have sold it off so they won't lose. These rickety instruments are in small German savings banks, London charities, your pension. So whilst the ratings agencies say that only 1% of the stuff they rated has turned out to be Triple-Z rather than Triple-A, the effects are multiplied by leverage (people borrowing money to buy more and more and using the CDOs as collateral) and some new products no-one really knows how to account for, and we are all in shtook.

The borrowers aren't to blame, nor the lenders, really. Greenspan, the ratings agencies, the lack of supervision. It's a mess. We'll get out of it but there will be some tears on the way.


With the scent of crisis the Gold Bugs are emerging from the woodwork once again. They've had a couple of false starts in the last few years, when it was finally going to be the turn of gold to soar above everything else, but their expectations are usually dashed.

It was General Jaruzelski who put me off gold as a place to go in a crisis. When he declared Martial Law in Poland in the winter of 1981, the gold price had been rising steadily for four years, on concern about the Middle East, and the economic policies of the west. So here on top of all that you have the growing threat of a populist movement in one of the biggest Warsaw Pact countries, the name Lech Walesa being heard on everyone's lips, concern about whether the Soviet Union would allow any kind of rebellion and give the general a hand with a few tanks and what does gold do? By January 1983 it had halved. The dollar was the new safe haven and in my opinion the only thing that will change is that the euro and the yen will increasingly become safe havens too. A flight to quality means investing in government bonds not in hedge funds. Remember gold doesn't pay interest.

There will be some upside in gold because it is being used as a short term hedge against the dollar falling, but these positions will unwind. Expect it to go up $50-100 then fall back again.

09 September, 2007


Aaaah! It's part a sigh of relief that it's unchanged, part that it still feels welcoming. Of course it's unchanged - as you come in on the train you pass the city walls built by Marcus Aurelius, and as regards welcoming, well, there are Romans and there are tourists and whilst the two categories bump into each other on the cobbled streets of the centre they are not really together - it is rather a voluntary apartheid, each group living its own separate existence. It's easy to spot the difference - the Romans are well dressed and make an effort to look attractive.

I suppose I am somewhere between the two - low marks for looking attractive - but, particularly since I got my residency and announced Civis Romanus Sum to everyone (albeit in happier circumstances than St Paul) I have felt myself an undeserving part of it.

I hadn't much time and I walked through the piazza Navona - you can see Bernini's fountain without asking, without paying! - there weren't many people and the cobbled streets at the back were empty except for my favorite accordion player - the worst in Rome I believe, against some pretty stiff competition - who stopped his appalling rendition of the theme to the Godfather to play an even worse La Vie en Rose, thinking I liked it (I had once suggested it because he had played the Godfather over and over for an hour and I couldn't write: it was all I could think of to alternate so I found myself walzing under the Arco della Pace going DA - da da da da di DA...., sober, incredibly).

At the butcher I bought a capon which I stuffed with marjoram and roasted in the French style with a little white wine in the pan. The woman at the vegetable stall berated me for having not been there for a while and said she supposed I would want her minestrone mix. I bought far too much, and some turnip tops just sprouting, and some peaches and some garlic. She said I couldn't possibly have the minestrone without a handful of basil in it (she was right) and gave me some.

I just looked in at the church to make sure the two Raphaels were still there. They were (in a corner to make sure nobody noticed).

Lunch was in a bar near the station, bruschette with mushrooms, olives, tuna and tomato; lasagne with pesto; half a litre of wine, water and coffee, a fraction over ten quid. The train was on time and clean and cheap and I gave a euro to a crippled girl at the station whose smile warmed my journey back.


What exactly is a lurch to the right?

In fact it's hard even to know what the 'right' is these days. Some of the worst political screaming matches I've had have been with the late Michael Vestey (of the BBC's World Tonight, World at One etc and late radio critic of the Spectator). The odd thing is that we each described ourself as right wing but he was horrified by my anti-statist views such as privatising the health service, and libertarian ones such as repealing the law which makes us wear seat belts, just as I was horrified by his views on gays, law and order, Iraq etc. The Conservative Party (to which I haven't belonged for years, let me be clear) is a coalition between the Authoritarian Right and the Libertarian Right.

I don't hold much of a brief for Cameron but give the guy a break: he has to run a broad church, just as Blair/ Brown had to.


It was in 1999 that Dominique Strauss-Kahn had to resign his ministerial office over the ELF and MNEF corruption scandals. He was acquitted in 2001 and in some ways this has taken attention away from his appalling record of incompetence. He is the worst sort of statist lefty, espousing the sort of economics and politics we thought we had seen the back of in the 70s. The idea that he might be put in charge of anything bigger than a medium-sized branch of Monoprix fills me with dread, but of course President Sarkozy, with classic insouciance to the interests of anyone but the European Political Class, (a theme to which I shall revert) wants him as Managing Director of the IMF.

Great article in The Business by Matthew Lynn supporting the Russian choice, the Czech Josef Tosovsky. In fact Toss-offski seems very well qualified for the job, but anything would be better than DSK, whom Lynn realistically compares to Austin Powers.


The case for a referendum on the constitutional treaty is made strongly in most of the papers, and the occasional Brown inner-circle figure is suggesting that the government might hold one. At first sight this seems obvious: Brown can't claim he is offering a new-style listening politics when there are so many clamouring voices he is blocking his ear to. And he isn't really very interested in Europe. Why not just say he has discovered some bits in the small print and is persuaded after all that a referendum is necessary? With a bit of dressing up it would look fine.

His problem is: what then? The referendum will reject the treaty (massively, if the government doesn't back it wholeheartedly) and then he has to start up the negotiations again about what to put in its place, at least a year, if not two, of blethering and posturing, time that he wants for purposes he regards as more important. And in the end he has got to hang his hat on something.

My guess, though, is that we'll get our referendum or at the very least a free vote in parliament and Brown will become a reluctant eurosceptic.

Fallout (3)

The people who don't look as if they will suffer are the ones who have caused it: the banks. Yeah, there'll be a few bonuses cut, but the Fed and the ECB seem determined to pump money in, to prop up the weak.

Only the Bank of England seems to have understood this, initially lending to ayone who wanted it but at penal rates, and only now pumping in a modest amount, £4bn.

Liam Halligan gets it right in the Torygraph: 'If King (Bank of England Governor) grants a bail-out, he worries - rightly - about storing up future problems. If investors know central bankers will rescue them, they'll make ever more reckless investments with other people's cash.'

Banks that have screwed up must be allowed to go to the wall, or we'll get the same thing all over again. If we can get through this without anything major failing, and, say, a few hundred small financial institutions going bust in the US, it will be the best thing that could have happened to the over-exuberant US and world economies.

The Fallout (2)

Quite a lot of people are saying the UK housing market is surviving the crisis well, but closer inspection reveals most of these commentators have some interest in it remaining firm. Personally I have never been one of the doom merchants for UK property, and thought it would survive the increases in interest rates and the HIPS nonsense. What it can't survive is the banks running out of money to lend.

We must bear in mind that many banks seem unable to define their exposure to dodgy investment vehicles so it will be a while before we know who is in difficulty. There are reports already of banks tightening up on personal lending.

So the next victim of the fallout is us. I think the market will lose its fluidity, and there may be falls later in the year / early next year as people lose confidence.

We don't know everything yet but to me the housing market looks as if it will be stagnant for three years.

08 September, 2007

Crisis? The fallout

My forecast is that there will be fallout from the subprime fiasco but that it will not be appalling, at least outside the USA, and not necessarily what people think.

Some years ago when working in the City someone sent me a hand-written letter seeking funds to start up, if I remember rightly, a crocodile farm in Kent. Perhaps not wanting to appear blusteringly over-confident he wrote 'As to whether I can repay the money, time alone will tell'. He didn't get his loan - at least not from me - but I thought of him when all this started. The old banker's maxim is 'Never lend money to people who aren't going to repay it' and this, of all things, appears to have been forgotten.

Years ago the banks subcontracted their risk assessment to ratings agencies who regarded the mortgage business as a percentage game: each package of debt contained hundreds, thousands of debtors and most people, most of the time, pay their debts. What they didn't seek to establish is why these people were getting mortgages in the first place: it was the result of the Fed keeping interest rates too low, too long, an unnatural credit binge which was bound to go at least slightly wrong, but they didn't spot it.

So the first casualties should be the ratings agencies which classified this rubbish as AAA. No-one is going to have much confidence in them for a bit, and regulators all over the world are going to look closely about how competent they are and how seriously they are taken. And there are skeletons in this closet. More fallout soon.

This is my first post and as I write $/£ is 2.04; $/€ 1.37 and Brent crude around $75. Expect the dollar to weaken even further in the run-up to Christmas on the back of further bad news and the ECB's inability to lower rates, but losing more against the € than the £. My guess is oil will come off $3 - $5.

More about currencies soon.