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.

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.

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.

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.

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?

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.

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

Italy: Berlusconi's slapstick genius

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

http://news.bbc.co.uk/2/hi/americas/7668911.stm

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....

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.

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.

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.

Delicious.

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?

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.

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).

Holding my breath

As I write, Alitalia has hours to submit its business plan to the Italian Civil Aviation Authority, and several unions have yet to agree.

In America the markets are on hold pending Congressional approval of the rescue plan. We need something, even if, as Anatole Kaletsky says in today's Times, it has not been fully thought through. I am told that something about moral hazard and something about holding back bonuses should see it scrape under the wire....

And in the UK, we wait to see if Gordon Brown has been saved by his wife.

Interesting times.

Singapore

The BBC reports that Singapore's High Court has ruled that the Far Eastern Economic Review (FEER) magazine defamed Singapore's leaders in an article in 2006.

The Lee family requested summary judgment, which means a judge sits alone without a court, over an article about the main opposition leader Chee Soon Juan. Justice Woo ruled that the article implied that Prime Minister Lee (the son of Lee Kuan Yew, modern Singapore’s founder) "is unfit for office because he is corrupt and he too has set out to sue and suppress those who question him to cover up his corruption". Ironically sue is exactly what they did.

I must say I find this very disturbing. I have contributed to the FEER, which is a serious, sober publication, and spent quite a bit of time in Singapore. It is a great place to live and work with a superbly managed economy, efficient social services and good race relations in a unique ethnic mix. There is an enormous amount for the Lee family to be proud of. They do not need to attack every little insinuation of wrongdoing against them: their works speak for themselves.

Singapore is a modern, outward looking nation. It is high time it had the self-confidence to allow modest criticism of the government, from opposition and press alike.

Alitalia

Incredibly, the saga of Alitalia continues. The airline loses 3m euros a day, and a month ago it had only 50m euros in cash, so it ought at least to be insolvent. There have been some cancelled flights and there are stories of credit for fuel being stopped but like some ham actor in a B-movie the corpse keeps on thrashing around.

It is a problem for Silvio Berlusconi. During the election campaign he promised that there would be an all-Italian solution for the bail out. The unions then rejected the Air France -KLM deal which was on the table. Now they have rejected the all-Italian one, which required 3,000 job losses, longer hours and some pay reductions.

On a political level Berlusconi must decide whether to ditch Alitalia and blame the unions (no one knows whether they would have rejected the previous deal but it looks, at least, as if they rejected it on the promise of something better) or whether he should press on, forcing everyone's hand.

I would counsel ditching Alitalia, for three reasons: firstly we are past the point of negotiation; forcing the issue now would require a real demonstration of harsh reality and there is neither the time nor the will for this.

Second, it does not seem likely that it can now thrive. I know of many people who stopped flying Alitalia months ago because its reliability record was so poor you couldn't be even moderately sure of catching a business meeting. I don't think they will go back to it.

Most importantly, there is the future to consider. One commentator has said that Alitalia is lost but there is still time to save Italy. The unions are so strong here that there has to come a Margaret Thatcher and the miners moment or the country will descend into chaos.

Berlusconi could send the clearest signal to other unions that he tried his best but the pilots were so intransigent that they forced the liquidation; that even Italians cannot pretend they can always avoid the nasty realities of life. It would be a good lesson for the country to learn.

But 19,000 people would lose their jobs.

Notes on a crisis

Imagine the financial crisis as an illness. Now we are at the stage of the raging fever, it seems as if the patient will die, but the wise doctor knows this is a phase that has to be passed, makes sure the sick man has enough water and waits for the crisis to subside.

The decision of the FSA to ban short selling of financial stocks is understandable but, in my view, wrong. Short selling, which the FSA admits is ‘a legitimate investment technique in normal market conditions’ is a pointer to how things are likely to be. Many financial institutions are insolvent and to forbid this indicator would be the equivalent of denying the patient had a disease. You don’t help yourself by banning the symptoms.

Besides which there are the people who already own the shares. You are not going to stop them selling, presumably, which they might now be more likely to do given that the market is artificial – protected by the FSA.

The statements by Alasdair Darling and Gordon Brown abut the HBOS/Lloyds merger maintaining a presence in Edinburgh were disgraceful, particularly if true (it might of course be a bare faced lie – you never know with these folk). There is a by-election coming up in Fife and manipulating the rescue of the financial system for your own electoral purposes is about as low as politics gets.

Equally awful is the statement that the new company should maintain its mortgage book. Lloyds HBOS should concentrate on surviving and if that means lending less it means lending less. A casual scan suggests it is overexposed to the UK lending market. The markets will remember that this government cannot even keep its own house in order and is scarcely equipped to be advising others.

That aside, the encouraging of mergers is a good thing (and far better than bailing out financial institutions or nationalising them) and the co-ordinated liquidity pumping by the central banks (making sure the patient has enough water) seems to have gone well.

We now have to wait for the fever to subside. There will be more mini-crises throughout 2009, in my view, but this might be, as Churchill said of the Battle of Britain, the end of the beginning.

Jimi

Today marks the anniversary of the death in 1970 of Jimi Hendrix. Incredible to think it is 38 years since he played.

Hendrix died only three years after his first record came out, but in those three years he revolutionised rock music.

US Elections

Irwin Stelzer in today's Telegraph

'So sit back and enjoy the show. It is far more entertaining, and certainly more democratic, than waiting for the defenestration of a prime minister by a cabal of his colleagues.'

Sharia and you

I must draw your attention to three unconnected news stories. First, from the Daily Telegraph:

‘Five sharia courts have been set up in London, Birmingham, Bradford and Manchester and Nuneaton, Warwickshire. The government has quietly sanctioned that their rulings are enforceable with the full power of the judicial system, through the county courts or High Court. Previously, the rulings were not binding and depended on voluntary compliance among Muslims.’

Second, again from the Daily Telegraph

Sheikh Muhammad Munajid claimed the mouse is "one of Satan's soldiers" and makes everything it touches impure.

But he warned that depictions of the creature in cartoons such as Tom and Jerry, and Disney's Mickey Mouse, had taught children that it was in fact loveable.

"Mickey Mouse has become an awesome character, even though according to Islamic law, Mickey Mouse should be killed in all cases."

Third, from Yahoo News:
In 2007, a Mickey Mouse clone named "Farfour" was used in the Tomorrow's Pioneers television series, on the official Hamas TV station, to educate children. Farfour has stated such things as: "You and I are laying the foundation for a world led by Islamists" and "We will return the Islamic community to its former greatness, and liberate Jerusalem, God willing, liberate Iraq, God willing, and liberate all the countries of the Muslims invaded by the murderers.’

It all bears thinking about, doesn’t it?

spag bog

We learn that schoolchildren are to receive cookbooks under a new initiative. I am absolutely in favour of this, but surely a modicum of rigour is required in academic institutions, even with a publicity seeking initiative organised by the awful Ed 'Blinky' Balls.

The book 'Real Meals' contains, it is said, a recipe for spaghetti bolognese. This is the pasta equivalent of chicken tikka masala, something invented by the British. Spaghetti is pretty well the only type of pasta a northern Italian cook would not serve with ragù bolognese.

Try a broader, egg-based pasta such as tagliatelle or papardelle, (spaghetti is not made with egg).

Fannie and Freddie

Anatole Kaletsky in the Times, who should know better, has written the most extraordinary piece of tosh linking the bail out of Fannie Mae and Freddie Mac in America to the end of capitalism.

These two institutions were unique, set up by the Federal Government (just try launching a corporation in the USA with ‘Federal National’ in the title). They were there to provide liquidity to the mortgage market by buying packages of loans from the mortgage banks. When in the 80s and 90s the commercial market became clever enough to do this itself (remember the Special Investment Vehicles in Northern Rock?) Fannie and Freddie were not closed down. Their importance now was to support the redlining regulations – making banks lend to the poorer parts of town, not in what we would call a ‘postcode lottery’. Their other importance was to give jobs to political apparatchiks who needed paying off.

So by definition Fannie and Freddie were Government run institutions used to prop up anti-market regulations and were directed by people who were in the way anywhere else. It is not surprising they went bust and not surprising they were bailed out.

It does mark a halt to the banks’ relentless drive for capital, but only for a couple of years, in my view. The markets will revert to type: always have done, always will.

Making the rules

The news that baseball was invented in England, in Guildford to be precise, in 1755 will come as no surprise to those who have studied the matter. The British invented football, rugby, cricket, golf and some say tennis, but don't play any of these games well. What we are good at is making up the rules.

In future, just as African potentates go to Savile Row to invent the uniforms for their armies - an instant bit of 'tradition' - so they will come to us to invent their national games for them. Something to do with coconuts, your Majesty?

A new service industry is born.

Fallen asleep?

Charles Clarke, the red wine swilling former Blair cabinet minister who made such a poor shot at being Home Secretary, has had a go at Gordon Brown saying Labour faced ‘utter destruction’ under his leadership. No one seems to have had the courage to rally to his banner but there have been other grumblings in the Labour ranks that the party faced wipe out in the elections. Having lost a poll lead to being 20 points behind in just one year must mean that nobody would rule it out.

But if it were to happen, and I am far from sure that it is, what would it mean for British politics?

Since the War, Britain has effectively had a two party system. The Liberals / SocDems / LibDems were there if you wanted a protest vote, and following the excellent example of David Such there has been a host of small parties, Greens, UKIP, Loonies etc. But nobody ever thought that the government would be anything other than Labour or Conservative.

Anyone who has been canvassing will know the depressing experience of finding ‘No, we’re a Labour / Conservative family’. I used to feel like slapping them until they remembered it was their duty as members of a democratic society to register an objective vote on the merits of the case which would at least involve reading the bloody literature, but there you are. Democracy is about dealing with the people you have got. This blinkered attitude is as bad if you are campaigning in Gloucestershire for the Labour Party or in Pontypridd for the Conservatives.

What will these people do, then (I mean the staunch Labour voters, we can pretty well guess what is going to happen in Gloucestershire)? You see, the other fault line in the British Electorate, as well as thinking that your political affiliations were laid out for you at birth, is that they like to back the winner, as if voting were the same as punting on the 3.30 at Epsom. When I campaigned for UKIP a lot of people would say that they agreed with the party policy (at that stage it was just about leaving the EU, none of this immigration claptrap) but that they wouldn’t vote for us because we couldn’t possibly win.

I believe most people will come to think that Labour can’t possibly win the next election. Note, though, that it takes a surprising amount of time for this sort of feeling to trickle down to the electorate. The Westminster village reacts immediately to poll swings but the people are, rightly, slower to convince. By 2010 however even the guy in the Pontypridd housing estate is going to think they can’t win and, statistically, several of his ilk are not going to vote for them. But will they vote for anyone else?

My fear is that they’ll vote for nobody and there will be a Cameron landslide caused by Labour not getting its vote out. That would be far from healthy. But what happens in the election after that? Will Labour do as the Tories did, sit it out and wait their turn to come back into popularity? Or will the party apparatus split into Old and New Labour?

My guess is that the old left will die: that there will never be another serious politician in the Brown mould, believing in State manipulation of the economy and of the lives of the people. That would be nice: we must guard against the re-emergence of these people as we must guard against the return of fascism. They are the same.

But the possibility remains, as Tony Blair said of the Tories, they won’t have died, they will just have gone to sleep.

Celebrity Chef

I mentioned back in January that Samak Sundaravej, the prime minister of Thailand, presents a TV cookery programme on Thai food called ‘Tasting, Grumbling’, wondering how long it would be before we go the same way (not that Delia would make a worse cock-up of government than this lot).

Alas, time has caught up with Samak. Despite doing the last four programmes free, he charged for bringing the vegetables to the studio and this has been deemed unconstitutional. He has to resign but the good news is that his party are likely to vote him back.

His favourite dish is pork leg cooked in Coca Cola, and traditionally after the cooking part of the show he delivers a high spirited monologue on a subject of his choice. Just think of Brown doing this.

I urge the Thais to have him back. It would be a tragedy if this man were lost to public life.

Lita Roza

There passed away in August, almost unnoticed, Lita Roza, whose story has lessons for us in good taste and artistic integrity.

She had been a modestly successful singer with a big band when in 1953 her agent urged her to record 'How much is that doggie in the window'. Lita thought the song puerile but agreed to sing it, just once, for the recording. It was, as the agent had predicted, hugely successful but Lita stuck to her guns: 'I said I would sing it once and only once and then I would never sing it again, and I haven't'.

Bemused audiences who only knew her for the song pleaded with her to sing it at her concerts but she never did.

Later musical tastes moved to Rock and Roll and she wouldn't sing that either, so died having achieved a fraction of the fame she might have done.

Teaching God

Recent news about the Republican Running Mate Sarah Palin sent my thoughts back several decades. I don’t mean that her daughter is pregnant – stuff, as another Republican pointed out, happens – but that she had agreed that creationism should be taught alongside Darwinism in schools.

As a child I pointed out to a schoolmaster that learning in one class that we were the result of a six day creation-fest and in another that we were descended from the apes smacked of inconsistency. He gave me the ‘I’ll try to be tolerant’ look and explained that one was Religious Instruction and the other was Biology.

The problem in America is that Church and State are strictly separated, so if you want to teach creationism you have to teach it as science, not religion.

A pity. I think most of us have problems with both, it’s just that one seems less unlikely than the other.

Taxing Windfalls

Well, it’s September, and this is the month, you will recall, that we are to expect Gordon Brown’s Economic Recovery Plan. In my opinion there is pretty well nothing that he can do which would have a favourable outcome before the middle of next year and the Labour Party doesn’t have that kind of tolerance, so expect something just for show.

What his party would like is a windfall tax on oil companies, with the proceeds to be directed towards the ‘fuel poor’ (a concept Labour have invented just for this purpose) and it may well be that Brown will be tempted into this for political reasons. To the socialist mind these huge corporations are a fair target, making billions in profit on the back of high oil prices; ‘Unearned Income’ is how they see it.

To do this would be a huge mistake. First, just consider the basic economic theory. The oil price is high because people are demanding more than is supplied. A windfall tax would make the exploration business less profitable resulting in less exploration and less oil. So we reduce the supply of oil and then give money to people to demand more: a worsening on both sides of the equation.

Now the lefties will say that the oil companies will continue to explore because that is what they do, but we have ample evidence to the contrary. For Gordon has form.

Brown has raided the oil companies twice before, in the April 2002 budget when he introduced the North Sea Production Tax and in December 2005 when he doubled the tax rate. The result was a dramatic lowering of North Sea investment culminating in Britain becoming a net oil and gas importer when this need not have happened for years.

Drilling for oil is a 20 year investment and the oil companies need to know that a fickle government will not punish them after the funds have been committed. Taxation on this basis is retrospective legislation: taxing profits after the exploration companies have made the investment decision on the previous fiscal model. And Brown has already done it twice. Naturally the oil companies don’t trust this government.

This is a lesson for Cameron: fix a long term (and attractive) tax regime and declare it will last for as long as they are in power. That way the companies will do their job, there will be more oil on the market and prices will be lower.

That is, as Brown would say, the right long-term decision. But Brown does not have a long term view: he may well pursue a scorched earth policy, knowing he will lose the next election and wanting to make the Tories suffer. Let’s hope not.

Cheers Gord

According to the BBC, Jack Straw has pledged his support for Gordon Brown.

So, it's all up with Gordon, then.

Saved for the nation

The last time the Treasury (ie, we the taxpayer) stumped up cash for a painting it was £381,500 to help buy Titian’s ‘the death of Actaeon’ for £1.8m in 1972. Now Actaeon, painted by the same guy, different pose (he cropped up a fair bit in Ovid’s Metamorphoses, which Titian must have liked), is on offer again, this time from the Duke of Sutherland, for the price of £50m, plus another Titian, again for £50m once we’ve swallowed the first. We are advised that these are bargain prices. Indeed, I have a feeling they are – it would imply inflation in artwork of less than 10% p.a. whereas it has gone up quite a bit more than that. But of course if we are never going to sell them the bargain is of less interest. We have to analyse this on a cost-benefit basis.

When I read the first reports it was a question of the National Gallery (which has, I think, 11 Titians) having had them since the war as a centrepiece and keeping them on. The National Gallery has something like 5 million visitors a year (albeit non paying), so it may well be this is not unreasonable: over a period of twenty years it is £1 a go excluding interest to see both. But further investigation tells us that they are in the National Gallery of Scotland, in Edinburgh. The NGS website doesn’t say how many visitors they have but it must be nothing like as many, maybe a million or fewer, and so the cost-benefit analysis equation is greatly altered. If you think this approach a little crude, remember that the alternative is not that the pictures are destroyed, it is that they are on view somewhere other than the UK. It would be easy to grant an export licence only if they were sold to someone who would display them.

Perhaps in these days of cheap foreign travel we should be looking in a different way about ‘saving pictures for the nation’. It would probably cost someone in Wales no more to see the pictures in the Guggenheim than to go to Edinburgh by train and spend the night in an expensive hotel.

I am wary of mentioning the other aspect of them being in Scotland that gives me doubts, but I will. People who yesterday were lauding the achievements of ‘their’ athletes (who were in fact competing for Team GB) now say the pictures must be saved for ‘the nation’, which means the whole of the UK is expected to pay, while the Scots have free prescriptions, no university fees and higher spending per head.

And I would be more comfortable about laying out £100m if I thought we were doing our best to preserve British arts (who else can be expected to do it?): not just in painting but literature, drama, sculpture, music (the National Lottery money goes largely towards funding productions of Italian Opera). A country's first (not only, but first) duty is to promote its own culture.

I don’t want to sound grumpy but I think we should let the Duke of Sutherland sell his pictures, tax him to the full (this must be a capital gain if ever I saw one), and spend that money on something more manageable. Like a museum of the British arts. If we’ve got any left after that we could buy the Raphael he also wants to flog off.

Unless Alex Salmond wants to chip in from the Scottish taxpayer.

The Greatest Polymath

I am always interested in those ‘On this day..’ bits in the newspaper, which turn the reader’s mind this way and that according to the date. Today is the anniversary of Martin Luther King’s ‘I have a dream’ speech (1963); it is the anniversary of the death of St Augustine (430) and of the birth of Johann Wolfgang von Goethe in 1749.

Goethe has always been a bit of a hero of mine, perhaps the most extraordinary polymath who ever lived. Many people know him for his Faust (his own take on a traditional tale, with Faust being redeemed at the end and raised up to Heaven, unlike in Marlowe’s) which was the inspiration for works by Schumann, Gounod, Liszt, Wagner and Mahler. But his literary works included novels, plays, romantic poetry, eroticism and much else. He was the leader of the Sturm und Drang movement, but later went to Italy to clear his head (as so many people do) and collaborated with Schiller in the Weimar Classicist Movement.

But Goethe was also a lawyer, statesman (he was effectively Prime Minister of Weimar), soldier (he fought at the battle of Valmy and the siege of Mainz), natural scientist (his work on plant morphology influenced Darwin, he was the first to prove that the intermaxillary bone existed in all mammals, the mineral goethite is named after him and his Theory of Colour, translated into English, influenced Turner’s painting), and heroic lover, it now appears, of both sexes.

He died aged 82, probably exhausted.

The Bag Carrier

For those of you who don't read Guido's blog (www.order-order.com) I have to repeat this, which was sent to him

"I was one of the lucky BA passengers who got to fly home with the Olympians - an incredible honour. We were thrown off first and after we walked down the steps and past the paparazzi I couldn't believe my eyes when I saw the Prime Minister standing in the doorway shaking hands with my fellow normal pasengers. I walked up to him and shook his hand and asked where we went to collect the bags. He was dumbfounded and the wifey minister* standing beside him with the t-shirt said rudely to me "that is the Prime Minister, ask someone inside". It wasn't as though I asked him to carry my bags. She is one ugly cow."

*Tessa Jowell

Bliss. thanks, Guido

Flying

On reflection it seems quite obvious how the mushroom soup leaked. The pressure in the cabin was much lower than the pressure in the soup container.

Over the years cabin pressures have been gradually reduced without consulting the passengers, and who can doubt that in these days of high fuel prices they will be reduced even further (and perhaps already have been).

I would happily pay extra for a flight which had proper cabin pressure; the enhanced comfort and lower soup risk mitigating the environmental effects.

Incidentally a pilot once told me that the way they used to check the fuselage of the plane for leaks was to search for brown stains, where the nicotine had escaped. Alas now that smoking is not allowed....

Bad luck

With all the hassle travellers have to suffer these days, and no liquids to be carried, the experience of passengers on a Ryan Air flight can only be described as extreme bad luck.

It appears that someone had snuck into the plane some mushroom soup which then dripped from an overhead locker on to the head of a passenger. Bad enough, you might think (although not as bad as tomato) but the soup triggered an allergic reaction, forcing the plane to land early.

This seems rather like the mobile phones controversy - supposed to put the plane at risk but no one really believed they did. If there really is a danger from liquids carried on a flight (that they might be explosive, and be detonated by a suicide bomber in the plane) then some official's negligence has put a plane load of passengers at risk. If not....

This seems like a golden opportunity for Health'n'Safety. Was the soup labelled appropriately (may cause allergic reaction above 30,000 ft); how did it leak out?; should 'at soup-risk' passengers be made to wear hats?; should planes fly empty because the whole thing is too damn risky?

We should be told.

US voting

Today is the 88th anniversary of the passing of the 19th Amendment, which gave American women the right to vote.

Whether the Democrats will regret not choosing one as presidential candidate remains to be seen.

Mrs Thatcher

I don't know about anyone else but I am disgusted by the news that Mrs Thatcher's daughter Carol is trying to make money out of describing her mother's dementia.

Margaret Thatcher was a controversial figure and there is now an element of giggling humour, as there was with Ronald Reagan, that the symptoms stretch further back.

I think anyone is entitled to a simple public statement that they are suffering from the disease, and that their family and intimates keep their own counsel.

US Elections

There is much talk of whether Joseph Biden was the right choice for Obama's running mate. It seems to me wrong: he is a figure from the past, whereas Obama portrays himself as the future; he is a pro-choice catholic, which will not deliver much of the catholic vote; he has been derided for copying a speech by Neil Kinnock (himself a politician derided in the UK); his experience of foreign affairs goes against Obama's statement that he didn't need experience because it was all a matter of judgment.

Many are saying he should have chosen Hillary. But apart from the problem that she and her husband would overshadow any campaign, I wonder if she was sounded out about the job and refused: she wants to be president and for that Obama has to lose (if he were re-elected, 2016 would be too late for Hillary).

An interesting difference between US and UK politics is the importance of the party. Hillary, in carrying on long after she had lost, has been disloyal to her party to an extent that would earn her censure in the UK. At the same time the party, if it were the UK, would have seen her as more likely to beat McCain and somehow wangled her selection. Now there is no senior figure in the party to keep her under control until November (her husband won't).

These are difficult times for Obama. I hope his nerves are steady.

Maxwell Brown

Even after 16 years it is hard to forget the late Robert Maxwell. Casting around, desperate for money, he stole the pension funds of his employees and, for whatever good he may have done in his lifetime, he is now remembered as a figure of hate. The comparison with Gordon Brown is irresistible.

Brown has of course already raided the pension funds of the country, leaving millions hard up in their old age, but we now learn that in his desperation for money he has raided the lottery funds as well. Read John Major in today's Sunday Telegraph.

I would remark in passing that history students of the future will discuss how one man, thoroughly nice but far from clever and another, thoroughly clever but far from nice, could both have made such appalling Prime Ministers.

Team Brown

The British Olympic Association has confirmed that the name Team GB came from the oh-so-British Marzena Bogdanowicz. No one seems to have given a stuff whether we got the name of our country right, as long as it sounded good.

Except, perhaps, Gordon Brown. The man has plans for a football team in the 2012 Olympics taken from England, Scotland, Wales and N. Ireland for Team GB - and then he corrected himself with one of those sickening, artificial smiles, and said 'Team UK'.

The business about the football seems to be a mistake, though. The Scots are horrified at the idea and there is a by-election coming up in Fife.

Prague Spring

While Russian soldiers seem reluctant to leave Georgia, we might remember the horror of 40 years ago. It was on the night of 20th August, 1968, that Soviet forces entered Czechoslovakia, ending the period known as the ‘Prague Spring’.

Appointed First Secretary in January 1968, Alexander Dubcek introduced a wave of reforms, principally economic decentralisation and free speech (and incidentally the division of the country into two, the only one of his reforms permitted to last).

It was too much for the Soviets of the Brezhnev era who sent the troops in, removed all liberals from power and limited the right to political comment to those with ‘full political trust’. Dubcek urged his people not to resist and only 72 were killed but it is thought that some 300,000 emigrated. Dubcek is reported to have said ‘they can kill the flowers but they can’t stop the spring.’

On 19th January, 1969 Jan Palak set himself on fire in Wenceslas Square in protest against the suppression of free speech.

This was the first international political event that I can remember and it left its mark on me and perhaps on a whole generation.

Team Bogdanowicz

Today’s Guardian offers a solution to why our Olympics contenders are called Team GB rather than Team UK (there are three from N.Ireland).

‘Mainly because it is considerably easier on the tongue than "the Great Britain Olympics Team", according to the woman behind the brand, Marzena Bogdanowicz. "I think I had the idea in 1996 or 1997," says the BOA's then director of marketing. "I went to the games in 1996 and the logo at the time was just the lion and the rings, but we weren't strong enough as a brand to just be a lion and the rings. So coming back I wanted to find something that was less of a mouthful, and also had that team feel. We looked at the options and came up with Team GB’.

I wonder if they did look at all the options. So there you have it: Team GB sounded good, it was decided by a woman who sounds, dare I say it, not frightfully British.

I’ll ask ‘Team GB’ if they can confirm this.

Team UK

I got a reply from Team GB – the UK Olympics organisation – saying that since 1996 only athletes from sovereign states, such as Jamaica, can compete under their own names so athletes from Gibraltar, the Falkland Islands and so on would have to compete under our name. So changing the name from Team GB to Team UK would not solve the problem. The spokesman – Lauren Sanderson – did not explain how they got the name of the country wrong in the first place. It is the UK which is the internationally recognised sovereign state.

The reason I make a fuss about this is that the difference between the UK and GB is Northern Ireland. GB suggests to foreigners that we have given up Northern Ireland to the Republic. Which we haven’t.

I have invited Team GB to say what they felt gave them the right to drop this diplomatic bombshell.

McCain - against the grain?

In Britain we tend to blame America for a lot of the less desirable change we see and I think most people regard the trivialisation of politics – looks, mannerisms, soundbites - as having inexorably reached us from across the Atlantic (although I wonder if Anthony Eden would have done so well without his good looks).

But I was watching a video of John McCain the other day and he seems to belie this. He seemed short (surely a disqualifier in itself), jowly, old and with a curious high pitched whine of a voice with which he increasingly seems to make out of touch remarks and allow his temper to get the better of him.

Look at Obama, by contrast. Male model good looks, a soaring manly voice, oratory straight out of Churchill and Martin Luther King.

So why isn’t Obama miles ahead in the polls?

Personally I don’t think it is a racial thing; all but a small proportion of Americans seem to have passed that point and probably most of those would be Republicans anyway. True it might take an exceptional black candidate to make the White House but Obama looks exceptional.

And I don’t think it is the economy. The reason I would hesitate to vote for him is his espousal of protectionism, policy which would make the poor poorer. But I think a large proportion of Americans believe in a bit of protectionism.

Is Obama a busted flush? Did he soar so high like Icarus that his fall is as dramatic as his rise? It was inevitable that as the campaign progressed that he would look more human, more normal, but are the voters not prepared to pardon this?

After a murky start with Condoleezza Rice’s presence in Georgia before the recent upheavals, George Bush has looked good: standing up to Russia with rhetoric and with support for Georgia. This will have helped McCain’s campaign. It only needs another such crisis for security and foreign policy – his long suits – to take centre stage.

The Eurozone

Just as we were beginning to feel that America was past the worst, the Eurozone, almost unnoticed, appears to be slipping into recession. In the three months to June the euro-economy contracted by 0.2%. Normally a loosening of monetary restraints would have eased the position but inflation is running at 4% on average (well over 5% in Spain) and lower interest rates are not possible.

Europe’s banks are in an unhealthy state, commodity and food prices are high. Italy is currently paying 0.6% more on its borrowings than Germany. Several countries, but not all, are experiencing collapsing property prices.

This will be the first test of the eurozone since its founding. People will have to tighten their belts, and the Central Bank in Frankfurt looks like an easy scapegoat. The political test will be how evenly the pain is shared.

Ferragosto

The 15th August has been a holiday here since Roman times, when it was a harvest festival. In Italy it is called Ferragosto which from Latin means August holiday. It coincides with the Roman Catholic Feast of the Assumption and is the day when you can guarantee no one in Italy is working, most people taking a holiday either the two weeks before or the two weeks after (or, quite often, the whole month).

It is notorious for sudden unexpected stormy weather and looking at the sky this morning Ferragosto 2008 will live up to its reputation.

North and South

I remember a friend at the UN telling me that some countries – Western Sahara was the example he used – are deemed unviable. This means that they can never earn enough to support themselves and industry will never go there because the lack of population and infrastructure would make any project uneconomic. I found it a terribly depressing thought – a people simply doomed to failure and welfare dependency.

Now, we learn, the same is true of some British cities. Billions have been poured in to northern regions over the years, and the think tank Policy Exchange says, rightly in my view, that it has all been wasted. Liverpool, we are assured by Edwina Currie in the Mail, has lost half its inhabitants in the last half century (normally one wouldn’t believe a word Mrs Currie wrote but in this case she is correct and actually the article is quite good).

The Policy Exchange document draw the rather odd conclusion that the people of northern cities should migrate south, to find work. David Cameron has, correctly, rejected this noisily (he wants the odd MP north of the Midlands at the next general election) but I hope it makes him think a bit. Bribing the north has been going on for years. I remember the car plants at Speke and in Scotland, Grey Areas, Development Areas, Economic Areas, all kinds of things. The new term is Regional Development Areas and since 1999 they have blown £15bn – largely for nothing. The income disparity between north and south has grown.

But if the northern towns are not to be emptied of their brightest and best, leaving an unemployable, welfare dependent rump, we have to do something, and something which does not involve chucking money at the problem. The Taxpayers’ Alliance suggests a reduction in small business tax rates, but whilst this would be welcome I am not sure how much of an incentive it would be. Regional tax holidays tend to attract weaker companies which depart as soon as the holiday runs out.

I think local solutions are the answer to local problems and these northern towns would benefit from localisation of decision making, beginning with directly elected mayors who have control of the business rates. The electorate would soon begin to vote for new thinking, realising, as the Labour Party does not, that the old thinking hasn’t done them any good.

Let him stay

There is a thoughtful piece by David Owen in the Independent saying there ought to be a method of getting rid of the Prime Minister on political grounds between elections.

It ignores the fact that not everyone wants him to go. Her Majesty's Opposition, to name but one.

The Tories should introduce a motion 'This house deplores recent attacks on the Prime Minister and believes he should stay in office until the next general election'.

If would be interesting to see who voted for it.

Predictions

I should say in advance that my prediction for the US Presidential race was that it would be between Giuliani and Clinton. I hesitated therefore to suggest that John Edwards was a likely running mate for Obama and indeed he has fallen at the first morality fence, admitting to an affair (some say fathering a child) while his wife was suffering from cancer, and I should have thought this might well disqualify him.

Here then are my predictions for the Olympics:

Most medals: China
Most disappointed: USA
Best losers: Team GB (or the United Kingdom as we sometimes call it)
Best uniforms: Italy
Most TV cameras and personnel: The BBC
Biggest political losers from a successful games: Tibet
Biggest financial losers : UK
Most popular sport: beach volleyball

In this regard I should say that I once owned some broadcast rights to a minor sport and someone who could be regarded a in a position to know told me that if I wanted it to become an Olympic sport he could give me a telephone number to call and someone would mention a sum of money and give details of a bank account to deposit it in.

Now who is funding synchronised swimming?

The Olympics

I shall not be watching the Olympics and so will see none of the advertisements which have gone to fund them. This is as a protest against China's rule in Tibet.

As regards the UK team I wonder why they are not called just that. Instead, despite three members being from Northern Ireland, it is called Team GB (N. Ireland is not, of course, in Great Britain). Why?

I asked that question of the Olympics organisation and they have been unable to tell me.

South Ossetia

The South Ossetia problem is one we need to keep an eye on. South Ossetia is at the northern central part of Georgia which lies on the eastern edge of the Black Sea.

When the Soviet Union existed the region was a semi independent homeland. The people claim kinship with the North Ossetians who remain part of the Russian Federation whereas the world recognises South Ossetia as being part of Georgia, an independent state since 1991. South Ossetia has itself been de facto an independent State for some years now although we, and of course the Georgians, do not recognise it.

Georgia’s first leader was Edvard Shevardnadze, formerly Yeltsin’s prime minister, but since 2004 it has been Mikheil Saakashvili, regarded by many as a bit of a hothead. On 8th August, presumably hoping world leaders would be at the Olympic Games and not notice, he ordered a military clampdown in S. Ossetia, whose people make their living largely from smuggling. Russia reacted with tanks and planes, saying it was defending its people, and suddenly we have what has been described as a Rhineland moment.

The importance for the West is that a major oil pipeline runs from Baku on the Caspian through Georgia and into Turkey an thence the Mediterranean. This is one of the few which is not controlled by Russia. It runs about 35 miles south of the Georgian capital Tbilisi which has been bombed and some say the Russian planes have targeted the pipeline. The destruction of the pipeline would greatly increase western dependence on Russian energy.

There is no single guilty party here; everyone has overreacted, but we shall have to defend that pipeline. The UN has had a couple of attempts to come up with a form of words but failed. The question is, how do we defend our interests without a war?

The Default Position

‘I believe we need to ask tough questions about the instant-hit hedonism celebrated by the modern men's magazines targeted at younger males. Titles such as Nuts and Zoo paint a picture of women as permanently, lasciviously, uncomplicatedly available. The images they use and project reinforce a very narrow conception of beauty and a shallow approach towards women.’

The above was said in a speech by Michael Gove, former Times journalist now Shadow Education minister. I saw an advance notice of his speech and, not quite trusting my own astonishment, held back from saying anything. I am glad to say it has not been well received. Here is blogger Mr Eugenides:

‘Men do not like tits because they buy Zoo. Men buy Zoo because they like tits.We can demonstrate this by means of a simple thought experiment. Zoo was launched in 2004. Hands up if you ever thought about tits before then. Yes, one hand will do.’

But it is something else which concerns me. All politicians make mistakes and say something they subsequently wish they hadn’t: they have ‘off’ moments. In these off moments they revert to type, to a default position, a classic case being that of the late Nicholas Ridley losing it about Europe in an interview with the Spectator.

The point I wanted to make about Mr Gove is that if this is his default position, making the content of perfectly legal publications a matter for politics, thinking it a politician’s job to ‘ask tough questions’ about publications he doesn’t like, then Mr Cameron needs to replace him, now. He is not suited to high office.

If that’s not the type of person he is, he should come out and explain himself.

The State of Italy

Italy has had more written about it in the European and American press this year than at any time since 1994 (the year of the ‘mani pulite’ clear out of the old political order and emergence of Berlusconi as a political figure). The reason is Berlusconi’s third government, elected in April with a working majority: the foreign media cannot believe that a modern democracy would elect such a person. The reason they have is that the Italians, dangerously late and with great reluctance, have come to realise that there must be change. There was not a wide choice of reformers on offer; in fact the choice was the possibility of reform (no more than that) from Berlusconi or more of the same from the Left, and looked at in these terms the choice was encouraging. But no more than encouraging.

Berlusconi identified two urgent problems for his first months in government: Alitalia and Naples. The reason for these, as opposed to other pressing problems is that they are visible: they are part of Italy’s shop window on the world and Berlusconi needs Italy to feel good about itself, to present a bella figura. Alitalia is grossly overmanned, too much the child of the trade unions, heavily in debt and with outdated planes and support equipment. It is a throwback to the 1960s when a flag carrier was considered important and it was normal for major industries to be in public ownership. By rights it ought simply to be closed down and sold for the value of its landing slots, but now is not the time for such a gesture. A plan emerged at the end of last month which will involve 5,000 redundancies and some new money. It is not enough but it will close out the problem for a while.

Napes is the capital of the South, one of Italy’s great cities, and the streets were filled with garbage. Tourism had dropped to zero and the foreign papers and TV news were filled with dreadful pictures of rotting garbage, rats and filth. Again, a problem which was too visible. The cause had been organised crime selling space in the landfill sites to companies in the north and indeed from abroad. There was no room for the people’s garbage. The streets have now largely been cleaned, with the aid of the military. The underlying malaise, Italy’s tolerance of the excesses of the mafia (Sicily), n’drangheta (Calabria) the Camorra (Naples) and their offshoots and imitators, has not.

But a wide range of problems threaten Italy which are perhaps less visible.

Industrial
The power of the unions is as great, and as malevolent, as it was in Britain in the 1970s. Job protection legislation, introduced to appease them, has led to a stagnant labour market. It is almost impossible to fire someone, so no one is taken on. Foreign firms operating in Italy have found that it is cheaper in the long run to import workers from their home country and put them up in hotels than employ Italians. Labour competitiveness has declined 15% against Germany since the introduction of the euro, due to the unions forcing through pay rises without productivity increases. Foreign direct investment into Italy is virtually zero.

The Italian public sector is one of the worst examples imaginable of failed enterprise. Hundreds of thousands of people, probably millions, moonlight to another job, simply by clocking in and leaving their jacket on the chair. This entry and exit through the turnpike is visible, but Italians’ strong sense of omertà prevents anything from being done about it. No one criticises the gross inefficiency and gross overmanning because it could be your cousin threatened with redundancy. 70% of jobs in all Italy, not just the public sector, are on ‘raccomandazione’ – recommendation from a friend or relative.

Social
Immigration is a new problem for Italy, unlike in Britain with its Commonwealth and the entry of workers and their families since the 1960s. There was, until last year or so, effectively no immigration policy – traditionally Italy has suffered a net exodus. But with easy access from North Africa and the Balkans, and a long unguardable coastline, the peninsula has suddenly found itself with a massive increase in immigrant population (from, by UK standards, a fairly low base). And the Italians have begun to realise that these immigrants are culturally different. The rise in petty and occasionally violent crime has shocked the nation and, worse, threatened organised crime with competition on its very doorstep. The camps are being emptied by a bizarre alliance of the Camorra and the Carabinieri while the world looks on and whispers about the 1930s. This will eventually sort itself out, as it has in Britain (Commonwealth immigration) and Germany (Italians and Turks) but will take time.

Governmental
Italy is still in the throws of shaking off the post war settlement which has served it so badly. Established parties were (and are) subsidised by the state. Television channels, with heavy subsidies, were shared between political parties (it is a myth that Berlusconi controls the State broadcaster: realising it could never be impartial the Italians made it multi-partial). Newspapers are subsidised by the State. From his morning paper to his evening game show the State is in the Italian’s face, although he often doesn’t see it. Politics is everywhere. His local Comune may be communist, lavishly spending money levied by a centre-right government (local taxes are very low) and begging for more. Above the Comune are the 110 Provinces, and above those the 20 regions, each with its own layers of government, police force etc. It is crying out for reform.

Economics
The problems above largely tell the story of Italy’s economic position. The huge, sluggard public sector costs a fortune to maintain; almost farcical over-regulation strangles competitiveness; productive industry in the north subsidises the unproductive south, these subsidies are creamed off by organised crime which keeps the people of the south quiet, loyal and poor. Growth is the lowest in the eurozone. Italy’s debt costs €70bn a year in interest and despite being in the euro it has to pay more an half a percent above what the Germans pay. This spread is widening.

Berlusconi has recently announced a package of expenditure cuts, as an alternative to tax increases while the economy suffers in the difficult worldwide trading climate. This is a welcome development but it makes, as far as one can tell, no inroads into the pre-existing problem. In the previous election both parties were bribing the voter with expenditure, and the Italians have not yet acquired the taste for hair shirts.

So what can be done, if massive Thatcher-style reforms are not politically possible? One suggestion has been for Italy to withdraw, perhaps temporarily, from the euro. It could allow the New Lira to decline against the euro (it would be hard to stop it), giving a boost to Italian business and devaluing the debt.

Against this are three points:
- First, the nature of the goods Italy produces tends more to the quality/fashion end of the spectrum than the basics – Ferrari rather than FIAT, and these goods are less price elastic(you don’t sell many more Ferraris by dropping the price 20%)
- Second, there would be an inflation rush as the currency devalued
- Third, it is a one-off measure. What happens next?

However, proponents of the strategy point to the boost given to the UK economy by Britain’s exit from the exchange rate mechanism in 1992 with sterling’s accompanying 20% decline. The difference of course is that post-Thatcher Britain had deregulated and reformed its Labour market. A boost to business via a more competitive exchange rate went straight to employment and growth.

Should Italy leave the euro? Only with a series of strict reforms to make sure it wasn’t just another devaluation. Will it? Berlusconi is the only person who could take such a step and, in the face of a worldwide downturn, he just might. An S precedes the number on Italian euro notes. The German ones begin with X.

Unlike most commentators I am cautiously optimistic about Berlusconi. He has the mandate for change, the capability of blue skies thinking and, perhaps most important, the desire to cement his legacy. If his last government was spent keeping him out of prison, this one might have the time to do something for Italy.

Staple Government

There is a report in the Spectator that Gordon Brown has regularly thrown his stapler at people who have brought him bad news and recently, in a fit of rage, stapled his own hand.

What, in Heaven's name, is he doing with a stapler? It's not just that he doesn't appear rational enough to be trusted with one, it's that he's not a filing clerk, he's the Prime Minister. He should be running the country, not doing a junior secretary's job.

A fine fiddle

The BBC has been fined £400,000 for fiddling phone-in shows. In a typical example a member of staff posed as the winner, and people phoning in on premium rate lines had no chance of winning.

And what, may I ask, is the point of this? The viewer or listener is fiddled, and then because the BBC is funded by the viewers and listeners has to pay the fine for his being cheated.

Ofcom, another body paid for by the taxpayer/viewer/listener, said that the BBC ‘had put in place compliance training for its entire staff, created a competition code of conduct, developed additional guidance on competitions and launched a new in-house centre of expertise for telephony’

How many people were sacked, for cheating the customers, and how many of these fraudsters reported to the police (obtaining a pecuniary advantage by deception is still a crime, I think)?

No, go on, you guess.