A dignified part

A cool thing about America is how looking at stuff there gives an insight into how shit is/will be here in an if only I could see myself how others do style. Not everything of course, but some good ‘uns, my personal favourite being the Military Industrial Complex (MIC). 

The MIC is so popular with the US left it figures in “pop” songs.  Calling it out highlights the actual relationship between private military contractors and the state and how the former lobbies for increased defence spending, using the profits this generates to grease the revolving door between the two that sees officials responsible for spending taxpayer monies subsequently taking up well paid jobs with contract winners on a regular basis.

So the MIC draws attention to the vested interests and general bentness of government spending. Obviously nothing like that happens here what with our civil service having a deep and profound public service ethos give or take the PFI/PPP private sector bods who advise government on err PFI/PPP, the Ministry of Defence bods who get jobs with BAE etc., etc.,  ....

Actually, this reality prompts questions about why we tend to delude ourselves about such obvious bentness  given how much raw vested/self-interest figures in our lives as well. Am guessing it's because we remain suckers for the “dignified part” of the constitution Walter Bagehot went on about and kid ourselves its all fair play and a good innings ya de ya di bollocks. Like click here for a wonderfully naive example of some middle class English bod placing as much faith in the power of "independent" truth as an attorney played by Julia Roberts would in a Hollywood shitfest.

That aside the interesting thing right now is how little liberal American critiques of the American polity and the American right appear to be resonating here despite the reality. Starting with the polity, it’s the whole Washington is in its Wall Street paymasters’ pockets due to the reliance of politicians on political donations thang. Here? Ach, its totally and completely different, like “Under Cameron, forexample, the proportion of Conservative Party funding derived from the Cityrose by 25% in five years to make up 50.8% of the Party’s total – 27% of thiscame from hedge funds and private equity”. Oh. Oh dear.

But, hey that’s just cash for "dignified" knighthoods isn’t it, like it’s not as if financiers are backing up the influence and access their money gives them with policy ideas by promoting and supporting think tanks and policy proposals? Like its no as if 6 board members of the Tory Centre for Policy Studies think tank are bigwig fund managers, investment bankers or private equity bods. Oh, they are? And the only significant industry grouping on its board is finance with no other industry or sector having any meaningful representation whatsoever? Really? Oh.

But, hey at least the tendency of the US media to go easy on Republican/Right-wing lies isn’t replicated here, like when Paul Ryan lied about how fast he’d completed a marathon (!?!??)  it wasn’t as if our own Matthew Parris said “it's hard to imagine that Ryan's "misspeak" was a calculated lie ... that is exactly the kind of thing you know journalists are going to check. I don't think he was lying. He may genuinely have forgotten." Oh, except he did. And what exactly is a “misspeak”, is it “economical with the actualité” for the twitter generation? But, hey implies the mainstream media here is as easy on the US right as its US equivalent. Nah, no chance. 

Here, lets look at the BBC coverage ofPaul Ryan’s conference speech where he told a run of absolute, blatant whoppers to the extant that some US bods are now talking about “post-truth” politics wherein, contra Matthew Parris, politicians tell humungous porky pies the media doesn’t bother to check. 

Thankfully the Beeb in its lovely and objective way called him out every time by referring to Ryan’s speech/whopper list as having contained some “alleged inaccuracies” (?), “errors”(?) and that for some he was “slack with his facts” (WTF?) and was open to the charge of “misleading his audience”. Oh. No, not really, rather he told a run of utter whoppers, like UTTER whoppers with them and the marathon time thang indicating he’s got a pathological aversion to anything not in keeping with his worldview/public image.

Oh dear. This example actually suggests that when a US politician on the right lies thru his pants in public, his recent personal association with efforts to get utterly revolting notions of rape built into US law gets forgotten by our licence payer funded journalists because they're too busy twisting themselves in semantic knots trying to tone down his tendency to tell utter whoppers. Oh dear 2x.

Again the short-term question this prompts is why. Longer term, given Labour has already half-inched loads of Obama rhetoric, it’s whether in an era when the financiers that fucked the UK economy still have an obviously disproportionate influence over the UK polity in ways that reek of hotdogs, we’re also heading towards a post-truth politics. That or whether we’re already there.

Northern Shock

* "sell-off nets extra £538m for taxpayers" - I saw this headline in an article on the sale of Northern Rock and thought cool.  

It stems from Virgin buying a further £465m of Northern Rock's mortgage assets and agreeing to pay an extra £73m in cash for the bit it’d already bought for £747m. Which is lovely and straightforward; 465+73=538. That plus 747 gives £1,285m doesn’t it? Except “UKFI has estimated that the government could ultimately receive more than £1bn” vs the original £1.4bn invested in it by government on the taxpayer’s behalf. 

This left me confused, like where’s the extra £285m gone then? Best to head over to the National Audit Office (NAO) report on all this and see what its saying. 

Ahhhhh, I see. The main NAO focus was on whether the Virgin deal represented value for money for the taxpayer, what with Northern Rock having been split into a good bank and a bad bank (the good bank being the bit Virgin bought). And aye weren’t there suspicions (and chat) at the time that it got a bargain what with it getting “Customer accounts of £21 billion matched by £10 billion higher-quality mortgages and £11 billion cash” for £747m?

Well the NAO think the Virgin deal was good value because Virgin paid 80-90% of the good bank’s book value at a time when the market prices for major UK banks was around 50 per cent of book value. Crikey, that does sound good.

Its just, its just …… the Northern Rock bit that got sold was in no shape or form comparable to a major UK bank; its an apple and they’re all oranges give or take the odd lemon. Like (1) It has a “clean” mortgage book made up only of the good stuff i.e. it involves a lower risk of future losses than the mortgage portfolios of any other major bank (2) It’s a purely retail i.e. mortgage bank, so is and is likely to remain far safer  than any of the universal portfolios major UK banks actually have i.e. there’s none of the corporate, by which I mean the leveraged finance and commercial property, dreck that have been and remain the primary drivers of UK bank losses. And (3) its no exposure to the Eurozone with all the risks (and associated losses) that entails. So too bloomin’ right it should have been sold at a significant premium to other major UK banks.

The other thing is the reference to the sale transferring billions and billions of cash. I’m not sure what that actually means like did Virgin pay £747m for £11bn in cash? If so I’d like some of that sweet, sweet action. Alternatively, it means that when it was sold Northern Rock had an incredibly liquid i.e. strong, balance sheet. Hence, this alternative report on the sale states Virgin got a “£14bn mortgage book” and “a £16bn retail deposit book”, which is a loan to deposit ratio of 88%. Crikey! That's low and again emphasises how the sale involved assets in no way comparable to other major UK banks.

And remember Northern Rock failed because it was overly, like MAD overly reliant on wholesale funding and had a loan to deposit ratio of something like I don’t know 20p in customer deposits for every £1 lent as opposed to the good bank’s eventual 16p for every 14p lent. So Virgin need only make modest tweaks to its new bank’s funding profile, shifting assets from no/low return highly liquid things into some-return less liquid things and it’ll increase its profitability in an instant. Hmmmm............

Then there’s the bad bank we’re still left with and its £54bn of mortgages that are being gradually wound down. This bad bank is so bad it made total profits before tax of £1bn in 2010 and 2011! And the increase in the return on the sale of Northern Rock stems primarily from the additional £465m in (profitable) mortgages sold to Virgin i.e. its not really that what Virgin paid for the good bank has increased, rather its paid out more for additiona assets that appear to be rather profitable. It’d also be interesting to know if Virgin buying these assets affects its loan to deposit ratio. It’d also be interesting to know if the plan here is to sell off more of the bad bank to Virgin in due course.

All this makes me wonder given it sets a precedent for the handling of the taxpayer’s remaining and far larger bank investments. Like based on the Northern Rock experience:

1)       Government appears willing to sell early at a chunky loss

2)       NAO assessments involve some seriously spurious bollocks

3)       Sod it, why wasn’t it held on to for a good few years more until market conditions for a sale had improved with more money repaid in the meantime and the EU told, in a French accent, to stick their December 2013 deadline somewhere Greek

4)       The reporting of this is pants, being either inconsistent, incoherent or both; like where’s this extra £285m gone then and can a distinction between the sale price and any cash generated via subsequent (and additional) asset sales no be made?


* apologies for the obligatory Northern Rock bank run piccie

Sharclays

I mind a colleague far better versed in the ways of “The City” than me referring to Barclays as Sharclays. I also mind someone I worked with heading off to work there, in BarCap to be precise. What made this bod memorable was that he was well known for being an arse and generally useless; last I heard he was doing rather well thank you very much. So really, the libor scandal is all about one bank’s culture, that and a few rotten apples who have thankfully been resigned allowing the lessons to be learned following a root and branch review.

Except, it very bloody obviously isn’t. As the former Barclays Chief Operating Officer has just made perfectly clear – the Bank of England had a word with the former Barclays CEO who then had a word with the former Barclays COO, who then told the relevant people to game libor. End of *.

Now some context here would help; in 2007 and 2008 the slightest whisper about a bank prompted all sorts of speculation, panic and potential crises of confidence. In this atmosphere, a quiet, unrecorded word with terribly important executives made pragmatic, if not legal, sense; better a “cheeky” wee fix now than another part-nationalisation later.

Unfortunately, the US’s more robust approach to white collar crime appears to have got in the way. Hence, we have the spectacle of the Treasury Select committee huffing and puffing, the FSA and the Bank of England saying they knew something was not quite right over at Barclays and the BBC's strenuous efforts to very obviously skew, distort and disguise what happened.

Hence for Robert Peston, our very own voice of objective financial market reportage and reason, the former Barclay’s COO saying he simply did what he understood the Bank of England said they wanted is actually proof of “Barclays' 'culture of pushing the limits'. This in turn followed an earlier Peston post asking if the Bank of England boy involved was a “Victim of his own innocence?” an interesting question to ask of a fucking deputy governor of the Bank because it’s so very obviously, but distractingly stupid.

The real point is straightforward; the party line here is to manage, massage and manipulate the news in ways that avoid exposing the status quo and limit any investigation of what went on; the "narrative" here is that some blinking foreigner and a few dodgy cronies at a rogue institution, off their own bat mind, gamed an honourable British system. Saying this often and loudly enough should hopefully drown out all the British financial regulators phoning their American counterparts to say “would you please be a good chap and shut the fuck up.”

Why this all took place is understandable. Given it’s documented in emails, there’s little debate as to its substance either. What subsequent events say about the way things are reported in Britain, how they’re managed, like how the SFO only eventually decided to investigate a very obvious fraud, i.e. the way “the establishment” works is actually the real story.

* From memory Barclays distinguished between two phases of gaming the system. One, the earlier phase, was out and out bent . The above only refers to the second phase.

Grecian 2000 (and 12)

Despite his being that peculiar thing, a Scottish Tory, listening to Professor Niall Ferguson’s last Reith lecture, I was taken aback at how gifted and charismatic a communicator he truly is. And he’s got good hair.

The arguments he made about the current situation? Meh. Actually, delete Meh and replace with “pandering to the preservation of elite self-interest despite that being at the destructive expense of society and the economy as a whole”.

Professor Ferguson, of Harvard Business School no less, is of course a very talented Scotsman on the make who has established himself as a (very) well paid ornament of the aforementioned elite. His claim that government borrowing and sovereign debt is a betrayal of future generations is a dangerous one because it provides something that sounds like an intellectual basis that the elite might not otherwise have(or not be able to communicate so articulately) for hacking back government spending. It’s also pants with Greece providing a good starting point as to why.

Greece’s problems stem from two interlinked failures. One, successive governments racked up wodges of sovereign debt to waste on deeply inefficient public sector spending. In this respect Greece seemingly exemplifies the kind of arguments Professor Ferguson made better than any other country. However, there was and is a second Greek failure; successive governments allowed the Greek people and Greek business to dodge taxes on an industrial scale - Greeks love dodging taxes even more than they do sodomy and plate smashing.

The thing is the two failures are deeply, unavoidably and fundamentally entwined, which is why Greece actually lends little support to Professor Ferguson’s argument; a government unwilling to raise revenues i.e. taxes, has to find the money from somewhere to prop up inefficient dreck like Olympic Airlines. Hence, the Greek sovereign debt crisis is as much about tax dodging as it is wasteful government spending because debt financed both.

And as the people with the most benefit the most from tax dodging, Greece’s tragedy is as much about the wealthy camouflaging their swimming pools to avoid flying tax inspectors as it is civil servants receiving bonuses every time they wiped their arses (there is one difference between the two groups of course; Greece’s elite has been busily buying up luxury London property, off-shoring as many Euros as possible in a wonderful statement of national pride and unity. By contrast the civil servants are getting humped).

So even if you accept the notion government debt robs a nation’s children of their future at some point in the, well, future, right now Greece actually exemplifies how debt was and is being used to maximise the incomes and wealth of today’s elite.

But, Professor Ferguson is a historian and historians like facts, so lets have some. In fact lets approach this like say a Sir Lewis Namier, a dead historian who emphasised the importance of self-interest, something Professor Ferguson is profoundly enamoured with; hence, a recent study found doctors and engineers are the worst (or is that most effective?) professions in Greece for tax dodging. Now guess which two professions are heavily represented in the Greek parliament? Yup, failed vets and grease monkeys.

This is interesting. This suggests an alternative model for understanding how shit got to where it is, one where in the West economic and political elites used both public and private debt to mask the incredible growth seen in economic inequality, finance tax dodging (or tax cuts in the US/tax “efficiency” here) and, by seemingly boosting the incomes of us plebs, distract from the profound failure of “wealth” or “job” creators to create wealth for anyone other than themselves.

And sticking with Sir Lewis a mo longer, if I was a rich man, right now (or a rich man’s ornament), in between the yubby dibby dibby and the biddy biddy bum, I’d be going on at great length about how public spending needs to be cut back, how sovereign debt is a terribly bad thing, balanced budgets, couldn’t run a business/ household like that, yadda, yadda, yadda (biddy bum) i.e. doing everything I could to draw attention away from how higher taxes on capital and profits could also sort out sovereign debt (a practical policy suggestion here being howzabout next time there’s an “amnesty” for tax dodgers hiding their money off shore, the threat is pay everything or go to jail).

Defender of the 1%

For me the biggest shock of Jimmy Carr’s tax “efficient” Barrymore moment has been discovering Rufus Hound has 628,440 followers on Twitter. I didn’t realise, give or take Alan Davies, that such a non-funny comedian could be so popular *.

Rufus Hound’s support for Jimmy Carr has been fun though. If you didn’t know any better you’d wonder when he said Jimmy “is a very nice man who works incredibly hard and has donated loads of money to good causes” if he was defending a paedophile caught with his cock in the cookie jar. And when he said “He's done absolutely nothing illegal”, that simply sidestepped the issue here which is fairness.

But, hey, that’s dead heavy, serious and highlights the intellectual vacuity of C list celebs whereas this is all about cheeky, cheeky comedy chappies who never lick the arses of more popular bods to get regular gigs.

Like am sure there’s no serious points to draw from this about how in tax terms Jimmy Carr exemplifies how in Britain today there is very clearly one law for the rich and another for the rest of us, that we most certainly aren’t all in this together or that there is clearly a lot of wealth out there not being fairly taxed, which is a shame because doing so would pay for the kind of vital public services that save and change lives.

So yeah, Jimmy Carr, funny fella. And presumably, every other “edgy” comedian is already having words with his or her accountant.

In the meantime, so what could the £168m Jimmy Carr and others actively chose to place ina tax shelter have actually bought if it was taxed fairly i.e. at 50% i.e. £84m? Well £41.5m would buy a brand new Edinburgh secondary school, but is only enough to buy a chunk of a £150m new sick kid’s children’s hospital. Iz zat all? Never mind, am sure us plebs will pick up the rest of the tab.

Oh hang on, actually we’re picking up all of the tab cos we’re PAYE and don’t choose to pay accountants to finesse our finances, facts that to me imply the 1% rich are fucking scum that deserve to be publically spat on then horse raped.


* I wonder if this is an English thing of liking wet, inoffensive, bland, terribly ambitious but dim, smirking no-marks. Yesterday Tom O’Connor, today Rufus Hound, etc.,

Augean Stables

So that’s a Spanish bank bail out then. Lovely. Except it reminded me of this blog post written in 2009 (!) called “Are the Spanish banks hiding their losses?” What was/is so good about this post is how the author shows how one of the 2 big Spanish banks appeared to take an overly optimistic stance when it came to declaring losses on its US mortgage book, the implication being its “loss hiding culture” was probably company wide i.e. it applied to its Spanish operations as well.

Old news? Nope because this year it had become increasingly hard to reconcile the Spanish unemployment rate with the much lower rate of mortgages going bad that the Spanish banks were collectively willing to declare. Alongside this were other suspicions about how Spanish banks were artificially propping up house prices, again to minimise their losses. When confronted with this kind of stuff in April, the Santander CEO declared “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”

There you are then. Except, alongside this you had Bankia restating its annual accounts for 2011 in a way that turned a Eur309m profit into a Eur4.3bn loss before taxes.

To be fair the Spanish government does finally appear to be aware of the credibility issue surrounding Spanish bank accounts, hence independent outsiders have been brought in to establish how much capital the Spanish banks need before the bail out gets doled out. Except, outsiders already audit Spanish banks so they can produce annual accounts; they’re called accountants.

So what makes this lot any different? Err, they’re management consultants as opposed to bankers or accountants, which is kinda confusing. Like are accountants no longer fit to audit banks, are current annual reporting requirements that inadequate, are Big 4 firm Spanish accountants bent? Am sure all of these things will be examined at length and in great detail.

Back in the real world, there are a couple of things to consider. One is the extent to which a blind eye appears to have been turned towards the general dodginess of Spanish bank accounting practices both at a Spanish and at an EU level. Practically, this left the Spanish government playing catch-up, placing sticking plasters here and there as new problems emerged. The consequent Spanish and EU failure to sit down and sort shit out once and for all led to a drip, drip dripping away of confidence and credibility that I’d guess means the bill now in the process of being paid is far bigger than it would have been say 2 years ago (compare/contrast with the last British government's approach of bank recapitalisations and the introduction of an Asset Protection scheme to draw a line under potential, future losses).

Another is how this modifies interpretations of the current situation that focus exclusively on government debt. Spain had a debt fuelled property bubble to be sure, but a private sector led one; the Spanish government was by comparison a global model of fiscal probity. So rather than debt, I reckon the main parallels to draw between Spain, Greece and Italy concern the significant contribution the behaviour of their political and economic elites made to their current woes, be it institutionalised Greek tax dodging, Italy’s general bentness or Spain’s overly optimistic bank accounts. Note how in every case these issues cut across both the public and the private sector. Note also, give or take Berlusconi being got rid of, how bail outs don’t directly address them i.e. the European debacle is going to continue for the foreseeable future with presumably Portugal and Italy next in line.

Who dat

Watching Paul Krugman bitch slap Jon Moulton on Newsnight was fun. Like for all Jon Moulton, rightly, made his (public) name speaking vast amounts of common sense about Rover as the Phoenix debacle took shape, it turns out he’s a pro-austerity fella and as such deserved all he got. One wee thing that confused me though is the way he keeps getting introduced/described as a venture capitalist, because my understanding is he’s not.

Like calling Moulton a venture capitalist is like calling a dentist a gerontologist. So sure a dentist and a gerontologist are both medical fellas, but they’re ones with very distinctive specialisms/areas of expertise, who do different things and use different tools. Similarly, whereas a venture capitalist typically focuses on early stage businesses and typically, besides commercial savvy, provides technical expertise related to what it is a business does as well as equity, yer man Moulton is better described as a private equity bod, who targets well established concerns e.g. Reader’s Digest, and provides/inflicts generic financial engineering alongside commercial savvy. Plus, his deals typically involve oodles of debt with a cheeky wee bit of equity on the side.

Rather than pedantry, the nomenclature being used matters. A lot. Back before the credit crunch crunched private equity became one of capitalism’s more evil, unacceptable faces, one dominated by multi-millionaires who paid less tax than their cleaners and who couldn’t attend a black tie do without protestors barracking them as they rolled up in their respective Aston Martins, Ferraris, Bentleys etc.,. And while that was here and then, over in the US right now there’s a wee, politicised debate about the worth of private equity prompted by the fact Mitt Romney made his fortune in it.

Ahhh, I’ve answered my question about howcome private equity people are now being called venture capitalists by the mainstream British media haven’t I? It’s a way of involving them in public debate whilst avoiding debate and disassociates them from what was previously said and thought. Plus, venture capital is a much more moral, credible and legitimate activity – the strike rate for venture capital investments is much lower than it is for private equity i.e. venture capital really does involve the risk taking that provides one of the major justifications for economic inequality. Plus, venture capitalists genuinely do help bring new things to the table, Facebook being an obvious example, a media thang that’s in as sharp a contrast with the investment made in Reader’s Digest by Jon Moulton’s company as it’s possible to find. So perhaps rather than be inaccurate the BBC etc., should use a new label in line with how these guys are now being presented, howzabout they call Jon Moulton et all, the bearer’s of God’s golden balls of economic common sense?

Except, getting some accuracy into the chat would also highlight private equity’s current problems (though funnily enough not ones that apply to venture capital to anything like the same degree, which stem from the fact we’re in a credit crunch.

This is because the private equity model and private equity profits are predicated on the ready availability of credit; the more private equity borrows to leverage a deal and the cheaper it borrows, the more profitable it is. Unfortunately, since late 2007/early 2008 there has been a step change in the availability of credit and the terms on which it’s lent. Basically, it’s far harder for private equity investors to buy up a company and make money primarily on the back of swapping expensive equity for cheap credit. Instead, they have to work a damn sight harder and be more creative i.e. they actually have to add value.

Now a couple of things follow on from this. One is what in fucking hell was a high profile private equity boy i.e. a player in an entire industry/asset class predicated on borrowing as much as possible as cheaply as possible, doing arguing against the use of cheap debt to ease the economic misery of tens of thousands of people. Seriously. Like private equity loading a business up with debt so half a dozen people can buy more Tuscan villas is a good thing whereas government borrowing to build necessary infrastructure that also cuts unemployment is bad why exactly? And to borrow Paul Krugman’s chat about how economies differ from households, my liability/debt is your asset i.e. the holes in British bank balance sheets that taxpayers subsequently filled were partly punched into them by private equity boys who made personal fortunes as a result.

The other thing, of course, is that if I was a venture capitalist, “ahem” private equity investor, I’d be smart enough to realise the cheap credit days are gone for the foreseeable future so would be looking elsewhere to make my millions.

I know, if we can’t cut the cost of the debt that’s integral to the private equity business model, lets look at influencing other costs, most obviously labour. And hey presto we’ve just had another “venture capitalist” Adrian Beecroft i.e. no he isn’t he’s a private equity bod who just happens to give money to the Tories, producing a government report recommending changes to employment law geared almost entirely to cutting labour costs in ways that (a) would have a significantly adverse impact on what lots of people earn and (b) would consequently increase the tax credit subsidy employers already receive.

So the view of leading “venture capitalists” is that only private equity should be allowed to borrow big, with the taxpayer taking the risk, and that taxpayers should also hand over even more money than they already do to “venture capitalists” via the tax credit subsidies paid to the recipients of shit wages in the companies they buy so they can get even more Aston Martins, Ferraris, Bentleys etc.,. Alternatively, howzabout spades start getting called spades and private equity, private equity.


A July 24th P.S. -  the distinction between Private Equity (was leveraged buyout as a mate minded me) and venture capital clearly matters in the US if not here judging by the attempts now being made by venture capitalists there to disassociate themselves from Mitt - he was private equity not venture capital , geddit! - Romney.