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.