Monday, March 30, 2009

Dunfermline disaster - many dead

Another one bites the dust. Scotland's largest building society the Dunfermline, has collapsed amid the usual cries of betrayal, London perfidy and financial obfuscation. I have a scintilla of sympathy for the combative Chairman, Jim Faulds, who genuinely seems to believe in the mutual principle – but why then did the Dunfermline abandon it in favour of speculation? He and his executives will be reaching for their golden parachutes this morning and filling their pension pots, so save your concern for the 500 employees. And for the taxpayer - the bank of you and me – which gets handed the bill for Dunfermline's toxic assets.

And from a supposedly boring building society, for heaven's sake! I seem to recall Dunfermline boasting that it was so prudent in its lending that it just didn't “do” mortgage repossessions. Now we learn that it has been heavily involved in a variety of sub prime investments, and was lending 100% mortgages even as the Scottish housing market slumped. We had been told repeatedly that this conservative institution was well-capitalised and solvent until, er, it wasn't. A reported loss of £26m became £50m, then £100m, then think-of-a-number-and-double-it.

It was the same story with HBOS and RBS – everyone insists until the very last moment that there is nothing to worry about, perfectly safe, sound business, riddle diddle - and then, bang, the institution crashes into oblivion taking billions of public money with it. Misinforming investors about the financial health of a company should surely be against the law. Perhaps Gordon Brown, who has the privilege of having Dunfermline in his constituency backyard, could suggest this to the G20 this week as one of his new regulatory reforms.

And while we're at it, what on earth was a mutual society, which is supposed to finance mortgage loans from retail deposits, doing buying dodgy mortgages from the American bank GMAC – notorious for the unreliability of its sub-prime assets? A building society is supposed to be owned by its depositors. Did they know about the &##163;650m in commercial property deals? Or its exposure to ambitious IT investments? Or that Dunfermline was in bed with Lehman Brothers, one of the most hard-nosed and aggressive Wall St. investment banks? And don't give me the line that: “Oh we didna ken; we're just wee folk fae Fife”. Well they ken noo.

I agree that the HBOS and RBS bail outs were an even greater reward for failure and should never have happened - but three wrongs don't make a right. Nationalisation or administration were the only realistic options. The Treasury has blown so much money bailing out the dysfunctional banks, there's no way it was going to establish a precedent by bank-rolling dud building societies as well.

That this is a further nail in the coffin of the Scottish financial services 'industry' hardly needs to be said. The coffin has been nailed so hard there's barely any wood left. What happened to prudence? And how did a nation renowned for thrift and financial caution come to be cursed by such a disreputable and incompetent financial elite? Two of the most toxic banks on the planet have our names on them: Royal Bank of Scotland and Halifax Bank of Scotland. Sir Fred Goodwin has become an international icon of stupidity, recklessness and greed. Nor do I subscribe to the view that it is my patriotic duty defend bosses of Dunfermline Building Society just because they happen to be Scottish.

We thought Alex Salmond had learned to sup with a longer spoon in his dealings with bankers, but here he goes again, pleading for a rescue, defending the indefensible, blaming London. As Dunfermline is broken up, you can be sure that the FSA and the Treasury will make clear just how reckless was the behaviour of its executives. The briefings have already begun. So why expend political capital on trying to save them? Yes, I know that there are jobs at stake and there is a risk that another head office will go south. But these jobs have been destroyed, not by the Treasury, but by the Dunfermline Building Society which believed its own propaganda about Scotland being immune to the property crash.

Being an apologist for busted financial institutions undermines the authority of the First Minister's office The same happened with HBOS when the FM leapt to accuse the “spivs and speculators” for its share collapse, until we discovered that the worst spivs and speculators we're in HBOS itself. Then Alex Salmond doggedly supported Fred Goodwin's Royal Bank of Scotland, which he assured us was a robust, well-capitalised and highly profitable business – until it needed the biggest rights issue in corporate history, and then the biggest government bail-out in history. We keep hearing about how Gordon Brown should be apologising for failing to realise how bad our bad banks really were, but I haven't heard much contrition from the First Minister.

Of course political leaders can't go around talking down the economy and RBS and HBOS were two of Scotland's biggest employers. But nor can they allow themselves to appear to be captured by one sectional interest. FForget Sandi Thom's expenses, the real scandal is how Scotland is now forever branded as home of the world's worst bankers - Scottish government approved.

These motley fools have largely destroyed Scotland's economy and now our biggest building society. The Dunfermline executives do not deserve to be bailed out and rewarded for this failure. Every one of them should have had the decency to have resigned by now. They deluded themselves into thinking that if they played the FSA long enough, and enlisted the political support of the Scottish government, that they would be bailed out like the big retail banks. But that was never going to happen. Dunfermline Building Society is not 'too big to fail' and they should have realised that before entering the speculative poker game.

No one regrets the loss of yet another mutual society more than I do., but they should have kept their noses clean - in the interests of their members if nothing else. They, not the executives, have been betrayed. Dunfermline is a dead parrot, it has gone to meet its maker, if it hadn't been concealing its losses it would be pushing up the daisies. It is a late building society. The end.

Sunday, March 22, 2009

Farewell Darling Jade

And so farewell then, Jade Goody, the brave and brilliant mum who did it all for her family and for victims of cancer, Her story is a parable for our modern times. A death to give us all hope. Read all about it on pages 2,3,4,5,6,7, including Jade’s last words and Jack’s hospital romps with dying star. Ok, I’m making that up - but only just. Every detail of Jade’s final days will no doubt be revealed under the various contracts negotiated by her agents. Her own memorial edition of OK magazine, "Jade Goody, 1981 - 2009, Official Tribute, was published with her consent even before she died. You couldn’t make that up.

The celebrity death watch on this unfortunate young woman was certainly a sign of the times. A defining moment in the history of celebrity culture, a tabloid Passion. After a benediction from the red-top Pope, Max Clifford, plastic surgeons and perfume manufacturers will carry her coffin to lie in state in the diary room, as the paparazzi fire off a 24 bulb salute. Her partner, Jack, will stand in state, accompanied by his probation officers. The Sun has opened a condolence book and is offering cash prizes to the sauciest entries. A statue of Jade Goody will be erected in the Big Brother garden.

I know we shouldn’t speak ill of the dead, and I don’t intend to, even though someone who sold their own terminal illness to the popular press can’t expect to be treated lightly by posterity. But in her departure, Jade Goody, did achieve some kind of grace and a certain nobility. The government has promised to review the minimum age for cervical cancer screening, so in a real sense her death may allow others to live. She donated some of the proceeds of her celebrity wedding to charity, so the slumdog millionairess has the moral edge on the scumbag bankers like ‘Sir’ Fred Goodwin.

But the beatification of Jade Goody is something else - it is a dubious celebration of the crass culture of the early 21st Century. The coverage of her decline was as undignified as it was tasteless - death as reality television. The attempts now to elevate her to a kind of underclass sainthood are deeply unattractive, even if they are well intentioned. Jade Goody can only ever be the patron saint of stupid; a product of a media that celebrates ignorance; a reflection of a society devoid of moral purpose. Her place in history is assured as one of the defining characters of the money-for-nothing bubble years when we lost any sense of real worth.

Jade Goody’s life was stranger than any fiction. A former dental nurse who rose to national prominence for thinking East Anglia was abroad and that Rio de Janeiro was a footballer became the ultimate celebrity - famous for being famous. The commercial endorsements followed her appearance on Big Brother in 2002 - where she succeeded in coming fourth - as did the boob jobs and beatings; the therapy and the dysfunctional relationships. After a few years the tabloids began to lose interest in the woman they had taken to calling the “fat pig”. Though she made many millions before her disastrous comeback appearance in 2007.

From being famous for being famous Jade Goody became infamous for being infamous. Her racist taunts of one of the Big Brother contestants, Shilpa Shetty, became a national issue, debated in parliament no less, and led to her being vilified by the media that had invented her. Worse, for a product of the L’Oreal age, she was dropped by the cosmetics industry because she really wasn’t worth it. She tried to rehabilitate herself by appearing on Bollywood Big Brother in India, but here it was that she met her fate, with the discovery that she had cervical cancer.

In a savage irony, this turned out to be Jade Goody’s best career move. As her battle with cancer progressed her earning power recovered. Soon she was Brave Jade, a mother doing all and selling all for her children. But only through death could she achieve tabloid redemption, and as the end drew nigh a macabre auction ensued as various populist organs bid for pieces of her final story. I suppose by the get-rich standards of modern times, her decision to exploit her illness was curiously admirable. If moral worth is to be measured by how much money you make, then what could be more worthy than getting it while you still can?

The scary thing, though, is that an entire generation of young women may now start seeing the late Jade Goody as a role model, as an inspiration. We already know that far too many young people, when asked what they want to be when they grow up, say: “famous”, as if celebrity is a career option. They want to be Paris Hilton or Jordan or any number of attention-seeking surgical freaks. Will young girls now model their careers on Jade Goody? If so, how do you emulate this modern paragon? Presumably by learning nothing, earning anything, making an exhibition of yourself and turning your death into a media circus.

Of course, this is not the time to attack Jade Goody just for being what she was. But it is a time to think very seriously about the society that made her. She was always excused her excesses on the grounds that Jade was ‘just being herself’. Her authenticity was her justification, even though almost everything about her was contrived - even her weight loss was based on lipo-suction rather than the exercise and diet regime she sold in her videos. She may have been dumb, but at public relations she was a genius.

But it all had to end. And as the 21 car funeral cortege winds its way through Bermondsey to the “ultimate party” planned to celebrate her life, comparisons will inevitably be drawn with the funeral of Diana Princess of Wales in 1997. It will be a morbid satire on the entire celebrity industry. Diana was the Peoples Princess, Jade was the Empress of the Estates. May they both rest in peace.

Friday, March 20, 2009

something fishy in holyrood

MSPs often complain that they’re living in a goldfish bowl, so it's good to see them standing up for their fellow fish. The Holyrood petitions committee has asked the Scottish government to look into the welfare of Siamese fighting fish in Scotland’s pet shops. Apparently, these exotic creatures, which hail from Thailand, are suffering from obesity and lack of social interaction. Pretty much like the rest of the population in fact.

The petitions committee was responding to public representations on aquarium living arrangements. But the fishy tale hooked the sourer sections of the Scottish press, who’re always on the lookout for loony legislation - like not boiling lobsters or banning foie gras. When the economy is collapsing, cried the Fourth Estate, how dare Holyrood waste time on the fate of overweight fish with psychological disorders!

Actually, the question is really one for the press itself to answer: why did we devote so much time, editorials, comment and column inches to such a trivial tale? Aren’t there better things to write about? Scottish children are suffering worse obesity even than Siamese fighting fish, so why not more editorials about that? The answer of course is that row over betta splendens, as the fish are properly called, was a welcome relief from the economic gloom, and allowed punning subs to run pictures of exotic fish under “storm in a goldfish bowl” headlines. Commentators took a populist pop at Holyrood, for being a waste of space.

It also gave the many sane and well-balanced folk who post comments on newspaper websites a chance to vent their spleens - and boy do they have spleens to vent. Only in the Scottish blogosphere could the fate of gold fish be turned into a constitutional issue, with Labour and SNP trolls biffing each other over what the affair tells us about the legitimacy of the Scottish government. Many comments had to be removed because they were offensive.

Mind you, some of the less poisonous posts were really rather funny. The apparent antisocial behaviour of the fighting fish is down to the availability of cheap drink, said one poster, and the Justice Minister should be looking into the problem. Another suggested that feeding the fat fish to the fat cats could solve two problems at once. But that’s quite enough wit from the web - we don’t want to put ourselves out of a job

I know it's boring but the welfare of animals is actually a responsibility of the parliament under numerous statutes like the Animal Health and Welfare Act. The petitions committee was only doing its job. A democratic parliament has a duty to take seriously issues that are presented to it by voters if there is evidence the law is not being upheld. But then I suppose that’s another kettle of fish.

Sunday, March 15, 2009

Terrible Tavish

The Liberal Democrats never do things by halves. They prefer to do them by quarters and fifths. As on alcohol pricing which seems to be wrong in Scotland but right in England. And on the constitution, where the Scottish Liberal Democrat leader, Tavish Scott has called for radical constitutional change to save the Scottish economy. But not TERRIBLY radical change. The Libdems want taxation and borrowing powers for Holyrood to allow the Scottish government to finance a bold green job creation programme to counter the recession. But this is not to be confused with the SNP’s call for tax and borrowing powers and its counter-recessionary Green Deal. Oh no - that would be secession.

And don’t think there should be any kind of referendum on the Calman Commission on the Constitution, when it finally delivers the constitutional blueprint. The Liberal Democrats are utterly and completely opposed to referendums - except, er, in England and on Europe. The party is committed to a referendum on constitutional reform in Westminster, including reducing Scottish representation, in the first year of any Liberal Democrat administration. They also called recently for a referendum on withdrawal from the European Union. No, I don’t understand it either.

The Scottish Liberal Democrat antipathy toward a referendum in Scotland has never made much democratic sense, so perhaps we should welcome the fact that Tavish Scott is no longer ruling one out “for all time”. Though he isn’t ruling it in either. The idea appears to be to prevent the issue from denying the Liberal Democrats the option of forming a coalition with the SNP after the next Scottish election. The Libdems have finally realised what everyone else has known for years, that the Nationalists are actually intensely relaxed about delaying the referendum on independence. This may not be unconnected with the fact that they would almost certainly lose it, as the latest YouGov poll confirmed at the weekend. The whole point of the referendum policy was to liberate the SNP from the independence commitment - to put it into the long grass - while Alex Salmond got on with the business of governing in the Scottish parliament.

But in May 2007, Tavish Scott refused even to talk about a coalition unless the SNP abandoned its policy of a referendum on the constitution - which Salmond clearly could not do. It was an emotional spasm which now seems to have passed. Though I’m not entirely sure what has changed to clear the way for this historic compromise. Tavish and co could have remained in government; instead they opted for the wilderness. And the wilderness is a cold and lonely place.

Just consider a typical senior Liberal Democrat who is not getting any younger and yet feels he has much to contribute. He was an able minister for eight years in the Liberal-Labour coalition, and was rarely off the airwaves. Now he is, if not forgotten, then largely gone from public view. It is immensely frustrating to be a politician and not have any power. The Liberal Democrats knew what they were for back then: free personal care, tuition fees, reform of local government. Now they just don’t matter; they are the lost tribe of Scottish politics.

So, the Libdems have got to make themselves matter again, and the only way to do that is to get some kind of foothold on power through an alliance. But could it be that they are opening the way for the SNP just at the moment when the door is closing on Scottish nationalism? The latest YouGov opinion poll places Labour back in the lead in voters’ preferences for Holyrood for the first time in two years. The Nationalist minority government is becalmed, discarding manifesto promises like a sinking ship dumping cargo to keep afloat. Following the credit crisis, the whole idea of small nations with big banks trying to go it alone is discredited. Perhaps the Liberal Democrats should be making up with Labour again and looking to re-establish the partnership that delivered their greatest hits?

Well, certainly, the SNP is discovering that it is not immune to what they call “mid term blues” in Westminster - the slough that governments fall into half way through a term of office as the novelty wears off and they lose popularity. But Labour isn’t in a position to open the champagne quite yet, and the Libdems are wise to be circumspect. The financial crisis is only now transforming itself into an economic one, and Scotland is still behind the curve, as they say in the city. In places like Edinburgh people are still buying expensive cars and paying ludicrous prices for houses, like Wile E. Coyote who has run off the cliff but hasn’t succumbed to the force of gravity yet.

As the Liberal Democrat finance spokesman Vince Cable has warned, there is a 10% to 20% cut in public spending on the way, as the government tries to salvage the ruined public finances. This is going to be devastating to an economy like Scotland’s which is dominated by the public sector. The SNP Finance Secretary, John Swinney, is equally gloomy and has reportedly called on ministers to draw up a “doomsday budget” involving cuts of £2.3bn in spending on schools, hospitals and other services. The key question in Scottish politics for the medium term, therefore, is who gets blamed for the economy: Westminster, as the SNP wish, or the Scottish government. The Glenrothes by-election, and some opinion polls suggest that voters are disinclined to blame Gordon Brown. On the other hand, Alex Salmond remains by far the most popular leader in Scotland.

The battle of the cuts is unresolved. However, after this weekend I think one thing perhaps is resolved: the constitutional question. All the Scottish parties accept now that the Scottish parliament needs more powers to tax and to borrow - the difference is only one of degree. It’s devolution max all round. Independence is lying in the long grass, in a field far away, as the SNP increasingly confine their demands to “more powers” to deal with the economy. Tavish Scott yesterday called for “a true home rule parliament”. And, in time, it looks as if that is precisely what we are going to get. Though I’m not entirely sure that Gordon is on board.

Monday, March 02, 2009

The Pension Crunch

The revelation that Fred the Shred’s pension is actually going to cost £30m, and not the £16 million quoted by RBS, has underlined a salient fact about pensions: everyone underestimates the cost of them. This is partly because the pension providers tend not to take inflation into account when calculating the lifetime cost of pensions, and make optimistic assumptions about investment returns. They know that if people are told the truth about how much they really need to save they run and hide.

You want numbers? A sixty year old retiring today and seeking a £30,000 a year pension, inflation linked, requires a pension ‘pot’ of over £1,000,000, according to The average pension ‘pot’ of a worker retiring today is actually £35,000. Do the math. Only bankers, politicians and employees of public corporations like the BBC get pensions that actually deliver. That’s because they don’t pay the cost of them - we do. One fifth of your council tax goes to pay the pensions of the people collecting it.

But central government is at it as well. The government claims that the current public sector pension bill is around £600bn when everyone in the industry knows that it will be well over £1 trillion. One of the untold scandals of the Brown years is the way that this colossal expense has been kept off the public books. It is “unfunded’ in the jargon, which means the government pretends it isn’t there. But of course it is there and someone has to pay for it: around £40,000 for every household in Britain over the next 20 years. The alert among you will notice that this is actually more than those people are saving for their own pensions - which is of course madness.

Now, I have no animosity toward public sector workers, who deserve what they get - which often isn’t a lot. However, we are creating a kind of pensions apartheid here. Nine out of ten public sector workers still have copper-bottomed final salary pensions against only one in ten private sector workers. The public sector pension used to be a compensation for lower pay in the public sphere, but that’s all changed. State employees now have higher pay than private sector employees and also work fewer hours. And the disparity is growing very fast in the current recession as a pay freeze is imposed across the entire private sector while public sector pay continues to increase. Moreover, the private pension savers have just seen the value of their pensions collapse in the stock-market crash by 40% or more.

Everyone knows that this cannot go on, but the government is in denial - just as it was about the housing market 2 years ago. The pension deficit could split society and destroy services like the NHS - it really is as serious as that. The root cause is the failure of successive governments to realistically cost public pensions and to regulate the private pensions industry, which has performed disgracefully over the last two decades. The average personal pension fund at retirement, according to Prudential, produces just £2,000 a year. And most of this is wiped out by the means test on the state pension credit - another disgraceful fiddle of which the government should be ashamed. And remember that forty percent of workers don’t contribute to any kind of pension at all and will be left wholly reliant on the basic state pension or £124 a week.

Many people have been relying on the value of their homes to generate an income in retirement. Well, the writing really is on the wall here because UK house prices have fallen 20% since August 2007, placing two million in negative equity, and prices are expected to fall by another 10-15%. No future government is going to allow another house price boom after the present disaster. So anyone who believes their house will look after them in retirement is living in a fool’s paradise.

I know this is alarming and complicated, and that pensions are about as interesting as programming a video recorder, but we ignore these numbers at our peril. I have been tracking my own personal pension for many years and been appalled at the poor returns - largely a result of high commissions taken by financial “advisers” and because pension savers are more or less compelled to place their money in equities to generate income for the pension providers. Every ten or twenty years shares crash and the pension funds rarely regain the lost value. Honest financial advisers - there are some - are deeply embarrassed about the poor returns from pensions industry and admit that most of the tax relief on pensions is diverted into salaries and bonuses for the pensions industry.

The terrifying reality is that, as Britain’s population ages, the means to sustain any kind of wellbeing in retirement is simply not there. Public sector pensions are unsustainable and private ones are risible. Our collective denial about pensions is similar to our refusal to face up to the debt problem during the credit boom. That too was clearly unsustainable, but the government and the financial services sector observed a conspiracy of silence about it - until it turned into a suicide pact. Voters are also implicated, of course, for thinking that houses would always rise in value, which is like believing money grows on trees.

Actually, the government is still hoping that trees can be persuaded to produce fivers instead of leaves. Last week the Bank of England began quantitative easing, printing money, which it hopes will generate inflation and erode the value of the public pension debt as well as the debts of the banks. What this really means is a transfer of wealth from people who have saved, to people who haven’t. It is a desperate and dishonourable way out of the pensions hole - and it won’t work. Inflation may erode the value of the public sector pension bill, but only at the cost of increasing entitlement, because it will throw more public and private pensioners into poverty and into the arms of the state.

From Weimar Germany to Mugabe’s Zimbabwe, the lesson of history is that inflation only makes large debts disappear at immense economic cost. There’s no free lunch. Future historians will be astonished that the government actually penalised savers at the moment when the country desperately needs to pay down debt and save for the future. But our children, as they pay for our mistakes, will look back on the noughties with a mixture of scorn and disbelief. We are generation dumb, and getting dumber.