Back of a fag packet blues

I fucking hate government statistics. Yeah sure Eurostat is a fuckin’ nightmare to use compared to the Office for National Statistics webpage and that’s despite the latter being run out of Wales, but then saying AIDs is worse than incurable diarrhoea isn’t saying much either give or take the mopping.

But, yeah government statistics combine all that’s bad about stats – they’re freely available to be sure in an open government style, but in such convoluted ways they’re a pain in the arse to get hold of (hmm, lets put a PDF with detailing what the tables are here and the actual spreadsheet with the numbers in it waaaaaaaaaaay over there under that rock). Added to this is their general incomprehensibility; theres the jargon that means so much to civil servants without a life that no one else understands and the different versions of the truth with clear as mud footnoted explanations as to why table 5.2b and table 5.2d, which appear to be about exactly the same thing, convey totally different messages. Then you fire in political shenanigans, the most obvious being including say PPP financed spending alongside actual, honest to god government capex so as to produce a much bigger, headline grabbing total and basically I can’t be arsed with it all.

Other than now. That the banks will need their bale out extended was one election secret, however that Britain, regardless of who won the election, is gonnae have to fuck shit up when it comes to public spending was the real big, big biggie.

So according to John Kay there is a hole in the region of £50bn to £100bn a year needing filled. Now that is a big hole and one the following back of a fag packet calculations are based on. To put this in context total managed expenditure (I think this is what public spending is called now, I could well be wrong) in 2008/09 was £630bn, so that’s 8% to 16% being spent on filling a hole rather than public services.

Except the £630bn figure includes £31bn p.a. spent on public sector debt interest. So lets knock off that cos you know those lenders have got to get paid (plus rising cost of servicing increased government debt is a useful proxy for future economic growth and the associated increase in tax revenues). Then there’s the various forms of government spending that are sacrosanct, like health and education, which according to table 5.1 of the “PESA 2010” accounted for £110bn and £83bn of TME respectively (See? Its fucking gibberish).

So if debt cost and spending on health and education can’t be changed, that means the £50bn to £100bn a year needed to fill the hole has to be lopped off the remaining £407bn worth of spending. Ouch! Allova sudden we’ve gone from a 8% to 16% to a 13 to 25% reduction in public spending on more specific things, which is seriously harsh.

The thing here though is politics is going to start playing a disgusting part; not politics in the sense of principled opposition to shit like trident, although there’s scope for that, but politics in the sense of pork-barrel plays to specific constituencies.

My favourite example of this was the mince over reopening the auld Waverly railway line that ran from Edinburgh right though one of the LibDems Scottish electoral heartlands and on down to Carlisle. Anyhow, so there’s the LibDems in power with Labour in the Scottish parliament and allova sudden the LibDem transport secretary was able to announce in 2007 that preparatory work for reopening the line were underway. Except 2007 was the same year the SNP formed the Scottish government and lawks a lawdy, reopening the Waverly line subsequently got delayed and delayed and delayed as cheucters more likely to vote SNP started getting more taxpayer funded Gaelic things and individual bridges linking their crofts to the nearest subsidy claim form office, cos you know how we’ve got to preference to the point of subsidising one way of life over all others.

So aye, applying that bloody obvious insight – politicians will try and look after the people who voted them into power – to the current situation, I’d guess when it comes to the targeted 13 to 25% hack backs in spending we’re due over the next however many years those regions, locales and demographic groups that don’t vote LibDem or Tory, don’t vote at all or else vote on the basis of being predictably thick, will get humped. As a starter for ten I’d rather no be a child or an elderly disabled or unemployed bod living in the West of Scotland from next year onwards.

A 16th May P.S. to the above is that the pork barrel stuff will be all about government capital spending on ships and shit. As for everything else it seems like middle income bods are gonnae get clobbered left, right and centre by various VAT,NI and income tax rises and freezes and also get excluded from as many benefits as possible e.g. no more from tax credits or nursery vouchers and say the end of unverisal child benefit and what not if household income is over 40 grand a year or something, the staggered introduction of all which will progressively knock thousands off people's disposable incomes and further ghetto-ise the benefit system. Lovely.

Pants

The only debate on the economy during the election that got any profile was the shite over national insurance, which amounted to c.£7bn in potential government revenues. That was it for the most part.

Back in the real world the British banking system is being propped up by £320bn worth of emergency funding that starts to unwind next year. As someone who works in banking I’ve clearly got a distorted view as to which is the more important matter, but even allowing for that I still think £320bn is more important than £7bn. So there.

If the £320bn isn’t renewed i.e. if the government and Bank of England don’t keep Britain on the hook for all that dosh the British banking system will collapse. End of. Given that either/or scenario, the funding will be renewed, but perhaps the terms, conditions, duration and cost of that support was something worthy of political debate, even by bigots?

The other thing is what are banks actually doing in response to the basic challenge they have of HUGE balance sheets they’re having difficulty funding. They can respond to this in a number of ways. One is all the problem loans are called up, the loss taken and the assets taken as security then sold on at a loss, shrinking their balance sheets (and associated funding requirement) in the process. Or they can try and pile into areas that generate the cash needed to rebuild their capital bases, but don’t increase their balance sheets, examples here being as much advisory work as it’s possible to advise on. Third, they can raise the margin between what they pay to borrow and charge to lend; this does swell balance sheets, but more profitably, helping them rebuild their capital bases and reassure potential funders that they are indeed A-OK and worth taking a punt on.

Splitting out the forest from the trees for a mo, each of these options has obvious ramifications over a 1 to 5 year period. The first runs the risk of an asset fire sale as things like shopping centres and office blocks all over Britain are put up for sale at the same time; as prices crash construction firms and developers have no incentive to start employing people to build more things. The second saw some interesting shit recently when RBS took on some blerk with close links to Vladimir Putin to help its push into Russian investment banking, reminding me of a Woody Allen quote for some reason - “The lion and the calf shall lie down together but the calf won’t get much sleep”. Finally, as the current state of the savings and mortgage markets makes horrendously clear, the third option is already well underway to the detriment of people reliant on savings income and those wanting to buy or build houses.

But, aye, back to the election and the stuff that matters, I mean wots that all about eh? Cumming over ‘ere taking our council houses, getting jobs, paying our national insurance, ours mind, not theirs etc., etc. ad nauseum.

Law ...<...........................................>.. Justice

It’s all the death penalty’s fault really. You think of American justice, you think of American politicians signing-off the execution of mentally disabled, poverty stricken ethnic minorities to win votes.

Except, one cheeky thing the US legal system does have going for it is its treatment of white-collar crime. Take Bernie Madoff and his 150 year sentence for running a ponzi scheme that robbed people of their life savings and compare it with say the Mirror Group pension fund scandal and all that legal aid wasted on securing no convictions.

Or then there’s the Natwest 3 who went to the British Financial Services Authority (as opposed to the comparable US agency) to fess up. Then when that appeared to backfire they took legal action to try and force, thats right FORCE, the British SFO to prosecute them, before eventually losing their appeal against extradition at the European Court of Human Rights; anything it seems to avoid being tried for US white collar crimes in the US by a US agency. Accordingly, after being extradited to the US they got 37 months in prison.

Or mebbes you could read March’s US report into how Lehman brothers used English law to justfy window dressing their accounts in an action that could lead to its former CEO going to trial (but in the US of course).

D’ya see the pattern emerging here? US justice? Ouchy, British justice? Wussy.

True, behind the scenes I’ve the impression the FSA is having quiet words with various banking and finance execs along the lines of “may I have a quiet word, my understanding is Sir Bufton Tufton, Deputy Chair of the Financial Instability and Operational Risk Operating committee no longer considers such and such suitable material” after which such and such subsequently and most miraculously finds themselves handing back the company blueberry and executive khazi keys for un specified “personal” reasons. But that’s just clubbable, terribly middle-class shite that is with stiff-upper lips all round I’m sure.

And yeah, yeah the FSA is kidding on its gone mad, batshit crazy by fining two former Northern Rock execs £644,000 between them. But so fuck? Sure, these guys were “only” on good six figure wages rather than the 7, 8 or 9+ figures actual top flight financiers get and sure, sure they probably lost packets when Northern Rock shares went phut. But, realistically? Worst case scenario? They might have to sell into the current depressed market the tacky haciendas they bought besides a Portugese golf course and look into timeshares instead.

Yet given how cataclysmically systemic it all was and how glaring the things they’ve been fined for where, why not bitch slap them with 3 years in jail as well, you know the kind of shit the NatWest 3 were shitting themselves about in a “ohmigod I don’t want to be someone’s prison bitch, I’ve not had that much stuffed up my arse since Bingo did the bongo at boarding school” type style?

And why is anyone bothering to big up such a measly punishment anyhow when reality makes clear how much of a total wuss the British system is anyway? Like compare the Northern Rock fine with say Ivan Boesky in the US who only got fined $100m dollars plus a 3 and a half-year sentence AFTER he plea bargained. There again he handed over Michael Milkin who eventually paid $1.1bn in lawsuits for being a naughty boy (and these examples are from the late-80s/early-90s i.e. before some of today’s financial crimes became criminal!)

One final point is why is everyone else with a vested interest – trade unions mebbes, but institutional investors defo, - being such wet farts? Quick example – as I had it explained to me once, the one time a company travel and expenses policy is really looked into is when someone senior in a company wanted rid of an exec on the cheap i.e. you didn’t provide a receipt for that £50 wine you claimed for therefore we are going to fuck you up for misconduct …………… or you could quietly resign?

So howzabout now an HR business partner or two (i.e. a dozen people at most across the UK) started looking into the extent to which certain peoples actually adhered to every company policy of every type before they took a package, then started making retrospective bitch moves to justify clawing back some of the gravy from the early-retired fuckwits that fucked half the British banking industry and with it much of the British economy?

Sure, it wouldn't make headlines - unless the shitfers being targetted started going to employment tribunals - but man oh man it'd feel like justice (as opposed to the law).

As a 16/04/10 P.S. Oopsy, forgot there was an election on and the Tories want to break-up the FSA, giving its consumer protection role to a new agency and its financial stability responsibility to the Bank of England, with the latter monitoring the overall growth of credit and debt in the economy (does that mean a return to money supply targeting I wonder?).

You’d almost think the FSA (or specific senior FSA execs) was using those Northern Rock shifters as high profile examples to illustrate how its tough on financial crime and tough on the causes of financial crime. Am sure that’s not even remotely the case, no chance, no way nelly. But, in case it is then no-one had better read this lovely wee study of the Icelandic Bank fiasco that gobbled up billions of British savings. Besides providing further evidence of rating agencies being utter shite, the note notes “The host supervisors of the UK and Netherlands, however, also have a duty to protect depositors in their countries. The Dutch authorities have repeatedly stated that there was little they could do. (The UK authorities have kept quiet.)” – because they were too busy grandstanding their handling of some Northern Rock nobodies perhaps? Pile of wanks basically.

Tighter than a gnat's chuff

Old skool banking meant borrowing money from savers (e.g. via a savings account) then lending it onto borrowers (e.g. via overdraft facilities). In this way old skool banks were intermediaries that facilitated the transfer of cash between those wanting to save and those wanting to borrow. Even better old skool bankers did a time transmogrification thingy as well; because they knew there’d always be cash sloshing about in a mix of savings and current accounts (Mr A has made a withdrawal? Who cares Mrs B has just had her salary paid in), they could borrow short-term and lend long.

The obvious point here is that the volume of deposits a bank has determines how much cash it has to lend i.e. a small deposit base is a constraint. The discovery of wholesale funding bypassed this , most obviously at Northern Rock, which was able to lend oodles and oodles because around three-quarters of its funding came from wholesale markets rather than depositors.

In fact am sure I can remember seeing some graph produced in 2008/2009 that ranked every big financial institution in Britain by the % of funding they derived from wholesale sources. Northern Rock was the clear outlier, but as you looked at who was second, then third and fourth in line you realised you were looking at which banks (lets be honest, which former building society) would be the next to go under.

The moral of this is pretty clear – any bank reliant on wholesale funding shouldn’t be let near any part of the retail banking market. Except, I’m having difficulty squaring this with John Kay’s proposals for “narrow banking”.

Originally, in a paper what he wrote in September 2009 he defined “narrow banking” as follows: “Only narrow banks specialising in these activities could describe themselves as banks. Only narrow banks could take deposits from the general public (deposits of less than a minimum amount, say £50,000). Only narrow banks could access the principal payments systems (CHAPS or BACS), or qualify for deposit protection.

Narrow banks might (but need not) engage in consumer lending, lend on mortgage, and lend to businesses, but would not enjoy a monopoly of these functions.”

This to my mind is all well and good. Except, listening in to a half decent Radio 4 “Analysis” programme broadcast this month yer man Professor Kay appeared to have redefined his definition somewhat judging by the transcript: “Professor Kay believes that because so much has changed since the 1930s what’s needed now is a variation on the Glass-Steagal theme. He calls his version “narrow banking”. He would limit the activities of retail banks to the most basic banking functions; looking after your money and making sure the payment system works. Narrow banks would only invest in government bonds, and the government would guarantee their deposits in return.

KAY: Now what I would do would be establish retail banks that take deposits and access the payment system, but the business of providing even consumer credit and mortgages and small and medium size loans would be done by specialist lenders. And some of them I think would be standalone organisations and others would probably be parts of bigger financial holding companies, which would run narrow banks but would also provide a range of other services to retail customers.”

The killer point here for me is the comment “only invest in government bonds”. Like where has the financial intermediation between private savers and private borrowers gone? Does this mean narrow banks wouldn't sell mortgages, credit cards or personal loans? Like is narrow banking simply about hoovering up retail deposits to pass on to government?

That’s not necessarily a bad thing to be honest, given it potentially minimises the imprtance of selling sovereign debt into international markets and all the rating agency shite that entails. But, if “narrow banks” only engage in retail deposit taking, who is going to lend to private individuals (e.g. sell you a mortgage) and, more importantly, how will they fund it, via wholesale markets in a Northern Rock style? Am confused rather than critical if honest, but my take on the latest definition of a “narrow bank” is that it appears so tight as to engender unnecessary risks.

Rating agencies are fucktards part 709b

A credit rating provides a measure of how likely a borrower is to be able to repay a loan; the lower the rating, the greater the risk, the higher the cost of borrowing *. Right now politicians and “experts” and what not across the world are looking to cut their respective government borrowing levels to preserve national credit ratings.

Take George Osborne for instance “maintaining the U.K.'s top-notch credit rating would not be easy but said it would be a central "benchmark" on which his party's economic management would be judged if it wins power this year … and pledged Tuesday that a Conservative Party government would hold onto the U.K.'s AAA credit rating,”

Now as a political strategy that is one top class bitch move cos it means you can blame someone else every time you cut public spending AND link it to the greater good.

Like when you does stuff like
- introduce a 3 year public sector pay freeze
- tighten eligibility for benefits (but not actual payment levels) to reduce spending
- cut capital spending on roads, schools, hospitals, social housing and what not
- hack back funding for “non-core” public services like libraries
- and so on and so on

All you need say, in a big boy done it and run away type voice, is something like “we are taking these TOUGH decisions to preserve Great Britain’s TRIPLE-A credit rating because of all the MAD/BAD shit Labour did. By doing this we will ………………………. (stop the cost of government borrowing increasing, except this last fundamental bit is usually too much to include in a soundbite. Plus it alludes to the creditors who are directly/indirectly dictating what a democratically elected government has to do in ways that will adversely affect lives).

Even better, if the rating is maintained, then depriving people of public services and decent pay can actually be presented as a good thing. Who cares if a growing number of auld yins are left sat for days in their own piss, our credit rating is still AAA!

With political debate now simply a question of what to cut, when and by how much, rating agencies are apparently defining the parameters and direction within which government sets its policies and budgets, regardless of whose prime minister **.

Except I once worked besides a bloke who’d worked in a rating agency and was an utter tosspot. Seriously, he used to spout inaccurate, inane, unrealistic, ignorant gibberish c.60% of the time, but only after forcing people to wait for him to gather his “thoughts” from a mind he claimed “was full of ideas”.

My painful personal experience might provide our potential future chancellor with a useful insight into the calibre of the rating agency staff setting a central benchmark with which to assess his performance. Or he might reflect upon how rating agencies used to think sub-prime was the bees knees. Such critique is also more constructive than the usual left-wing hide your head in the sand/anus approach of moaning about the inequities of globalised capitalism then passively accepting whatever it is you neither liked nor understood in the first place.

He might even consider the example of Japan. See, Japan had the same triple AAA credit rating we aspire to maintaining throughout the 1980s and 1990s. That’s lovely you might say, generous even, except the 1990s was what’s called Japan’s “lost decade” throughout which the economy did well when it managed to stagnate.

A major factor driving the Japanese economy into the doldrums was the aftermath of a cheap credit fuelled property bubble that’d been popped in 1991 (sound familiar?). Government and banks collectively thought that economic growth and a recovery in asset prices would sort things out so chose to sit and wait it out. This was a shame because land prices, fer instance, had actually started what turned out to be a 17 year decline that left bank balance sheets clogged up with bad loans they were unwilling to ‘fess up to or write down in the hope of an eventual recovery that never came.

All this was exacerbated by the keiretsu model of closely inter-linked clusters of banks and industrial concerns that characterises much of the Japanese economy. Now to get an insight into these links I mind some Japanese bloke I knew explaining how his grandad’s steel company had been invited to join a keiretsu and that to seal the deal, he was to marry a daughter of one of the bank executives involved. So with relations between keiretsu members close to the point of being incestuous, the mutual obligations these created saw banks tying up chunks of what remained of their assets/capital in even more non-performing loans to companies that would otherwise have been bankrupt without them (those outside a Keiretsu were of course treated less favourably).

Anyhoo, Japanese banks systematically under-reported their non-performing loans for years letting everyone pretend everything was A-OK. Except it wasn’t, bank balance sheets were so bunged up with dreck they had limited scope to do the new lending that would finances consumption and all that good stuff. Eventually, following a rash of bank failures, the government started fucking shit up from 1997/98 onwards; bailing out this bank, nationalising that one and capital injecting others. At the same time banks started to ‘fess up to all the shite they had on their books which meant mucho write-downs and more honest reporting that helped non-performing loans as a % of the total reach a cheeky peak of over 8% in 2002, before falling back on a sustained basis to under 2% by 2008.

All very interesting you might say give or take how come the rating agency fucktards didn't appear to have cottoned on to reality in the 1990s despite them being central benchmarks for and shapers of economic policy. And how do you explain the rating agency response to government efforts to resolve matters, which in 2001 and 2002 i.e. after the worst of of what had become a financial crisis was largely past, meant “penalizing the government of the world's second-largest economy for failing to curtail its fiscal deficit or revive its faltering economy” by repeatedly cutting its credit rating. (see also). See that strikes me as totally counter-intuitive that does, it’s like the rating agency policy was we don’t care if your entire 1990s are fucked, but don’t you dare ‘fess up to problems and try and sort them out or we'll do you ugly.

I asked some economist involved in producing country ratings about this the other day and he said it was to do with the levels of public debt government actions had created. I think this is pants. Instead, I think rather than their having been any great analysis or logic underpinning the rating agencies’ stance towards Japan, some rating agency fucktard kneejerked about the last 2 quarters’ government borrowing figures cos they were too thick to take into account the positive effects this would have; this was debt taken on to sort shit out after all. And ignoring the abso-fucking-horrendous moral hazard aspects of the ways in which Japanese banks were recapitalised, anyone with more than mucus up their arse for a brain can understand that debt-financed government spending can support the future economic growth that generates the tax revenues needed to repay borrowing.

So sure, sure you could try and come up with some justification based on some half-arsed neo-classical economic theory you vaguely remember from university as to why government debt beyond a certain level is a bad thing. Except the definition of acceptable government debt levels is largely arbitrary and its no as if any rating agency fucktard has the right data or skills to produce anything more than crude simulations that - give or take the self-fulfilling aspect of credit ratings where cutting a rating because of concerns about a government’s ability to repay/service its debt makes it less able to repay/service its debt - say fuck all about fuck all. In fact as someone who has seen credit rating models produced by internationally reknowned "experts" used in anger then described by their actual users as random number generators, I can truthfully say credit ratings often say less than fuck all.

Then there are the perverse incentives credit ratings create. In the Japanese case this was potentially to not do anything about its banks. With sub-prime it was more straight forward - it was about precisely designing asset backed securities that ticked all the right rating agency boxes to get rated triple A, but turned out to pose horrendous risk. Closer to home it’s the accounting trick that is PFI/PPP, which is primarily designed to do no more than keep the debt associated with government capital spending out of the national accounts rating agencies use to assess Britain’s credit rating.

So anyway, that’s my reasons for saying rating agencies are fucktards and by implication anyone wanting to use their output as a basis for benchmarking their performance a total fuck-nugget. Personally, I've no idea why rating agency finances, incentives, models, criteria, accuracy and competency aren’t subject to systematic, routine and in-depth public scrutiny, challenge and review, especially given the sub-prime catastrophe. Its time we started to do them ugly.


* That’s the theory, the reality when it comes to say mortgages before and after August 2007 is rather different.

** You could say its actually the people buying the government debt that are the issue. But, as credit ratings determine the price of said debt and the buyers are heavily reliant on the rating agency assessments, you'd be missing the point.

Hero the Zero (with apologies to Daevid Allen)

So after placing blind, unwavering faith in sub-prime debt brought about the credit crunch and with it the biggest global recession since the Great Depression, Americans chose to pick up this same blind, unwavering faith and place it in the lap of a former investment banker who’d run an institution that’d been involved in, err, sub-prime debt.

The result, judging by these magazine covers, was that mainstream American opinion got to reaffirm its jack-off fascination with individuals as opposed to institutions, complex analysis, anything that might run counter to existing prejudices etc., to an unbelieveable extent.

Thats why I think all these pics need gathered together for posterity's sake; it's my wee attempt at making sure any history of what’s happened has a clear sense of how ridiculous things where and how deluded so many people turned out to be when it came to choosing a white knight (Yeah sure hindsight is a wonderful thing, but c'mon theres laying it on a bit thick and then theres the images presented here).

Even better with Paulson is the extent to which he totally, utterly, totally, utterly, totally fucked up. I mean there he was in the hot seat and whoops-a-daisy, turned out to be an utterly glakit, useless bastard.

It’s like in the Autumn of 2008 when the only thing holding the global financial system together was a belief that big banks wouldn’t be allowed to fail, Secretary Paulson said “Fuck that, let Lehman BURN muthafucka!” or words to that effect.

Here I’ll digress for a mo’ - a polite interpretation would be Paulson took a dealmaker approach to the credit crunch and in so doing displayed a flexibility, creativity and ability to devise bespoke solutions to specific problems of the highest order. Except, given this was a systemic crisis all that shite was completely beside the point.

Rather, what was needed was a contextualised strategy wherein the issue wasn’t so much should Lehman Bros be allowed to fail as it was what would the possible consequences of it’s failure be. And lets not even discuss the progressively more generous terms (for banks at the taxpayers’ expense) on which deals where reached.

Digression over - at this point you could go on about the extent to which Goldman Sachs, which King Henry used to run, overlaps with and even controls the US state in a big, vampire squid stylely. Or you could be a bit brighter and broaden this to include investment banks and Harvard MBAs more generally. But, given that’s essentially straightforward left-wing views of the ruling class and it’s formation I’d rather not waste my time (Very rich and powerful people have a disproportionate influence over government policy, taxation and public spending? Really? You've got to be shitting me. Really? No way, etc.)

Rather, it’s more fun to imitate the all-American cult of personality type thang. I mean yer man Hank (rhymes with ….) obviously posed for these photos indicating he chose to have himself represented in ways that leave me with the impression that Hanky boy clearly has more than a wee bitty of an ego.

Like when the magazine said Secretary Paulson may we call you ”Mr Risk”, he presumably said “yes” and when they said whaddabout “The Persuader” he said “YES” and when they said “King Henry”?, he said “yes, yes, YESSSS!!!!! Jezuz fuckin’christ YESSSSSSSS!!, I AM King Henry Muthafucka!”

Turns out (ignoring the however many seats on the boards of however many private equity houses and financial boutiques he'll take in the future or has already been offered), yer man was a useless bitch, byatch.

WANKER!!!!!!!!!!!!!!!!!!

“Is Sovereign Debt the New Subprime? That’s a question many on Wall Street are asking as 2009 comes to a close.” (or you could also click here)

Anyone interested in this would be advised to ignore the previous links and instead read Willem Buiter’s blog posts from (off the top of my head) a lot of 2008/early 2009, although doing so would raise a number of bloody obvious points (1) its not a new risk (2) seriously, its not a new risk, (3) I’m not joking, its not a new risk and (4) I’ve no idea why Buiter wasn’t cited in Prospect’s list of the 25 people who’ve contributed the most to public debate over the financial crisis other than the fact political economy really is Prospect’s gaping big whole of a weak spot.

Government borrowing and the concerns it's creating are already prompting clear responses. The Irish government, fer instance, has announced the following 2010 cuts in public spending –

• Public servants pay cuts ranging from 5% on those earning 30,000 euros to 15% on those earning more than 200,000 euros
• 760m euros on social welfare
• 980m euros on day-to-day spending programmes
• 960m euros on investment projects.
• A 16 euros per month cit in child benefit

So describing sovereign debt as the new sub-prime as if the discussion was about hemlines is an offensively off-hand way of referring to a situation that's already damaging the finances of millions of people. I mean whats so fashionable about cutting child benefit?

And for a phrase that’s being used so knowingly it’s actually a piece of shit comparison. Sub-prime was regarded as triple A by the exact same people now doing down sovereign debt. It's subsequent implosion highlighted the rating agencies’ deeply rooted technical inadequacies and the ignorance of the vast majority of the financial system (including “many on Wall Street”) what with a credit rating being a measure of probability of default i.e. an assessment of what is likely to happen in the future as opposed to the codification of a retrospective kneekerk. And because allova sudden no one had an utter scooby what the risk sub-prime posed actually was, the resultant uncertainty and associated crisis of confidence was what caused much of the credit crunch's damage to the global economy.

By contrast, people comparing sovereign debt with sub-prime typically trot out a list of countries that may or may not include Greece, Spain, Ukraine, Austria, Latvia, Ireland, Argentina and Mexico as evidence to substantiate their argument. This is all very well except the fundamental point about sub-prime was there weren’t any meaningful, direct comparators. Hence being able to cite relevant examples and historical episodes by definition makes clear sovereign debt defaults are nothing new nor particularly unquantifiable. Or to get all Donald Rumsfeld on your ass sovereign debt defaults are a known-unknown whereas sub-prime was so destructive precisely because it was an unknown-unknown. And just don’t talk to me about the fact that with this wee thing called the IMF there’s already a clear, if painful, safety net in place for national economies and their debt, another factor which didn’t apply to sub-prime (after the monolines went phut anyway).

So why make the comparison if it's spurious and poorly thought out? For one thing it’s catchy enough to comply with the media’s goldfish memory and bad news fetish. For another it's a product of underlying prejudices about government borrowing and spending. And finally, it reflects the position and associated ignorant arrogance of those making it; they’re not going to be affected by child benefit cuts so as a rule don’t give a fuck. Hence this post's title, which I’m putting forward as the universal response to anyone ghastly enough to call sovereign debt the new sub-prime.