31 October, 2008

Italy: Alitalia, the end?

It is quite incredible that after all this time with Alitalia on the brink (it seems to me it was bust in July, if not earlier), we are now told that today is the last day. If everything isn't agreed by tonight, Alitalia will cease to be.

I am reminded of some ham actor going through a death scene and milking it for 5 minutes on stage.

Wouldn't it be easier just to let the thing drop and have people who knew how to run airlines do the flying in and out of Italy?

I bet some agreement is reached, though, rendering the company's long term viability even less likely.

EU: The waste of Strasbourg

It costs us 200 million euros a year to transfer the European Parliament from Brussels to Strasbourg and back to Brussels. There is a campaign to stop this but the Parliament will not permit a debate and is blocking publicity to MEPs on the grounds that it is 'controversial'.

You can now vote in a petition against this monstrous waste of public money at www.oneseat.eu

One and a quarter million people have already signed.

UK: Team UK at last?

It is reported that Kate Hoey, the former Sports Minister, has declared that the term 'Team GB' excludes a substantial part of the UK and should be changed to Team UK.

I have posted a couple of times on this and am pleased to have some support. Given that Ms Hoey is from Belfast it is surprising she hasn't latched on to it earlier.

But we are here to help.

30 October, 2008

EU: now a bank?

With all this money slooshing round the world, and an IMF bailout of Hungary, it would be easy to miss the news that the EU has lent the country €6.5bn. This has been done under a little known clause in the governing treaty.

I am disturbed about this. Note that it was not the European Central Bank which made the loan. It, under its charter, is not allowed to do so. So the bank declined but the bureaucrats decided to go in: which department? What sort of analysis was done and by whom? They say they will issue bonds to cover this but who is on the hook for it (guess)? Did the various governments in the council of ministers approve it? What conditions, political and economic, apply?

We should find out what we can. This may be a disturbing new development (you can bet your boots that quite a few of the others will be after the moolah when they get to hear about it). It means the EC has got its fingers round another throat, at our expense.

Italy: The Ape

The Ape (pron. ah-pay, and meaning 'bee') is 60 years old.

If the Vespa got Italians moving after the war, the Ape got agriculture moving. Essentially the front part of a vespa (which means wasp, incidentally) with the engine over a single front wheel and handlebar steering, it could carry a heavy load of wood or produce for the market.

They are still going today, as everyone who has done a car tour of Italy will testify, whining like an angry bee (hence the name) they are incapable of more than 30 mph and can hold up traffic for miles behind.

The Ape does not require a car licence so those who have lost their licence, eg through failing the eyesight test, drive an Ape. Bless'em.

29 October, 2008

Brand and Ross

Some people, including the normally intelligent Ian Dale, are saying that since the programme was recorded the blame should go to the editor or senior official who approved it for release.

Certainly. But that does not excuse Brand and Ross. Irrespective of whether the programme was released for broadcast, they had left offensive and obscene messages on the answerphone of an innocent 78 year old, using BBC time and BBC equipment. No, they have to go, both of them.

Incidentally, it is said that Jonathan Ross' contract is for £18m, which seems fairly, um, chunky, at a time when the media are braying at bankers who earn considerably less. Does anyone know how this figure was arrived at? Was another station offering him seventeen and a half and the BBC thought 'oooh! we've got to have him'?

Out, both of them. The editor too. Otherwise we'll get the impression that the people running the BBC condone this sort of thing, and I'm afraid that would be the end of the licence fee and the BBC with it, which would be a tragedy.

28 October, 2008

BBC: complaints please

If, like me, you are disgusted that two highly paid BBC presenters make offensive 'phone calls on air to a septuagenarian, complain. Their website www.bbc.co.uk contains at the bottom a 'make a complaint' button. Ignore the fact that they try to excuse themselves in advance, and write out your views. I believe Russell Brand and Jonathan Ross should be sacked. If it were commercial radio it would be a different matter (although making offensive 'phone calls is of course an offence) but this is the BBC, using your licence fee. If we don't complain it will get worse.

Crisis: The Blame Game

We’re in for a bad time next year, although in my view we shall be seeing the bottom at the end of 2009. Unsurprisingly the world echoes with demands for the head of whoever caused it all. Here is your cut out and keep guide to the blame game.

First some private individuals.

Hyman Minsky. For not making himself understood. Minsky, who died in 1996, researched the behaviour of markets in a boom; he identified a ‘speculative euphoria’ in the late part of the cycle, where people borrow to invest, not believing it can go wrong. The weight of debt and low asset quality eventually cause a downturn. This is called a Minsky Moment.

Alan Greenspan. One of the media’s favourites for the stocks. He was head of the Federal Reserve for nearly 20 years and was responsible for the low interest rates America enjoyed in the Bush-Clinton-Bush years. He thought that globalisation and the internet had pushed up America’s growth and there was no need to raise interest rates to hold the economy back (although he did warn of ‘irrational exuberance’). There was little inflation in the sense of stuff you have to buy going up in price, the question remaining being ‘is a house stuff you have to buy?’

Bill Clinton. The Community Reinvestment Act., passed in 1977 to encourage lenders to lend to poorer people, was revamped by Clinton’s liberals allotting targets for different institutions, compelling them to lend to people who couldn’t afford to pay back. The targets set were over 40% of new loans to be to sub-prime borrowers. That is to say something like a half of new loans had to be to people who probably shouldn't have had them. If this is what regulators can do, perhaps it’s a crisis of over-regulation?

Gordon Brown. One of the first things Brown did on becoming Chancellor (apart from making the Bank of England ‘independent’ of which more later) was to reorganise the banking regulation system. This had been carried out by the Bank of England (the famous raising of the Governor’s eyebrow being enough to put banks back on the straight and narrow). Brown set up a tripartite system with the Bank of England, the Treasury and the Financial Services Authority, which meant that when the Northern Rock debacle happened nobody knew who was in charge.

In his frantic efforts to transform the UK into a welfare society Brown borrowed heavily in the good times and now, when room to borrow is desperately needed, he risks a run on the currency, with interest rates higher than they need be, deepening the recession.

The Monetary Policy Committee of course only have control over monetary policy - interest rates. Brown has control over fiscal policy (government spending) and the more it goes up the higher interest rates need to be. An ‘independent’ Bank of England would have told him to stop spending so much.

Milton Friedman. The arch-monetarist is being blamed and people are freely mentioning the term Keynesianism as our future. Had he lived he would have given as good as he got. He exposed Keynes for the fraud the old boy was and would have criticised Greenspan and the over regulation of the markets.

Other blame candidates:

Bankers’ pay. The first thing to remember is that it is entirely the business of the shareholders (ie owners) of the banks how their employees are remunerated. Some have said that the banks were paying more and more to employees to shovel more rubbish into their portfolio, but these guys (very well paid indeed, some of them) were doing what the management ordered. They were told to shovel more rubbish into the portfolio. Certainly some more long-term approach to remunerating senior management might have been wiser, but in the banks’ defence it is a bonus- based system and when times are bad, as they are now, employees can lose two thirds of their expected earnings. It looks bad in retrospect but these people are not the cause of the recession.

Regulators. People are saying that the regulators were unable to understand some of the instruments they were dealing with. Some say they had too light a touch. But I find myself unsatisfied with this approach. For many years – certainly back to the 70s, banks had leveraged themselves twenty times. That is to say they had bought assets worth 20 times their capital, or to put it more realistically, 95% of their assets were funded by debt so only 5% could go wrong without the bank becoming insolvent. Some banks in the last few years leveraged up to 30 times but that is not completely unreal. And if the regulators had asked they would have pointed to the quality of the assets, which was thought to be high.

Ratings Agencies. The main ones are Standard & Poors, Moody’s and Fitch. Until the latter part of the last century most analysis by banks was done in-house. The ratings agencies were mainly for the private investor: typically AAA was the best rating, to solvent governments and first class banks, whilst BB+ was the lowest that could be regarded a investment grade. Naturally the lower the rating the more interest was charged. As turnover in financial instruments increased and more borrowers gained access to the capital markets increasingly the banks outsourced their own analysis to the ratings agencies. It is important to remember that until the liquidity crisis became front-page news, most of these special investment vehicles, companies set up with a mix of assets in order to achieve a specific rating, were AAA.

The ratings agencies now admit to mistakes in their modelling, and most crucially it must be remembered that they were paid not by the investor but by the banks who had created the investment vehicle. Lest all the business went to the other two, a ratings agency was more or less obliged to lower its standards.

So, take your pick. For me I blame Greenspan for overly lax monetary policy, Brown for screwing up the regulatory system and for making things worse for Britain than they might have been through rash overborrowing. I rather absolve the regulators, except for the ridiculous Community Reinvestment Act. I don’t believe we could have expected the regulators to make an accurate critique of the ratings agencies’ analysis models.

But I do blame the ratings agencies, who have made a huge mess. The question is: will anyone trust them again? And the answer is: yes. We will get out of this crisis and some day we will find ourselves in another, just as bad. I am with Minsky: these crises are simply part of the system.

26 October, 2008

Daylight Saving Lies

Once again millions of people are put to the inconvenience of having to change their clocks.

It must be one of the most egregious examples of the nanny state that not only do they want to tell you how to think and how to behave, they also want to tell you what bloody time it is.

It is not beyond the meanest intelligence to work out that if you don't want your children walking home in the dark (as if any did walk home any more) you should organise with the school that they start earlier and finish earlier. Instead we are given lies about how many lives are saved by the State knowing best.

Despite it being called the Daylight Saving Measure there is exactly the same amount of daylight as there would have been without it.

The Libertarian Society promise to abolish this nonsense which is a good reason to vote for them.

EU: more Mandelson

In case you haven't seen it, the News of the World has a story to the effect that Mandy is being investigated for overly close links to a lobbying firm, BusinessEurope, the accusation being that they 'helped' him write laws.

As said before, he's nothing but trouble.

Italy: the PD

I don't often attend demonstrations but by chance found myself at the Partito Democratico rally in Rome yesterday. The organisers said 2.5 million people were there, which is wide of the mark and must have included those watching on television at home. The police said 200,000. It was about the size of the countryside march in London several years ago, perhaps a bit smaller.

It was, as Italian demonstrations usually are, colourful, noisy and good humoured. There were certainly all types of people. The youngest walking (there were several children carried) can't have been more than 8, the oldest can't have been less than 80. There were punks, students, the odd priest, academics, everything. And this in a sense is the PD's problem.

Formed of the old communists, democrats of the left and a rag bag of tiny parties, it was supposed to be a broad platform for the left-inclined voter. Instead it had been riven with discord, and recently suffered the departure of the Italy of Values Party led by the former anti-mafia judge Antonio do Pietro.

In the meantime Berlusconi, whom many thought to be an open goal, is way ahead in the opinion polls, having kept to his two seemingly unkeepable promises to clean up Naples within a matter of weeks, and provide an Italian solution to Alitalia. Both are open to criticism, as is much else, but it doesn't seem that way to the people.

The left needs to re-form, under a more charismatic leader than Veltroni, and it needs to learn discipline. At the moment the Italians want fewer dreamers and more people who can get things done.

EU: The Mandelson problem

The EU have a US Senate-style system of controlling who becomes a commissioner. I remember the parliament refusing some nice old Italian cove who admitted that he went to Church and supported the Church's teachings (not sufficiently pro-abortion, you see). They had ample chance to refuse Mr Mandelson, and anyone from Britain could have told them that they would be saving themselves a whole heap of trouble.

Why didn't they? Because Mandelson, like them, is a senior member of the political class. You don't refuse one of your own, no no. But they should have done.

Now that the UK press' spotlight had finally turned towards the real possible scandal, and away from Mr Osborne, the mess is becoming clearer. Mandelson, who led the public to believe that he hadn't met Mr Deripaska until recently and then not often, now admits that he had dinner with him in Moscow in 2004, after the announcement of his appointment as Trade Commissioner but before he even took up his duties. It would have been one of the first things he did.

Unsurprisingly several journalists have applied to be given details of his meetings, the request being made under the Transparency Rule, 1049. Here is the Commission's response:

"The concept of document to which regulation 1049 applies must be distinguished from that of information. The public's right of access covers only documents and not information in the wider meaning. Only information contained in existing documents has to be treated under the regulation."

Straight out of George Orwell, that first sentence. And note 'The public's right of access...' as if the public were something separate and alien to the real world of Euro-bureaucracy. Which, I suppose, it is.

I don't hold out much hope for reform, but if this sorry episode serves to inform the public just what a mad, undemocratic world we have permitted our politicians to create, it would be something.

23 October, 2008

EU: Austrian secrecy

They used to say that the genius of Austria was in persuading the world that Mozart was Austrian* and Hitler wasn't.

Now I think it's a talent for keeping things covered up. If someone had told me the ghastly story of Mr Fritzl and asked me to guess which country it had taken place in, I should immediately have said Austria. It is a country whose former president, Kurt Waldheim, managed to conceal his wartime membership of the SS.

Now we learn that the extreme right politician Joerg Haider, who campaigned for family values, had a homosexual lover.

*Salzburg didn't become part of Austria until the early 19th century

EU: King Sarko?

Talking of Sarkozy, the Belgian paper De Standaard reports that a plot is brewing between him and the Commission President, the former Maoist Jose Barroso, to make Sarkozy the permanent president.

The reason is that on 31st December Sarko has to hand over the presidency to the Czechs, who are pleasingly eurosceptic. There will be a lot of talk about special measures for these difficult times, and bribery of the Czechs, all of which I hope will be rejected out of hand.

EU: Climate Change Row

There’s a bit of a row breaking out in Europe over the climate change proposals. The ’20-20-20’ Proposals require by 2020 a reduction in greenhouse gases by 20% below 1990 levels through a 20% increase in the use of renewable energy and a 20% boost in energy efficiency.

Nine or ten countries, led by Italy, say that given the recession they can’t afford it. Sarkozy, who wants his name over as many world saving initiatives as possible during his six month presidency, says he will push it through by majority voting.

As with anything else in Europe and to do with the environment, the cost is unclear. The EU says €9.5 billion whilst Stefania Prestigiacomo, Italy’s Environment Minister, says it could be as high as €20 billion, and the costs to individual countries should be spread more fairly. France for example generates most of its electricity by nuclear with no greenhouse gas emissions whilst other countries use coal or gas.

Expect some sort of compromise which won’t please anybody except the awful Sarkozy.

22 October, 2008

UK: The Russian Yacht

Several stories emerge from the party in Corfu aboard the yacht of Mr Deripaska. An interesting, if minor one, is why we immediately assume that Russian billionaires are crooked. If the protagonists had been meeting with a Norwegian (but not Icelandic) billionaire I suspect the perception would have been a good deal less spicy.

A story which will emerge is of the talent of Peter Mandelson, worth his weight in billionaires to his party for his genius, I think there is no better word, at spin.

The main story was (it isn't now) that Mandelson had a close connection with Mr Deripaska and that in his job as EU Commissioner for trade, negotiating aluminium tariffs (Mr Deripaska is one of the world's largest aluminium producers) for example, it showed 'lack of judgment'.

Mandelson, upset that a private conversation he had with Osborne (to the effect that Gordon Brown was a disaster) should have been repeated, and needing to turn the spotlight away from himself, got a joint friend, Nat Rothschild, to spill the beans on Osborne talking about Deripaska donating money to the Tory Party: the suggestion being that it showed, yes, 'lack of judgment'.

What interests me is the relative weight given by the media to these two stories. It is of course grubby to see senior British figures gathering with the super wealthy like flies round a honeypot, but I should have thought the Mandelson story, alleging as it does that he may have been tinkering with international trade tariffs as a result of a friendship, was far worse. But the media have pursued the George Osborne story to the full, Nick Robinson of the BBC admitting that they were not really covering the Mandelson part. Osborne 'fighting for his political life' says the Telegraph, of all papers.

I think this is partly to do with the BBC, traditionally, and the Telegraph, lately, being anti-Tory. But in part it reverts to the genius of Mandelson: they are scared of him.

What is perhaps most terrifying is that all this happened at all. Why were two political opponents, Osborne and Mandelson, having a cosy little chat in Corfu anyway? It seems almost as if they were conspiring. Like in the Rheinmann Exchange, Robert Ludlum's story of the Germans and Americans doing a deal to prolong WWII, it smacks of the political class cosseting itself rather than working for its supporters or its ideals. And for my taste it doesn't smell too good.

18 October, 2008

EU: getting the money back?

With all these billions flowing about for the bank rescue, saving the £14billion we give to the EU each year must be seeming more and more attractive, hmmm?

17 October, 2008

Cricket: the little master

Congratulations to Sachin Tendulkar, who has surpassed Brian Lara's record for the most runs scored in Test matches, at just under 12,000.

Only 5ft 5in tall. he is known as the Little Master.

15 October, 2008

Crisis: do we want nationalisation?

Tim Congdon has a good piece in the Times, to the effect that the Bank of England's job is lender of last resort and it as no business taking equity stakes in banks.

The trouble is, the people, and the bureaucrats, rather like nationalisation. They like the idea of the government banning the bonuses of the traders, of sacking the management, of making the banks serve the people. Derek Simpson, joint general secretary of the Unite Union, said after the rescue plan was announed: "The measures announced today must be bound to undertakings by the banks of no job losses, no repossessions and an end to the bonus culture." So the government will be actively managing the banks, with social rather than profit goals?

And the people liked the line that was spun that the government would make a profit out of owning the banks' shares. Don't hold your breath, if Mr Simpson has anything to do with it.

As a libertarian I am against the government nationalising banks in this way. Its role is to keep the markets open by supplying enough liquidity. As to making a profit, just suppose they did what conservatives and libertarians want and gave the money to the people: how many of us would have invested in bank shares? Damn few, as the Scots say. And that is because we don't think they are a very good investment. So lets have no more pretence on that score.

Incidentally Darling's first idea was that the government would take special preference shares. No mention of how they were to be sold for the prospective profit (if the government were the only owner of preference shares there would be no market to sell them into, they would have to wait for them to be redeemed by the bank, at par and without profit). Then it transpired that the banks' statutes prevented such a thing anyway.

This aspect of the rescue will be a fiasco, I am thinking. Cameron should promise to get the government out of the banking sector as soon as may be possible.

Italy: cheese welfare programme

Agriculture Minister Luca Zaia has announced that the government will buy 100,000 parmesan cheeses and the same number of grana padano (a slightly inferior product from down the road) to give to poor people.

State intervention to help the industry would of course be illegal, but this is welfare.

Great to see the financial crisis being taken seriously

14 October, 2008

Italy: Berlusconi's slapstick genius

If you haven't seen the BBC's brilliant clip of Berlusconi in action in America, this should work:


UK: Brown planning departure?

So, the way it would work would be like this: Brown realises that he can't win the next general election (he knows what's in store for the country in 2009 and it isn't good). But he doesn't want to be one of the shortest lived PMs on record, without ever having the voters' mandate, so he concocts the idea of being ill.

Now that Hank Paulson has adjusted his intervention scheme to include taking equity stakes in banks, what Brown calls the Brown Plan (and Europeans call the Sarkozy Plan and economists call the Swedish Plan) has been adopted universally. The banks stabilise, interbank lending rates go down towards Bank Rate and Brown claims he has saved the world. He regretfully retires due to failing eyesight and leaves the stage to write his memoirs (everyone to blame except Gordon).

Mandelson oversees the coronation of the new Blairite champion. The Tories say Brown may have helped fix the banks but the real economy is up the spout and only they can save it. The election is closer than it might have been with Brown there, but the Tories win with a 30 seat majority.

If all this turns out to be nonsense I shall deny it was a forecast. If it proves correct, however....

13 October, 2008

UK: Brown can't see?

An extraordinary article in the Telegraph today, to the effect that Gordon Brown's eyesight is failing him. What is extraordinary is that the information seems to come from Team Brown: Damian McBride, Brown's chief spin doctor until the reshuffle reports 'His sight isn't very good.'; another official said: "If I want him to reply to an email, I always make sure it's in at least 36 point." That is five times as large as standard print size.

Normally one would expect such revelations to be the prelude to a resignation, but all the signs are that the financial crisis is doing Brown's poll ratings a lot of good and people say he is enjoying himself for the first time since becoming PM. A PM's resignation, even if it is Brown, would not go down well with the markets at this time.

We shall see.

12 October, 2008

Crisis: Suspend the markets?

It is reported that the White House has rejected suggestions by Silvio Berlusconi that the markets should be suspended for a day or two around a holiday in order to let them breathe.

Berlusconi is not a fool and this is a suggestion which has some merit. It has occasionally been the case that action by central banks has jarred the market into imagining things are even worse than they thought and so has a negative impact. At a time when the authorities are taking action I would certainly advocate closing the markets say Friday and Monday. It would not deprive traders of some God-given right to deal: there has been plenty of news about the crisis and plenty of occasions to sell. These are difficult times and a calming measure would be the right thing.

10 October, 2008

Italy: safe as palazzi

Meanwhile in Italy the finance ministry was delighted to learn that the Italian Banks had yet to get their heads around these new Special Investment Vehicles, Collateralised Debt Obligations and so on, or, more likely were still filling in the paperwork in order to buy some, and so were largely unscathed. Only one bank, Unicredit, has had a bit of a run on it and Berlusconi has said that that was because it had invested in a German bank.


Crisis: The new cod war?

There is plenty about the current credit crisis which people will find difficult to understand but perhaps the strangest is the existence of Iceland in it.

Iceland has a population around the size of Leicester and is known internationally for a very small number of things: the cod wars of the mid 1970s, the world chess championship being held in Reykjavik, oh, and a couple of bold, Australian style entrepreneurs who liked to invest in Britain.

We now learn that upwards of £800 million of British cash has been invested in Icelandic banks and Iceland is refusing to promise its safe return. But why is there all this British money in Icelandic Banks? It emerges that Kent County council has £50m invested; Transport for London has £40m. Why Iceland? Why not in the banks of Norway or Finland, larger economies, or if the temperature of the parent country is not important, South Africa or Singapore? Or Britain?

The answer can only be that the Icelandic banks were offering a better deal. It was that extra one eighth of a percent that they went for. And why were Icelandic banks offering more? To prop up their ailing companies.

One can't help feeling that it serves the investors right. Why should the government get involved?

03 October, 2008

A verbless London

The famous triangular revolving sign outside Scotland Yard, London’s police headquarters, suddenly changed a few years back. On it was written ‘Working together for a safer London’. The change was a key to understanding Sir Ian Blair, and why he had to go.

Anyone who was involved in politics during the (Tony) Blair years will remember the verbless sentences: ‘building a fairer society’, ‘working for the people’s prosperity’, that sort of tosh. Sometimes Tony could string six or seven of them together in a speech, scores of words without a verb in sight. Just to use such a construction meant that you were ‘on message’, and Sir Ian Blair was.

Tony Blair was adept at getting his people into important and supposedly non-political jobs, such as Andrew Marr as political editor of the BBC (Marr is still used now to give the Prime Minister an easy ride if things are looking difficult). Sir Ian Blair’s pronouncements were either crafted for him by the Labour spin doctors or his every action and word was, by extraordinary coincidence, straight off the New Labour hymn sheet.

He couldn’t possibly remain even if it were not for the Menezes shooting and this little difficulty of the £15,000.

Boris had to show he could win this battle and has done very well indeed: there were entrenched positions (the Home Office and the BBC) defending their man. Perhaps there is more to London’s mayor than I, and many others, thought. His next task should be to take the sign down.

02 October, 2008

What's in a name?

Six candidates in Brazil's local elections have renamed themselves Barack Obama. It's an odd name, pronounced the way the Americans pronounce 'baroque' which for me gives a bizarre, late-Renaissance flavour to the thing. Actually it comes from the Hebrew 'Baruch', meaning blessed. The only other famous person I can think of with this name is the 17th century rationalist philosopher Baruch de Spinoza, the enemy of Descartes. Perhaps Mr Obama was named after him.

Mind you, 200 candidates have renamed themselves after the president Lula de Silva, and lula means 'squid'.

The value of politicians

I am always hesitant about criticising the political systems of other democracies but an interesting difference between ours and the American one has come to light. In England the Chancellor of the Exchequer is a politician, someone elected who has climbed the greasy pole, as Disraeli put it. The first thing he would do on producing a rescue plan would be to check that it was going to be acceptable to the voters' representatives, to save himself from the ignominy of defeat. Hank Paulson, by contrast is used to issuing commands and having them obeyed, and voters never like that.

There is the danger of another difference: that in America at least the voters' representatives are being consulted. In my view it would not have been inappropriate to recall parliament early to discuss the crisis and vote on the plan (if there is one).