And so another bank goes bust and lands us, the taxpayer, with the bill. Bradford and Bingley is to be nationalised and broken up, the good bits given to other private institutions like the Spanish bank Santander, the bad bits taken on by the state. That’s another £41 billion of bad mortgages to add to the Northern Rock inventory of public restitution. Watch the Bradford and Bingley boss Steve Crawshaw, who earned a piddling £1.1 million last year, fly off in his golden parachute. Where is my shotgun?
Where is this going to end? Don’t ask: you will only be told nonsense by the government, and the regulators, and the Bank of England, just as they have told us lies about this whole insolvency crisis. They are desperate men facing the wrath of history. When the Financial Services Agency says a bank is a “well-capitalised and sound business” you just know it is time to rush for the exits.
What brought Bradford and Bingley down was its toxic mortgage book based largely on buy-to-let, liar loans and other rubbish. With house prices falling no bank worth its name wants to touch them. Except, of course, the bank of you and me - the government. Since the nationalisation of Northern Rock, the government has taken on a colossal exposure to these 'distressed assets' - around a hundred and fifty billion so far - in addition to the Bank of England liquidity loans. As house prices continue to fall, as they must , these assets will continue to fall in value.
The government is now responsible for the second biggest inventory of dodgy mortgages on the planet, after the US government, which now has the dubious privilege of owning giant mortgage banks, Fannie and Freddie. Many repossessions will follow and the government is going to have to push them through against adverse publicity. This creates a huge conflict of interest. The government will now do everything in its power to try to boost the falling housing market to try to preserve the value of all the rubbish they have taken on to the public books.
There are already rumours that the Bank of England will cut interest rates by half a percent later this week. It was of course low interest rates that created the housing bubble in the first place. This will push inflation through the ceiling - which is exactly where the government now wants it to be. Inflation will reduce the headline value of the loans, and will effectively force savers, taxpayers and shoppers to pay for the mess created by the irresponsible banks. Actually ,the price will ultimately be paid by our children and grandchildren as they meet the cost of the debt mountain created by Generation Greed, ie us.
Which brings us neatly to the Tory conference in Birmingham. George Osborne, the shadow chancellor will today promise a final solution to the debt problem, or the “Age of Irresponsibility” as he’ll call it. “We need a totally different approach that will tackle the causes of bubbles before they emerge” he said yesterday. There is to be a new independent Office For Budget Responsibility which will keep control of public borrowing and “bring Britain into the black”, while the Bank of England will be charged with controlling private debt.
This exercise in shutting the door after the horse has bolted may be risible coming from a party whose policies of financial deregulation led to the horse bolting in the first place. But it’s not all wrong. However, it is almost impossible to imagine the Tories actually facing the political cost of tacling the debt society their banking friends have created because. David Cameron has already said that the bankers aren’t to blame which doesn’t exactly inspire confidence.
One of Osborne’s new “responsibility” regulators will be the former chief economist at the IMF, Professor Kenneth Rogoff. This guy is no pushover, and in articles in the Financial Times has been calling for an increase in interest rates and a two year recession to clear the rubbish out of the system and allow a new banking system to emerge based on saving rather than debt. Now there’s an election manifesto for you!
Rogoff’s logic is impeccable. It has been low interest rates and inflation that has been the engine of the debt society. For most of this decade, central bank interest rates have been below the rate of inflation, which means that people have been fools to save, as anyone who has a bank account knows. This is why people put their money in houses. There was also a tax incentive to do so because houses, unlike other investments, are free of capital gains tax. Buy-to-let was encouraged by yet another tax break: allowing amateur landlords to set their mortgage interest against any profits. This was a financial no-brainer - you simply had to put as much money as possible into property.
To stop this happening again, these tax incentives will have to be scrapped. Mortgages will have to become very much more expensive and interest rates will have to rise to make saving worthwhile. Not a great vote winner. I can’t see any government taking this action, especially now it is the biggest holder of negative equity mortgages in the land. B &B and Northern Rock will help push UK public borrowing up to something around £100bn in 2010. Is Cameron going to push through the cuts necessary to get that “back into the black”? If so, he can forget about tax cuts - it would require the biggest income tax hike in fiscal history.
Are the Tories, who mostly have their own hedge funds, really going to face down their friends in the City? Most of the British banking system is insolvent as a result of irresponsible bank lending. There are hundreds of billions in duff mortgage-related assets which have to be written down for the market to function again. But the banks simply aren’t prepared to do this because it will reveal the full horror of their leveraged debt, often thirty to one, and drive them out of business. The bankers, as we saw in America, will do anything to save themselves. They will reach deep into our pockets to seize as much public money as they can before they finally go under, taking the public finances with them.
George Osborne is correct in identifying the problem as one of public and private indebtedness. But if he listens to Professor Rogoff, it won’t be a US style banking bailout; it will be a long and deep recession. If the polls are right the Tories will be in charge of this mess just when the bills are hitting the mat in 2010. Margaret Thatcher, in very different circumstances, had the bottle to face up to hard choices. I wonder if David Cameron has?
Monday, September 29, 2008
Sunday, September 28, 2008
Troubled assets need your help now.
Last week the US Treasury secretary, Hank Paulson, got down on his knees and begged the Democrat House Speaker Nancy Pelosi, to endorse his $700bn bailout of his Wall Street friends. “I didn’t know you were a Catholic” she reportedly replied, in one of the sharpest asides in modern political history.
Father Paulson used to be boss of the investment bank Goldman Sachs, also known as “Golden Sacks” for its lavish bonuses, which netted him $400million dollars when he left to join Bush’s government in 2006. Goldman will, of course, be first in line for taxpayers billions if and when it is finally doled out.
But this is only because, like the church, it is a noble and philanthropic organisation whose first concern is for the needy. For those in distress. Father Paulson is collecting for the Troubled Asset Relief Programme, or TARP. He wants the public to pay for the treatment of all those troubled assets sitting in the bowels of bankrupt banks. Worrying themselves sick. Getting bulimic. Self harming.
These troubled assets don’t blame; they need help. Counselling and financial support. A half way house where they can recover their values. All those collateralised debt obligations, credit default swaps, structured investment vehicles and conduits were only doing their job, keeping the economy going and making a buck for Goldman.
But eventually the stress just gets too much. When you are leveraged thirty to one, the pressure is enormous and some assets just can’t cope. They start drinking in liquidity from the central banks. Others turn to debt injections which become habit forming. Distressed assets hide themselves away, not wanting to appear on any balance sheet, shadows of their former selves.
At last help is at hand in TARP. Yes it's expensive - but it's all about priorities. Why spend billions bailing out repossessed homeowners ? World doesn’t owe them a living. Or single mothers living on debt. No, the world owes it to troubled assets to give them the very best care that money can buy to give them back their self-worth. Just imagine the smiling faces of Wall St bankers when they all see their troubled assets come back from the Federal Funny Farm all shiny and new again. Worth their weight in gold .
And just remember. In Britain we have our own distressed assets, each with their own heart-rending rags to riches story. Lenny Henry will be hosting a twenty-four hour “drop the debt” marathon in which we will be collecting from around the country, so remember to tune in and get your blank chequebooks out now. Please, please give everything you can before Henry has to go down on Nancy again.
Father Paulson used to be boss of the investment bank Goldman Sachs, also known as “Golden Sacks” for its lavish bonuses, which netted him $400million dollars when he left to join Bush’s government in 2006. Goldman will, of course, be first in line for taxpayers billions if and when it is finally doled out.
But this is only because, like the church, it is a noble and philanthropic organisation whose first concern is for the needy. For those in distress. Father Paulson is collecting for the Troubled Asset Relief Programme, or TARP. He wants the public to pay for the treatment of all those troubled assets sitting in the bowels of bankrupt banks. Worrying themselves sick. Getting bulimic. Self harming.
These troubled assets don’t blame; they need help. Counselling and financial support. A half way house where they can recover their values. All those collateralised debt obligations, credit default swaps, structured investment vehicles and conduits were only doing their job, keeping the economy going and making a buck for Goldman.
But eventually the stress just gets too much. When you are leveraged thirty to one, the pressure is enormous and some assets just can’t cope. They start drinking in liquidity from the central banks. Others turn to debt injections which become habit forming. Distressed assets hide themselves away, not wanting to appear on any balance sheet, shadows of their former selves.
At last help is at hand in TARP. Yes it's expensive - but it's all about priorities. Why spend billions bailing out repossessed homeowners ? World doesn’t owe them a living. Or single mothers living on debt. No, the world owes it to troubled assets to give them the very best care that money can buy to give them back their self-worth. Just imagine the smiling faces of Wall St bankers when they all see their troubled assets come back from the Federal Funny Farm all shiny and new again. Worth their weight in gold .
And just remember. In Britain we have our own distressed assets, each with their own heart-rending rags to riches story. Lenny Henry will be hosting a twenty-four hour “drop the debt” marathon in which we will be collecting from around the country, so remember to tune in and get your blank chequebooks out now. Please, please give everything you can before Henry has to go down on Nancy again.
Saturday, September 27, 2008
Nationalist Brigadoon or Labour land?
Scottish Labourites at their conference in Manchester last week were practically punching the air at the collapse of HBoS. They think the crisis vindicates their unionism and reveals Alex Salmond as a tartan fantasists living in an economic Brigadoon. Mind you, some Scots might prefer Brigadoon to Labour land.
The collapse of HBoS and the coming economic recession represent the first serious test of Scotland’s minority nationalist government. How Alex Salmond conducts himself in the coming months could determined whether Scotland continues down the nationalist road or reverts to a default unionism. So, who has come out best in the battle of the banks, and what does it mean for the forthcoming Glenrothes by-election.?
Labour are confident Alex Salmond’s suggestion that an independent Scotland could have organised a £100bn liquidity bail out of Scotland’s second largest private company looks naive and unrealistic. And that the First Minister’s claim that the fall of HBoS was all down to “spivs and speculators” betrayed a misunderstanding of the actual stress facing Britain’s biggest mortgage lender as house prices collapse. A rejuvenated Wendy Alexander ridiculed the idea of an independent Scotland being able to handle bank rescues when it doesn’t know if it intends to have a Scottish central bank or not.
But what Labour are really banking on here - if you’ll excuse the pun - is not the inadequacy of nationalist economic policy, but fear. They believe that the international economic turbulence will drive Scots back to the union for fear of being left out in the cold. Since the Darien disaster, one historically-minded Labour figure suggested to me, the Scots have repeatedly been shown that they can’t stand on their own. It’s all very well harbouring dreams of self government when everyone is in work and house prices are making people feel rich, but in a recession, as in wartime, the security of the United Kingdom starts to look more attractive.
Scottish Labour hope to sit out this crisis calling for jobs to be defended in Scotland against SNP cuts in social provision. The local income tax will be held up as a Nat Tax job killer which might even derail the HBoS rescue. Labour think nationalism can now be marginalised in Scotland as a kind of Tartan Thatcherism led by an irresponsible demagogue who will help the Tories back into office.
Will this work? Fear is always a strong card to play in times of economic uncertainty. This is going to be a difficult period for the SNP, and they know it. But my impression is that Scotland has changed a great deal over the last couple of years and may not be ready to leap back into fearful dependency quite yet. Telling people they are naive for believing in themselves is a negative and dispiriting political message as Labour discovered in May 2007.
Labour glee at HBoS’s plight may also backfire. I don’t particularly care whether a bank happens to be Scottish or English. They are there to make money out of money and should be kept tightly regulated to save themselves from the consequences of their own folly. Increasingly that regulation is required at an international level, though this doesn’t mean that national identities become irrelevant. But there are a welter of questions raised by the manner of the HBoS takeover, and the cry of “we wuz robbed” isn’t coming from Alex Salmond but from the Edinburgh banking community.
We were all led to believe, falsely, that the merger with Lloyds had been a rushed through by Gordon Brown at the height of the crash two weeks ago. But in Friday’s Guardian the LLoyds chairman, Sir Victor Blank, boasted about how he had entered negotiations with the HBoS boss Andy Hornby two years ago. Blank says he later lobbied Gordon Brown on a plane returning from Palestine and secured the Prime Minister’s agreement for a suspension of the competition regulations which would have made a merger between those two giants unlawful.
What did Blank tell Gordon Brown about HBoS that made the PM so willing to waive the competition laws in this way? The presumption must be that Brown was persuaded that HBoS was heading for insolvency some time before its shares finally crashed. In which case why weren’t shares in HBoS suspended under stock exchange rules on merger talks? Why did the Financial Services Authority announce the very morning of HBoS’s demise that it was “well capitalised and solvent’. And why was the ban on short selling, and the extra Bank of England’s extended liquidity scheme delayed until after the deal had been struck?
You don’t have to be a nationalist conspiracy theorist to see all this as highly questionable. A raft of blue chip figures from Scottish banking like Sir Donald McKay of the Scottish Mortgage Trust and Gavin McCrone, 22 years a government adviser, have been calling for a rethink of this merger and are urging shareholders to reject it. This is not a done deal.
The consequences are likely to include significant job losses, higher mortgage rates, a reduction in competition among banks, serious damage to the financial sector in Scotland and a blow to Scotland’s self respect. Labour might see this as something to crow about, then I’m not so sure many Scots will agree. Labour have been over eager to give up on HBoS the better to claim it as confirmation that Scotland is “too wee “ to have its own banks. Granted, a small country with five million people would have difficulty raising the hundreds of billions necessary for bank bail outs. Finance has become a global industry, which is why we have a global catastrophe. But I’m not sure that the UK government is in all that great a position to do deal with this crisis. It is baulking at rescuing Bradford and Bingley, the next bank to fail.
A lot of small countries have had very successful banking systems, including Ireland, Iceland and Sweden. Yes - Ireland is in trouble with its housing crash and Iceland recently increased interest rates to 15% . But that doesn’t mean they are eager to become a part of the UK and Denmark again. Sweden had a banking collapse in 1992, after its property bubble burst, which led to bankruptcies and a run on the krona. The authorities acted swiftly to recapitalise the banks by seizing equity stakes, getting rid of the bad assets, and reorganising the remainder along more competitive lines. The Swedish system recovered quickly.
Far from Scotland being too small, the Lloyds-HBoS merger will actually be too big, with 30% of the UK mortgage market. It is highly likely that regulators will insist that it is broken up in future to restore competition. But in the meantime, most decision making functions will probably have gravitated to London and the HBoS will largely cease to have commercial identity.
This isn't over. It's likely to dominate the forthcoming by-election in Glenrothes - one of the most important by-elections in Scottish history. And in my book the SNP are still favourites.
The collapse of HBoS and the coming economic recession represent the first serious test of Scotland’s minority nationalist government. How Alex Salmond conducts himself in the coming months could determined whether Scotland continues down the nationalist road or reverts to a default unionism. So, who has come out best in the battle of the banks, and what does it mean for the forthcoming Glenrothes by-election.?
Labour are confident Alex Salmond’s suggestion that an independent Scotland could have organised a £100bn liquidity bail out of Scotland’s second largest private company looks naive and unrealistic. And that the First Minister’s claim that the fall of HBoS was all down to “spivs and speculators” betrayed a misunderstanding of the actual stress facing Britain’s biggest mortgage lender as house prices collapse. A rejuvenated Wendy Alexander ridiculed the idea of an independent Scotland being able to handle bank rescues when it doesn’t know if it intends to have a Scottish central bank or not.
But what Labour are really banking on here - if you’ll excuse the pun - is not the inadequacy of nationalist economic policy, but fear. They believe that the international economic turbulence will drive Scots back to the union for fear of being left out in the cold. Since the Darien disaster, one historically-minded Labour figure suggested to me, the Scots have repeatedly been shown that they can’t stand on their own. It’s all very well harbouring dreams of self government when everyone is in work and house prices are making people feel rich, but in a recession, as in wartime, the security of the United Kingdom starts to look more attractive.
Scottish Labour hope to sit out this crisis calling for jobs to be defended in Scotland against SNP cuts in social provision. The local income tax will be held up as a Nat Tax job killer which might even derail the HBoS rescue. Labour think nationalism can now be marginalised in Scotland as a kind of Tartan Thatcherism led by an irresponsible demagogue who will help the Tories back into office.
Will this work? Fear is always a strong card to play in times of economic uncertainty. This is going to be a difficult period for the SNP, and they know it. But my impression is that Scotland has changed a great deal over the last couple of years and may not be ready to leap back into fearful dependency quite yet. Telling people they are naive for believing in themselves is a negative and dispiriting political message as Labour discovered in May 2007.
Labour glee at HBoS’s plight may also backfire. I don’t particularly care whether a bank happens to be Scottish or English. They are there to make money out of money and should be kept tightly regulated to save themselves from the consequences of their own folly. Increasingly that regulation is required at an international level, though this doesn’t mean that national identities become irrelevant. But there are a welter of questions raised by the manner of the HBoS takeover, and the cry of “we wuz robbed” isn’t coming from Alex Salmond but from the Edinburgh banking community.
We were all led to believe, falsely, that the merger with Lloyds had been a rushed through by Gordon Brown at the height of the crash two weeks ago. But in Friday’s Guardian the LLoyds chairman, Sir Victor Blank, boasted about how he had entered negotiations with the HBoS boss Andy Hornby two years ago. Blank says he later lobbied Gordon Brown on a plane returning from Palestine and secured the Prime Minister’s agreement for a suspension of the competition regulations which would have made a merger between those two giants unlawful.
What did Blank tell Gordon Brown about HBoS that made the PM so willing to waive the competition laws in this way? The presumption must be that Brown was persuaded that HBoS was heading for insolvency some time before its shares finally crashed. In which case why weren’t shares in HBoS suspended under stock exchange rules on merger talks? Why did the Financial Services Authority announce the very morning of HBoS’s demise that it was “well capitalised and solvent’. And why was the ban on short selling, and the extra Bank of England’s extended liquidity scheme delayed until after the deal had been struck?
You don’t have to be a nationalist conspiracy theorist to see all this as highly questionable. A raft of blue chip figures from Scottish banking like Sir Donald McKay of the Scottish Mortgage Trust and Gavin McCrone, 22 years a government adviser, have been calling for a rethink of this merger and are urging shareholders to reject it. This is not a done deal.
The consequences are likely to include significant job losses, higher mortgage rates, a reduction in competition among banks, serious damage to the financial sector in Scotland and a blow to Scotland’s self respect. Labour might see this as something to crow about, then I’m not so sure many Scots will agree. Labour have been over eager to give up on HBoS the better to claim it as confirmation that Scotland is “too wee “ to have its own banks. Granted, a small country with five million people would have difficulty raising the hundreds of billions necessary for bank bail outs. Finance has become a global industry, which is why we have a global catastrophe. But I’m not sure that the UK government is in all that great a position to do deal with this crisis. It is baulking at rescuing Bradford and Bingley, the next bank to fail.
A lot of small countries have had very successful banking systems, including Ireland, Iceland and Sweden. Yes - Ireland is in trouble with its housing crash and Iceland recently increased interest rates to 15% . But that doesn’t mean they are eager to become a part of the UK and Denmark again. Sweden had a banking collapse in 1992, after its property bubble burst, which led to bankruptcies and a run on the krona. The authorities acted swiftly to recapitalise the banks by seizing equity stakes, getting rid of the bad assets, and reorganising the remainder along more competitive lines. The Swedish system recovered quickly.
Far from Scotland being too small, the Lloyds-HBoS merger will actually be too big, with 30% of the UK mortgage market. It is highly likely that regulators will insist that it is broken up in future to restore competition. But in the meantime, most decision making functions will probably have gravitated to London and the HBoS will largely cease to have commercial identity.
This isn't over. It's likely to dominate the forthcoming by-election in Glenrothes - one of the most important by-elections in Scottish history. And in my book the SNP are still favourites.
Thursday, September 25, 2008
A brief history of short selling
It’s the investment strategy everyone’s talking about: short selling. No, nothing to do marketing summer sports wear, but a strategy for making money from falling share values in companies like HBoS. It’s easy, once you know how.
First you borrow some shares in HBoS from a bank or insurance company or pension fund, and sell you sell them on the stock exchange for let’s say £1,000k. Then you spread lots of rumours about how the bank is the next victim of the credit crunch, is sitting in oceans of sub-prime slime, has a paedophile on its corporate responsibility committee or whatever. And watch that share price turn red.
When the shares have gone down 20% to around £800k (mustn't be greedy) you buy the shares at the lower price and then hand them back to the people you borrowed them from leaving yourself £200k richer. Yes, it’s as simple as that. Then it’s off to the lap dancing bar for some serious Cristal and a spot of executive hand relief.
Well, someone has to do it. It takes bottle to be a spiv these days and it’s not all fun and games. There’s the problem of what to do with all the money you earn for a start. There’s only so many houses you can buy at any one time and cars and boats have become so boring.
But why, you ask, do the big lumbering financial institutions lend these spivs their own shares to make quick money out of? Well, the pension fund managers and brokers charge a fee to the short sellers for the privilege of borrowing their shares. This is truly a brilliant financial innovation. It’s like a thief paying you a fee to let him steal from your wallet.
Short selling tells us something for the intelligence of your average fund manager and investment banker. Most of them are clearly a few shares short of a full portfolio if they allow this to go on. Probably down to centuries of inbreeding among the products of minor English public schools. Tim Nice-but-dim can’t see anything wrong in getting a few drinks from this nice spiv chappie who wants to borrow all those shares. Well, one isn’t doing anything much with them oneself so, er, why not?
Compulsory screening followed by voluntary euthanasia might be one solution. But we can all rest easy because Gordon has stepped in to sort it all out. The Tims are to be ordered not to sell their shares to the spivs for at least four months. Hah! that'll teach them. It’s going to be a cold and lonely Christmas for the short sellers, but no doubt a very happy New Year
First you borrow some shares in HBoS from a bank or insurance company or pension fund, and sell you sell them on the stock exchange for let’s say £1,000k. Then you spread lots of rumours about how the bank is the next victim of the credit crunch, is sitting in oceans of sub-prime slime, has a paedophile on its corporate responsibility committee or whatever. And watch that share price turn red.
When the shares have gone down 20% to around £800k (mustn't be greedy) you buy the shares at the lower price and then hand them back to the people you borrowed them from leaving yourself £200k richer. Yes, it’s as simple as that. Then it’s off to the lap dancing bar for some serious Cristal and a spot of executive hand relief.
Well, someone has to do it. It takes bottle to be a spiv these days and it’s not all fun and games. There’s the problem of what to do with all the money you earn for a start. There’s only so many houses you can buy at any one time and cars and boats have become so boring.
But why, you ask, do the big lumbering financial institutions lend these spivs their own shares to make quick money out of? Well, the pension fund managers and brokers charge a fee to the short sellers for the privilege of borrowing their shares. This is truly a brilliant financial innovation. It’s like a thief paying you a fee to let him steal from your wallet.
Short selling tells us something for the intelligence of your average fund manager and investment banker. Most of them are clearly a few shares short of a full portfolio if they allow this to go on. Probably down to centuries of inbreeding among the products of minor English public schools. Tim Nice-but-dim can’t see anything wrong in getting a few drinks from this nice spiv chappie who wants to borrow all those shares. Well, one isn’t doing anything much with them oneself so, er, why not?
Compulsory screening followed by voluntary euthanasia might be one solution. But we can all rest easy because Gordon has stepped in to sort it all out. The Tims are to be ordered not to sell their shares to the spivs for at least four months. Hah! that'll teach them. It’s going to be a cold and lonely Christmas for the short sellers, but no doubt a very happy New Year
Tuesday, September 23, 2008
Bad bank bailout is a bad idea
Today we will learn further details of what could turn out to be the greatest act of grand larceny in history: the US treasury secretary, Henry Paulson’s, trillion dollar bailout of the US banks. Following last week’s crash, the US government has decided to use taxpayers money to buy up all the bad mortgage debts of the banks and investment houses and insurance companies and let them start again with a clean sheet. In other words, save them from the consequences of their own folly. Nothing similar is yet proposed here, but it will.
The Bad Bank bailout is a bad idea. If the bankers get away with this we really will be one step from serfdom. I’m someone who has always tended to the left of the political spectrum, but on this issue I side with the American conservatives, like Republican Congressman John Culberson, who are saying that this is socialism for the rich. That Congress has no right bailing out private investors with money pledged in advance from the children and grandchildren of American citizens.
Advocates of the Bad Bank fund cite the success of the Resolution Trust Corporation which sorted out the wreckage from the US savings and loans bust in 1989. But the RTC was very different from this Bad Bank. It collected and eventually sold off loans made by banks that had already gone bust; what is being proposed now is to buy loans BEFORE the lenders go under. In other words create an artificial market with artificial prices to perpetuate the bankers’ delusion that they are not actually bankrupt.
Still less is Paulson’s bail out any kind of legitimate descendant of the Reconstruction Finance Corporation set up by Roosevelt in 1933 to cope with the last comparable banking crisis during the Great Depression. The first thing FDR did was shut the banks down, throw out their managements and halt all dividend payments. He then reopened the banks under new management and under US Treasury supervision, giving federal loans to banks prepared to behave.
Couldn’t happen today? Well, why not? There were a lot more banks in the 1930s. Today the key ones are mostly concentrated in Wall Street within walking distance of each other. The Feds could move in tomorrow, lock up the CEOs and reconfigure the entire system. Enron executives were jailed for less egregious accounting practices than the banksters of Wall Street have been getting away with.
What FDR did not do is simply bail out the banks - use public money to save them from insolvency by buying their bad debts. Why should the taxpayer fund the salvation of Wall Street’s lame ducks? Many of these are bankrupt institutions which have lent themselves into insolvency through criminal irresponsibility and should be allowed to die quietly. The only role for the state should be to come in after the event to ensure an orderly disposal of their assets to new companies prepared to act with greater responsibility.
I take profound exception to hearing erstwhile advocates of the free market,who were content to see entire communities destroyed in the 1980s when heavy industry was allowed to expire, now saying that the taxpayer must preserve another loss-making industry because it is too big to fail. Well, so is Ford, so is General Motors, who are now asking to be bailed out too. Where does this end? Will every homeowner who took on a mortgage they couldn’t afford now be compensated by the government?
We’re told that the taxpayer will benefit in future when the value of the “distressed assets” recovers. But the hundreds of billions of toxic mortgage bonds which are about to land on the US Treasury books are ‘hard to value’ because there is no market in them. The fact that no one is buying them at any price, not even the Chinese sovereign wealth fund, is kind of a clue their true worth. They are based on inflated house prices - values which are the product of a speculative boom. Are taxpayers, who have been paying excessive mortgages, now expected to compensate the banks for the fall in the value of their own homes? What kind of a new deal is that?
We are also told that the world financial system would grind to a halt if the Wall Street behemoths are not fed billions from the taxpayer’s purse. Well I don’t buy it. America is being held to ransom here by people who are highly adept at blinding politicians and regulators with financial ‘science’. Of course credit markets are essential for capitalism to survive, for companies to invest and for economies to grow. But this does not have to be provided by companies who have turned banking into a sophisticated Ponzi scheme.
Providing credit on fair terms to businesses and home-buyers does not require “financial weapons of mass destruction” as the celebrated US investor Warren Buffett called the inscrutable derivatives invented by the banks over the last decade. We do not need a 62 trillion dollar market in credit default swaps ( a kind of insurance contract that allows speculators to bet on the default of company bonds) . We do not need collateralised debt obligations, which were a form of junk bond designed to package up good assets with dodgy ones to “spread risk’. These were instruments of calculated deception, and the sellers should be investigated for fraud.
Nor do we need structured investment vehicles, a massive unregulated shadow banking system, sub-prime mortgages to people with no jobs, and a lunatic housing boom which turned our homes into instruments of financial speculation. We can do without all these things. Homes need not be so expensive that families cannot afford to buy them without chaining themselves to crippling mortgages. It would be an outrage to allow the corporate culture of Wall St and the City of London to be perpetuated at public expense. Predatory lending, short selling scams, pension misselling, endowment policies, ‘with profits’ polices, excessive commission and all the other iniquitous practices of the debt age should be regulated out of existence Selling people insurance policies they don’t need is not essential to the functioning of the economy.
Now, we will be told, of course, that most of our pensions are invested in the financial services industry and we can’t afford to endanger them. Indeed not, which is why they should be protected entirely from the banks and insurance companies. When the UK government introduces its new pension saving scheme in 2012, it must ensure that it does not fall into the hands of the people who have been running things up to now. We need a financial services industry which is very much smaller, founded on integrity where people do not earn ludicrous bonuses for taking risks with other peoples’ money, and where the process of lending and borrowing is conducted according to transparent and simple rules. Good old fashioned banking, as the Chancellor, Alistair Darling called it. And if the banks won’t accept the new rules, then be off with them.
The Bad Bank bailout is a bad idea. If the bankers get away with this we really will be one step from serfdom. I’m someone who has always tended to the left of the political spectrum, but on this issue I side with the American conservatives, like Republican Congressman John Culberson, who are saying that this is socialism for the rich. That Congress has no right bailing out private investors with money pledged in advance from the children and grandchildren of American citizens.
Advocates of the Bad Bank fund cite the success of the Resolution Trust Corporation which sorted out the wreckage from the US savings and loans bust in 1989. But the RTC was very different from this Bad Bank. It collected and eventually sold off loans made by banks that had already gone bust; what is being proposed now is to buy loans BEFORE the lenders go under. In other words create an artificial market with artificial prices to perpetuate the bankers’ delusion that they are not actually bankrupt.
Still less is Paulson’s bail out any kind of legitimate descendant of the Reconstruction Finance Corporation set up by Roosevelt in 1933 to cope with the last comparable banking crisis during the Great Depression. The first thing FDR did was shut the banks down, throw out their managements and halt all dividend payments. He then reopened the banks under new management and under US Treasury supervision, giving federal loans to banks prepared to behave.
Couldn’t happen today? Well, why not? There were a lot more banks in the 1930s. Today the key ones are mostly concentrated in Wall Street within walking distance of each other. The Feds could move in tomorrow, lock up the CEOs and reconfigure the entire system. Enron executives were jailed for less egregious accounting practices than the banksters of Wall Street have been getting away with.
What FDR did not do is simply bail out the banks - use public money to save them from insolvency by buying their bad debts. Why should the taxpayer fund the salvation of Wall Street’s lame ducks? Many of these are bankrupt institutions which have lent themselves into insolvency through criminal irresponsibility and should be allowed to die quietly. The only role for the state should be to come in after the event to ensure an orderly disposal of their assets to new companies prepared to act with greater responsibility.
I take profound exception to hearing erstwhile advocates of the free market,who were content to see entire communities destroyed in the 1980s when heavy industry was allowed to expire, now saying that the taxpayer must preserve another loss-making industry because it is too big to fail. Well, so is Ford, so is General Motors, who are now asking to be bailed out too. Where does this end? Will every homeowner who took on a mortgage they couldn’t afford now be compensated by the government?
We’re told that the taxpayer will benefit in future when the value of the “distressed assets” recovers. But the hundreds of billions of toxic mortgage bonds which are about to land on the US Treasury books are ‘hard to value’ because there is no market in them. The fact that no one is buying them at any price, not even the Chinese sovereign wealth fund, is kind of a clue their true worth. They are based on inflated house prices - values which are the product of a speculative boom. Are taxpayers, who have been paying excessive mortgages, now expected to compensate the banks for the fall in the value of their own homes? What kind of a new deal is that?
We are also told that the world financial system would grind to a halt if the Wall Street behemoths are not fed billions from the taxpayer’s purse. Well I don’t buy it. America is being held to ransom here by people who are highly adept at blinding politicians and regulators with financial ‘science’. Of course credit markets are essential for capitalism to survive, for companies to invest and for economies to grow. But this does not have to be provided by companies who have turned banking into a sophisticated Ponzi scheme.
Providing credit on fair terms to businesses and home-buyers does not require “financial weapons of mass destruction” as the celebrated US investor Warren Buffett called the inscrutable derivatives invented by the banks over the last decade. We do not need a 62 trillion dollar market in credit default swaps ( a kind of insurance contract that allows speculators to bet on the default of company bonds) . We do not need collateralised debt obligations, which were a form of junk bond designed to package up good assets with dodgy ones to “spread risk’. These were instruments of calculated deception, and the sellers should be investigated for fraud.
Nor do we need structured investment vehicles, a massive unregulated shadow banking system, sub-prime mortgages to people with no jobs, and a lunatic housing boom which turned our homes into instruments of financial speculation. We can do without all these things. Homes need not be so expensive that families cannot afford to buy them without chaining themselves to crippling mortgages. It would be an outrage to allow the corporate culture of Wall St and the City of London to be perpetuated at public expense. Predatory lending, short selling scams, pension misselling, endowment policies, ‘with profits’ polices, excessive commission and all the other iniquitous practices of the debt age should be regulated out of existence Selling people insurance policies they don’t need is not essential to the functioning of the economy.
Now, we will be told, of course, that most of our pensions are invested in the financial services industry and we can’t afford to endanger them. Indeed not, which is why they should be protected entirely from the banks and insurance companies. When the UK government introduces its new pension saving scheme in 2012, it must ensure that it does not fall into the hands of the people who have been running things up to now. We need a financial services industry which is very much smaller, founded on integrity where people do not earn ludicrous bonuses for taking risks with other peoples’ money, and where the process of lending and borrowing is conducted according to transparent and simple rules. Good old fashioned banking, as the Chancellor, Alistair Darling called it. And if the banks won’t accept the new rules, then be off with them.
Welcome to the future: financial corportatism
It’s said that the New York banker, J P Morgan, finally realised the Great Crash was coming when his shoeshine boy started offering him share tips. Well I had my own low rent version of this financial epiphany eighteen months ago when the waiter in my local Indian restaurant offered to get me a mortgage. I’d casually remarked that I didn’t know how people afforded the colossal mortgages on pokey city flats, and he assured me that, as a freelance broker, he could get me a mortgage of seven times my earnings. No bother, man.
The wonder of this current financial holocaust is that anyone is surprised by it. This has been the most predictable financial crisis in history, even more so than the Wall St Crash. Believing that house prices could rise forever is the economic equivalent of believing in fairies, and yet that’s apparently what most of us believed. My curry house capitalist, our politicians, bankers, buy-to-letters, home buyers decided, as an act of collective will, to suspend reason and believe that the laws of economic gravity could be abolished - “an end to boom and bust” as Gordon Brown put it in a phrase that will be carved on his political tombstone.
And make no mistake: this is about house prices, the Daily Mail wasn’t all wrong. The reason that mighty Wall St institutions have been falling like dominoes is because they had created an industry out of buying and selling bits of paper based largely on residential mortgage debt, which they postulated had a secure value that could never fall. The infamous collateralised debt obligations (CDOs) were mortgage-backed bonds which traded as if they were as good as gold. In fact they were based on inflated valuations of houses held by people with mortgages they had no hope of repaying if house prices fell, which of course they eventually did. Reality had to intrude into this crazy pyramid scheme.
Why did banks allow freelance brokers to do engage in this mortgage lending insanity? Well, because clever people like the former Chairman of the US Federal Reserve, Alan Greenspan, told them that, since house prices always rose over time, the bank’s money would be recoverable, and then some, even if the “nninja” homeowner with no job and no assets was repossessed. And anyway, thanks to the miracle of “securitization” the mortgage debt would have been passed on to other investors. Yes, banks actually turned debts into assets, and got other people to buy them.
Then they used leverage to lend out even more money sometimes on a debt to asset ratio of thirty to one as was the case with the now defunct Lehman Brothers. That’s a bit like taking out a mortgage on thirty times your actual salary. It was financial madness. The unwinding of this debt - called “deleveraging” in the business - has turned into a financial contagion, which is spreading through the highest institutions of the global capitalist world. Governments have been reduced to arranging shotgun marriages for staggering financial behemoths like HBoS. Merrill Lynch, Bear Sterns. Global investment banks like Lehman Brothers are simply ceasing to be, going to meet their maker, pushing up the daisies. The very bankers who used to condemn government intervention in the market are now begging to be saved by the public institutions they decried as inefficient, bureaucratic and a drag on the wealth creation.
It is the end of the neoliberal era; the twilight of Thatcherism. Karl Marx must be laughing himself hoarse in Highgate Cemetery. Here are the capitalists destroying themselves, without any need for proletarian revolution. Last week, Alex Salmond hit out at the “spivs and speculators” the short sellers who’ve been consuming the great capitalist institutions in their death throes, like a dying man devouring his own legs. Short selling is the apotheosis of pure greed, a completely amoral form of financial manipulation which destroys the system from within. But it is a practice none of the banks could resist, even HBoS.
The BBC’s Business Editor, Robert Peston, revealed in July that the two banks who handled HBoS’s rights issue in July, JP Morgan and Dresdener, were allowed to take out huge short positions on HBoS stock worth hundreds of millions, even though they possessed insider information about the likely movements of HBoS stock prices. That’s right - the very people who were supposed to be getting the best price from the sale of HBoS shares were actually betting that they would fall. And made a lot of money when they did. Such is the honour among thieves. The government has now put a temporary hold on short-selling, but it will be back.
There is no morality when it comes to financial affairs today, only naked self interest. Modern banking is about pure and unmitigated greed. What’s new is that it is mathematical greed engineered by some of the finest minds of their generation, the so-called ‘rocket scientists’ and ‘quants’, who dedicated their intellects to inventing ever more obscure and complex financial instruments the better to promote personal enrichment. Trouble is, they were too clever by half as the banks have discovered.
The great irony of the 2008 Crunch is that the result of all this individual greed has been a kind of collectivism by default. The commanding heights of the capitalist world are now being taken into public ownership: Northern Rock, Fannie and Freddie, AIG. Most of the rest of the banking system is on life support from central banks who have been pumping hundreds of billions of public money into the system to prevent even more banks from collapsing. The US government is even planning now to buy up all the bad mortgage-related debts of the banks using taxpayers money. This will cost hundreds of billions, perhaps trillions of dollars, and would amount to an unprecedented nationalisation of Wall Street’s losses. The stock market bounced on the news on Friday. Hardly surprising since this means the American taxpayer will effectively be paying Wall Street’s debts, leaving the banksters free to start another cycle of financial excess. Mind you, no one in the real world believes that this new scheme will end the crisis. Indeed, it could sink the entire US government by increasing public debt to unsustainable levels.
So far, this has all been a spectator sport for the vast majority of us, who shake our heads and suck our teeth and feel a certain moral superiority over those venal banksters who are now scurrying to the state for help. But last week the crisis suddenly came home as the oldest bank in Scotland, HBoS collapsed and had to be merged into LLoyds TSB. Almost every family in Scotland has some connection or other to this institution, which employs 17,000 directly in Scotland. The Edinburgh financial community is shattered, and preparing for the worst as jobs are rationalised throughout the new super-bank.
This is when it get real. Britain is now heading rapidly into recession as house prices fall 2% a month and businesses lay off workers. Finance is a vital part of the real economy, and if there is a shortage of funds for lending, then economic activity slows very rapidly. Fear takes over and everyone stops spending. Business lose sales and banks become even more reluctant to lend to them. A vicious spiral can set in leading to an economic depression. We’re not there yet, but we could be.
It’s often said that what makes capitalism such a successful system is this balance between greed and fear. Greed is good, according to economists, because it encourages capitalists to start businesses, employ people and generate profits from making commodities. Fear of losing their capital initially stops them making too many bad investments. Crashes are inevitable because after a while as risk gets out of hand, people get too greedy and too many commodities are produced for the market to absorb. The collapse of asset values as the rubbish is cleared away is what the economist Joseph Schumpeter called “creative destruction”.
What is distinctive about this current crisis, however, is that it is all about global companies who haven’t made anything at all, except debt. They have been manufacturing money out of money, other peoples’ money. Banks have been playing high-risk financial games using other peoples’ capital held in pension funds, bank deposits, investment funds. The giant US insurer, AIG, which was nationalised last week, had been using the funds that it should have been keeping safe to pay out on insurance claims to gamble on the derivatives market.
In Wall Street the greed-fear dialectic disintegrated because the individuals who were playing the game were not subject to risk. Risk is quantified fear, costed fear, and it is supposed to act as a brake on what John Maynard Keynes called the “animal spirits” of businessmen and what the rest of us call plain greed. Not one of the CEOs who have recently destroyed their companies have lost out personally, though their stock options might have taken a paper battering. Dick Fuld of Lehmans, Jimmy Cayne of Bear Sterns, even Adam Applegarth of Northern Rock got out with huge severance payments and a lavish pensions. And we’re talking millions here. Andy Hornby, of HBoS hasn’t even lost his job. They awarded themselves vast bonuses when things went right and golden parachutes when things went wrong.
As long as unrestrained greed is lavishly rewarded, then this cycle of uncreative destruction is likely to continue and get worse. The entire regulatory system needs to change to impose prudence on the animal spirits, but this requires concerted and confident action by government - the kind of action taken by Franklin D. Roosevelt in the Great Depression. But the actions of the central banks and governments this time round do not inspire confidence. Obsessed by headlines, they seem more concerned to bury the scandal under public funds rather than hold the perpetrators to account for their predatory lending, their financial mismanagement and outright fraud.
Why were mortgages given to people who couldn’t pay them? Six months after Northern Rock collapsed it was still selling 125% “suicide” mortgages. How could it be legal to package up toxic sub-prime mortgages with sound assets and then sell them on to unwary investors? The accounting practices of the giant US mortgage companies, Fannie Mae and Freddie Mac. were designed to disguise epic losses, so why is no one being prosecuted?
Why were banks allowed to create an entire shadow banking system, devoid of regulation, in which they traded obscure and potentially fraudulent financial derivatives which they didn’t really understand? How is it that company bosses can lose billions of pounds of shareholder value without any personal loss, except to their egos? These are huge questions which no one seems to want to answer. When Gordon Brown says he is going to “clean up the financial system”, I’m afraid that what he really means is find more ingenious ways to use taxpayer’s money to bail the system out.
A large part of the problem is that state has effectively merged with the banking industry to create a new kind of government: financial corporatism. Over the last twenty five years, investment banks like JP Morgan and Goldman Sachs have been welcomed into the centres of political power to help with PFI, health service reform and many other functions of government. There is a revolving door between government and the banks at all levels of the civil service. Number Ten staff , like Shriti Vadera, formerly of UBS, Jeremy Heywood from Morgan Stanley come and go between the City and Gordon Brown’s private office. Jonathan Powell, Tony Blair’s chief of staff left to work for Morgan Stanley. His boss walked into JP Morgan on a reported $im salary for a part time job.
Given this degree of intermarriage between finance and government it is hardly surprising that there hasn’t been tighter regulation. The world-view of the financier has permeated public life, with disastrous consequences. This is going to have to change, and government is going to have to start disentangling itself from finance, if the present crisis is to be resolved.
But it isn’t just the bankers and the government that’s to blame. In true Dickensian fashion we are all implicated, one way or another in the financialisation of everyday life. Many of us became intoxicated with house price inflation, believing that paper gain amounted to an increase in real wealth. People who held out against the house price madness were treated as slightly slow - old dears living in the past. Why bother saving, when you could make hundreds of thousands by taking out bigger debts for bigger houses? Why build a business when you could make a million sitting back and watching the value of bricks and mortar accumulate. The property porn that has dominated prime time broadcasting for the last decade was a symptom of collective greed as we turned into a nation of property speculators. It is time to put aside these puerile fantasies and start rebuilding the real economy.
The wonder of this current financial holocaust is that anyone is surprised by it. This has been the most predictable financial crisis in history, even more so than the Wall St Crash. Believing that house prices could rise forever is the economic equivalent of believing in fairies, and yet that’s apparently what most of us believed. My curry house capitalist, our politicians, bankers, buy-to-letters, home buyers decided, as an act of collective will, to suspend reason and believe that the laws of economic gravity could be abolished - “an end to boom and bust” as Gordon Brown put it in a phrase that will be carved on his political tombstone.
And make no mistake: this is about house prices, the Daily Mail wasn’t all wrong. The reason that mighty Wall St institutions have been falling like dominoes is because they had created an industry out of buying and selling bits of paper based largely on residential mortgage debt, which they postulated had a secure value that could never fall. The infamous collateralised debt obligations (CDOs) were mortgage-backed bonds which traded as if they were as good as gold. In fact they were based on inflated valuations of houses held by people with mortgages they had no hope of repaying if house prices fell, which of course they eventually did. Reality had to intrude into this crazy pyramid scheme.
Why did banks allow freelance brokers to do engage in this mortgage lending insanity? Well, because clever people like the former Chairman of the US Federal Reserve, Alan Greenspan, told them that, since house prices always rose over time, the bank’s money would be recoverable, and then some, even if the “nninja” homeowner with no job and no assets was repossessed. And anyway, thanks to the miracle of “securitization” the mortgage debt would have been passed on to other investors. Yes, banks actually turned debts into assets, and got other people to buy them.
Then they used leverage to lend out even more money sometimes on a debt to asset ratio of thirty to one as was the case with the now defunct Lehman Brothers. That’s a bit like taking out a mortgage on thirty times your actual salary. It was financial madness. The unwinding of this debt - called “deleveraging” in the business - has turned into a financial contagion, which is spreading through the highest institutions of the global capitalist world. Governments have been reduced to arranging shotgun marriages for staggering financial behemoths like HBoS. Merrill Lynch, Bear Sterns. Global investment banks like Lehman Brothers are simply ceasing to be, going to meet their maker, pushing up the daisies. The very bankers who used to condemn government intervention in the market are now begging to be saved by the public institutions they decried as inefficient, bureaucratic and a drag on the wealth creation.
It is the end of the neoliberal era; the twilight of Thatcherism. Karl Marx must be laughing himself hoarse in Highgate Cemetery. Here are the capitalists destroying themselves, without any need for proletarian revolution. Last week, Alex Salmond hit out at the “spivs and speculators” the short sellers who’ve been consuming the great capitalist institutions in their death throes, like a dying man devouring his own legs. Short selling is the apotheosis of pure greed, a completely amoral form of financial manipulation which destroys the system from within. But it is a practice none of the banks could resist, even HBoS.
The BBC’s Business Editor, Robert Peston, revealed in July that the two banks who handled HBoS’s rights issue in July, JP Morgan and Dresdener, were allowed to take out huge short positions on HBoS stock worth hundreds of millions, even though they possessed insider information about the likely movements of HBoS stock prices. That’s right - the very people who were supposed to be getting the best price from the sale of HBoS shares were actually betting that they would fall. And made a lot of money when they did. Such is the honour among thieves. The government has now put a temporary hold on short-selling, but it will be back.
There is no morality when it comes to financial affairs today, only naked self interest. Modern banking is about pure and unmitigated greed. What’s new is that it is mathematical greed engineered by some of the finest minds of their generation, the so-called ‘rocket scientists’ and ‘quants’, who dedicated their intellects to inventing ever more obscure and complex financial instruments the better to promote personal enrichment. Trouble is, they were too clever by half as the banks have discovered.
The great irony of the 2008 Crunch is that the result of all this individual greed has been a kind of collectivism by default. The commanding heights of the capitalist world are now being taken into public ownership: Northern Rock, Fannie and Freddie, AIG. Most of the rest of the banking system is on life support from central banks who have been pumping hundreds of billions of public money into the system to prevent even more banks from collapsing. The US government is even planning now to buy up all the bad mortgage-related debts of the banks using taxpayers money. This will cost hundreds of billions, perhaps trillions of dollars, and would amount to an unprecedented nationalisation of Wall Street’s losses. The stock market bounced on the news on Friday. Hardly surprising since this means the American taxpayer will effectively be paying Wall Street’s debts, leaving the banksters free to start another cycle of financial excess. Mind you, no one in the real world believes that this new scheme will end the crisis. Indeed, it could sink the entire US government by increasing public debt to unsustainable levels.
So far, this has all been a spectator sport for the vast majority of us, who shake our heads and suck our teeth and feel a certain moral superiority over those venal banksters who are now scurrying to the state for help. But last week the crisis suddenly came home as the oldest bank in Scotland, HBoS collapsed and had to be merged into LLoyds TSB. Almost every family in Scotland has some connection or other to this institution, which employs 17,000 directly in Scotland. The Edinburgh financial community is shattered, and preparing for the worst as jobs are rationalised throughout the new super-bank.
This is when it get real. Britain is now heading rapidly into recession as house prices fall 2% a month and businesses lay off workers. Finance is a vital part of the real economy, and if there is a shortage of funds for lending, then economic activity slows very rapidly. Fear takes over and everyone stops spending. Business lose sales and banks become even more reluctant to lend to them. A vicious spiral can set in leading to an economic depression. We’re not there yet, but we could be.
It’s often said that what makes capitalism such a successful system is this balance between greed and fear. Greed is good, according to economists, because it encourages capitalists to start businesses, employ people and generate profits from making commodities. Fear of losing their capital initially stops them making too many bad investments. Crashes are inevitable because after a while as risk gets out of hand, people get too greedy and too many commodities are produced for the market to absorb. The collapse of asset values as the rubbish is cleared away is what the economist Joseph Schumpeter called “creative destruction”.
What is distinctive about this current crisis, however, is that it is all about global companies who haven’t made anything at all, except debt. They have been manufacturing money out of money, other peoples’ money. Banks have been playing high-risk financial games using other peoples’ capital held in pension funds, bank deposits, investment funds. The giant US insurer, AIG, which was nationalised last week, had been using the funds that it should have been keeping safe to pay out on insurance claims to gamble on the derivatives market.
In Wall Street the greed-fear dialectic disintegrated because the individuals who were playing the game were not subject to risk. Risk is quantified fear, costed fear, and it is supposed to act as a brake on what John Maynard Keynes called the “animal spirits” of businessmen and what the rest of us call plain greed. Not one of the CEOs who have recently destroyed their companies have lost out personally, though their stock options might have taken a paper battering. Dick Fuld of Lehmans, Jimmy Cayne of Bear Sterns, even Adam Applegarth of Northern Rock got out with huge severance payments and a lavish pensions. And we’re talking millions here. Andy Hornby, of HBoS hasn’t even lost his job. They awarded themselves vast bonuses when things went right and golden parachutes when things went wrong.
As long as unrestrained greed is lavishly rewarded, then this cycle of uncreative destruction is likely to continue and get worse. The entire regulatory system needs to change to impose prudence on the animal spirits, but this requires concerted and confident action by government - the kind of action taken by Franklin D. Roosevelt in the Great Depression. But the actions of the central banks and governments this time round do not inspire confidence. Obsessed by headlines, they seem more concerned to bury the scandal under public funds rather than hold the perpetrators to account for their predatory lending, their financial mismanagement and outright fraud.
Why were mortgages given to people who couldn’t pay them? Six months after Northern Rock collapsed it was still selling 125% “suicide” mortgages. How could it be legal to package up toxic sub-prime mortgages with sound assets and then sell them on to unwary investors? The accounting practices of the giant US mortgage companies, Fannie Mae and Freddie Mac. were designed to disguise epic losses, so why is no one being prosecuted?
Why were banks allowed to create an entire shadow banking system, devoid of regulation, in which they traded obscure and potentially fraudulent financial derivatives which they didn’t really understand? How is it that company bosses can lose billions of pounds of shareholder value without any personal loss, except to their egos? These are huge questions which no one seems to want to answer. When Gordon Brown says he is going to “clean up the financial system”, I’m afraid that what he really means is find more ingenious ways to use taxpayer’s money to bail the system out.
A large part of the problem is that state has effectively merged with the banking industry to create a new kind of government: financial corporatism. Over the last twenty five years, investment banks like JP Morgan and Goldman Sachs have been welcomed into the centres of political power to help with PFI, health service reform and many other functions of government. There is a revolving door between government and the banks at all levels of the civil service. Number Ten staff , like Shriti Vadera, formerly of UBS, Jeremy Heywood from Morgan Stanley come and go between the City and Gordon Brown’s private office. Jonathan Powell, Tony Blair’s chief of staff left to work for Morgan Stanley. His boss walked into JP Morgan on a reported $im salary for a part time job.
Given this degree of intermarriage between finance and government it is hardly surprising that there hasn’t been tighter regulation. The world-view of the financier has permeated public life, with disastrous consequences. This is going to have to change, and government is going to have to start disentangling itself from finance, if the present crisis is to be resolved.
But it isn’t just the bankers and the government that’s to blame. In true Dickensian fashion we are all implicated, one way or another in the financialisation of everyday life. Many of us became intoxicated with house price inflation, believing that paper gain amounted to an increase in real wealth. People who held out against the house price madness were treated as slightly slow - old dears living in the past. Why bother saving, when you could make hundreds of thousands by taking out bigger debts for bigger houses? Why build a business when you could make a million sitting back and watching the value of bricks and mortar accumulate. The property porn that has dominated prime time broadcasting for the last decade was a symptom of collective greed as we turned into a nation of property speculators. It is time to put aside these puerile fantasies and start rebuilding the real economy.
Sunday, September 21, 2008
Gordon is saved by the collapse of capitalism
Can Harry Potter save Gordon? Or is the PM’s situation now so dire than not even the supernatural can save him? The donation of £1m to Labour from the Potter author, JK Rowling, only emphasised the depths of Labour’s own credit crunch: the party is £18m in debt. And with Labour twenty points behind in the polls last week, it was looking like the Deathly Hallows for Labour at their Manchester conference.
But the collapse of capitalism came to the PM’s rescue. Labour MPs are daring to hope that the greatest economic crisis in seventy years may have been their leader’s salvation. The tumbling banks eclipsed the rebellion in the ranks, led by the erstwhile “Blair babes” like Siobhain McDonogh who had been demanding nomination papers to precipitate a leadership contest. The astonishing resignation of the mild-mannered and intensely loyal Scotland Office minister, David Cairns, passed almost unnoticed midweek, as did a rebellion of grass roots Labour activists, who registered their lack of confidence in their leader in a poll for the Independent. There were just other things on everyone’s minds.
The global financial crisis also gave Gordon Brown an opportunity to show that he can command events as well as be overwhelmed by them. He personally intervened to ensure an orderly merger between HBoS and Lloyds TSB - an action which may have been unnecessary but didn’t seem so at the time. Then he introduced a temporary ban on short selling in the City, and promised that he was going to “clean up” the financial system. This looked more like the Gordon Brown of Summer 2007, when he seemed to be a competent and effective leader getting on with the job. Not flash, just Gordon.
But can it last? Well, there is no indication that Brown’s, or Labour’s unpopularity has been any lessened by the events of the past seven days. The polls are dire. The Tories spiked to over 50% in a Mori opinion poll last week, for the fist time since the height of Margaret Thatcher’s popularity in 1988. Brown is, according to Professor John Curtice, the most unpopular Labour Prime Minister in polling history.
And it is all his own work. It seems scarcely believable now, but only a year ago, on the eve of the last conference season, Labour had a comfortable lead over the Tories in the opinion polls, and the talk was all about the troubles of the new Tory leader, David Cameron. Some commentators were forecasting a conference bloodbath for the Conservatives, over Europe, immigration and grammar schools - until Brown dithered over an early general election. From there it's been downhill all the way, with Labour’s collapse mirroring the slide in the economy.
Generally, economic turmoil is bad for sitting governments, and with Britain entering what is likely to be a long and difficult recession, the omens are not good for a revival of Gordon’s share price. Indeed, his apparent political recovery this weekend is looking a little like the stock market boom on “Freaky Friday” - unsustainable and slightly mad. At any moment there could be another run on his political authority, organised by those nasty short-sellers in the Tory Party who now smell blood.
Brown’s fate is likely to be sealed by the Glenrothes by-election once he gets round to calling it. Another catastrophic set back here will cause many in the party to dump their holdings in Gordon for good. Following the loss of Labour’s third safest seat in Scotland, Glasgow East, in July on a swing of 22% to the SNP, and the loss of safe seat of Crewe and Nantwich in May to the Tories on a 17% swing, the loss of Glenrothes, the neighbouring seat to Brown’s own, would be a massive blow. Left wingers like Diane Abbot are joining in an unspoken alliance with Blairites like the Scottish MP Eric Joyce to declare the by-election D-Day - or “Depose Day”. David Cairns had also, apparently, been intending to keep his mouth shut until Glenrothes.
Labour MSPs in Holyrood last week were hoping that the PM’s decisiveness in merging HBoS with Lloyds TSB, saving thousands of Scottish jobs, might have been enough to revive Labour hopes for Glenrothes. But there is now a nagging sense of betrayal about the merger, not least from some in the Edinburgh financial community who say it was badly mishandled. Keith Skeoch, the chief executive of Standard Life, has suggested that HBoS could have been been saved as an independent company if stock exchange rules had been observed and share dealing suspended early while merger talks were underway. This would have prevented the 50% share dive on Wednesday that sealed HBoS fate.
And now Labour’s Glenrothes by-election campaign is in crisis following the departure of Frank Roy MP, who had been due to act as campaign manager. It’s not clear whether he walked out or was sacked, but either way this is looking like Glasgow East all over again, with the Labour campaign undermined even before it has begun. The SNP are becoming immensely confident of victory and it is hard not to agree with them. It could be one of Labour’s worst by-election defeats in history, and would plunge the government into crisis.
However, it’s not entirely clear what is supposed to happen on Depose-Day. Perhaps a series of co-ordinated resignations by junior government figures coupled with appeals from a wide range of backbenchers for Gordon to ‘do the decent thing’ and resign of his own accord. No doubt appeals from ex ministers like Alan Milburn, the former health secretary, who called for a change of direction last week, and David Clarke, who has already said that Labour is heading for “disaster” under Brown. But it all seems to have got off to a false start. The bolt has been shot.
The Prime Minister’s departure is not a foregone conclusion even after Glenrothes. For one thing, no one in the Cabinet seems particularly eager to take on his job. One reason why Number Ten may have been so keen to get the names of the lowly dissidents into the public domain - Cairns, McDonogh et al believe they were “outed” by the Prime Minister’s men - was to flush out a potential leadership challenger in the Cabinet. None emerged. David Miliband, the Foreign Secretary, who is generally accepted to be the leadership-challenger-in-waiting, has been conspicuously loyal in his pre-conference interviews.
However, everyone in the cabinet must surely realise that the game is up for Labour under Gordon, unless there is some magical transformation in the prime minister’s personality. Perhaps they are all hoping that Harry Potter will cry Salvio Hexia and awaken the “true Gordon” who will leap on his Nimbus 2000 to take on the Slitherine Tories at one final game of Quidditch. It’s about their only hope.
But the collapse of capitalism came to the PM’s rescue. Labour MPs are daring to hope that the greatest economic crisis in seventy years may have been their leader’s salvation. The tumbling banks eclipsed the rebellion in the ranks, led by the erstwhile “Blair babes” like Siobhain McDonogh who had been demanding nomination papers to precipitate a leadership contest. The astonishing resignation of the mild-mannered and intensely loyal Scotland Office minister, David Cairns, passed almost unnoticed midweek, as did a rebellion of grass roots Labour activists, who registered their lack of confidence in their leader in a poll for the Independent. There were just other things on everyone’s minds.
The global financial crisis also gave Gordon Brown an opportunity to show that he can command events as well as be overwhelmed by them. He personally intervened to ensure an orderly merger between HBoS and Lloyds TSB - an action which may have been unnecessary but didn’t seem so at the time. Then he introduced a temporary ban on short selling in the City, and promised that he was going to “clean up” the financial system. This looked more like the Gordon Brown of Summer 2007, when he seemed to be a competent and effective leader getting on with the job. Not flash, just Gordon.
But can it last? Well, there is no indication that Brown’s, or Labour’s unpopularity has been any lessened by the events of the past seven days. The polls are dire. The Tories spiked to over 50% in a Mori opinion poll last week, for the fist time since the height of Margaret Thatcher’s popularity in 1988. Brown is, according to Professor John Curtice, the most unpopular Labour Prime Minister in polling history.
And it is all his own work. It seems scarcely believable now, but only a year ago, on the eve of the last conference season, Labour had a comfortable lead over the Tories in the opinion polls, and the talk was all about the troubles of the new Tory leader, David Cameron. Some commentators were forecasting a conference bloodbath for the Conservatives, over Europe, immigration and grammar schools - until Brown dithered over an early general election. From there it's been downhill all the way, with Labour’s collapse mirroring the slide in the economy.
Generally, economic turmoil is bad for sitting governments, and with Britain entering what is likely to be a long and difficult recession, the omens are not good for a revival of Gordon’s share price. Indeed, his apparent political recovery this weekend is looking a little like the stock market boom on “Freaky Friday” - unsustainable and slightly mad. At any moment there could be another run on his political authority, organised by those nasty short-sellers in the Tory Party who now smell blood.
Brown’s fate is likely to be sealed by the Glenrothes by-election once he gets round to calling it. Another catastrophic set back here will cause many in the party to dump their holdings in Gordon for good. Following the loss of Labour’s third safest seat in Scotland, Glasgow East, in July on a swing of 22% to the SNP, and the loss of safe seat of Crewe and Nantwich in May to the Tories on a 17% swing, the loss of Glenrothes, the neighbouring seat to Brown’s own, would be a massive blow. Left wingers like Diane Abbot are joining in an unspoken alliance with Blairites like the Scottish MP Eric Joyce to declare the by-election D-Day - or “Depose Day”. David Cairns had also, apparently, been intending to keep his mouth shut until Glenrothes.
Labour MSPs in Holyrood last week were hoping that the PM’s decisiveness in merging HBoS with Lloyds TSB, saving thousands of Scottish jobs, might have been enough to revive Labour hopes for Glenrothes. But there is now a nagging sense of betrayal about the merger, not least from some in the Edinburgh financial community who say it was badly mishandled. Keith Skeoch, the chief executive of Standard Life, has suggested that HBoS could have been been saved as an independent company if stock exchange rules had been observed and share dealing suspended early while merger talks were underway. This would have prevented the 50% share dive on Wednesday that sealed HBoS fate.
And now Labour’s Glenrothes by-election campaign is in crisis following the departure of Frank Roy MP, who had been due to act as campaign manager. It’s not clear whether he walked out or was sacked, but either way this is looking like Glasgow East all over again, with the Labour campaign undermined even before it has begun. The SNP are becoming immensely confident of victory and it is hard not to agree with them. It could be one of Labour’s worst by-election defeats in history, and would plunge the government into crisis.
However, it’s not entirely clear what is supposed to happen on Depose-Day. Perhaps a series of co-ordinated resignations by junior government figures coupled with appeals from a wide range of backbenchers for Gordon to ‘do the decent thing’ and resign of his own accord. No doubt appeals from ex ministers like Alan Milburn, the former health secretary, who called for a change of direction last week, and David Clarke, who has already said that Labour is heading for “disaster” under Brown. But it all seems to have got off to a false start. The bolt has been shot.
The Prime Minister’s departure is not a foregone conclusion even after Glenrothes. For one thing, no one in the Cabinet seems particularly eager to take on his job. One reason why Number Ten may have been so keen to get the names of the lowly dissidents into the public domain - Cairns, McDonogh et al believe they were “outed” by the Prime Minister’s men - was to flush out a potential leadership challenger in the Cabinet. None emerged. David Miliband, the Foreign Secretary, who is generally accepted to be the leadership-challenger-in-waiting, has been conspicuously loyal in his pre-conference interviews.
However, everyone in the cabinet must surely realise that the game is up for Labour under Gordon, unless there is some magical transformation in the prime minister’s personality. Perhaps they are all hoping that Harry Potter will cry Salvio Hexia and awaken the “true Gordon” who will leap on his Nimbus 2000 to take on the Slitherine Tories at one final game of Quidditch. It’s about their only hope.
Wednesday, September 17, 2008
HBoS - the end of an auld sang
September 17th will go down as the blackest day for Scottish finance in three hundred years. HBoS, Scotland’s second largest company is to be merged into a London-based monolith called Lloyds Halifax. And rumours circulating the City that Scotland’s largest financial institution, Royal Bank of Scotland may shortly be merged with HSBC. It doesn’t get much worse. The two pillars of the Scottish economy crumbling before our eyes.
The First Minister of Scotland, Alex Salmond, has laid into the “spivs and speculators” who allegedly brought Scotland Halifax Bank of Scotland, to its knees. http://news.bbc.co.uk/1/hi/scotland/edinburgh_and_east/7621153.stmThere was real passion here; Alex Salmond is a former banker himself, an oil economist with the Royal Bank of Scotland before he went into politics, and he takes this personally. You felt that he was ready to get tooled up and go visit a few hedge funds.
But also in his sights is the Prime Minister, Gordon Brown, for arranging so precipitately what Salmond called a “shotgun marriage” of HBoS and Lloyds TSB. Though Salmond didn’t say so openly, many in the Scottish National Party suspect a degree of English perfidy in the manner in which this great Scottish institutions appears to have been “bought and sold for English gold” to quote Burns.
There is potentially a huge sense of national grievance here. The Bank of Scotland has emotional significance almost equal to its financial clout. It was set up under an Act of the old Scottish Parliament in 1695, twelve years before the Act of Union. It was the first European bank to successfully issue its own bank notes, a function it retains to this day. But perhaps not for much longer. The Bank of Scotland was tainted by association with the Jacobite rising in 1715, which led indirectly to the loss of its banking monopoly and to the creation of the Royal Bank of Scotland in 1727. Rivalry between the two banks - which are by far the two largest companies in Scotland - has waxed and waned for nearly three centuries.
Even after it merged with Halifax in 2001, to form Britain’s largest mortgage lender and fourth largest clearing bank, HBoS was still regarded as a great Scottish institution. It’s massive Roman Baroque headquarters on Edinburgh’s Mound has dominated Scotland’s capital city since 1806. There was gallows humour on the Mound yesterday among the hacks posted on death-watch outside the building. “It would make an awfy nice hotel, wouldn’t it?”
Well, it could come to that. The new Lloyds Halifax superbank will almost certainly have its headquarters in London.http://www.timesonline.co.uk/tol/news/uk/scotland/article4776672.eceThis will be fought bitterly by the Scottish Government, and by many in the opposition parties. HBoS employs 17,000 people in Scotland, and it dominates the financial sector which has been the growth area in the Scottish economy since the departure of the electronics industry in the Nineties.. The nationalists are adamant that, under an independent Scotland, such a loss would be unconscionable. But the reality is that an independent Scottish government would have been pretty powerless against the global financial holocaust which brought HBoS to its knees.
Alex Salmond suggests that the regulators should have stepped in to bolster HBoS; that the FSA had ruled it to be a sound and solvent institution, and it should have stuck to its guns. The short sellers, or “spivs and speculators” could have been fought off, he believes, by determined government action to protect the integrity of HBoS. Perhaps. But equally, HBoS’s fate could have been similar to Northern Rock, and that would have been an even greater national humiliation. Even the United States government has been powerless to halt the destructive domino effect that has decimated Wall St and has now spread to the City of London and the City of Edinburgh.
The truth is that HBoS is not the canny and prudent institution that existed before the merger with Halifax in 2001. It became intoxicated with securitisation and became dependent on the wholesale markets for much of its mortgage finance. It bought heavily into American sub-prime mortgages and started throwing big money at the UK mortgage market, which is now in meltdown. Perhaps if the Bank of Scotland had stuck to its old fashioned banking practices, which stood it in good stead for nearly three centuries, it would still be standing today, and perhaps picking through the carrion of other fallen banks. But no one can turn the clock back, and this is beginning to look like the end of another “auld sang”.
The First Minister of Scotland, Alex Salmond, has laid into the “spivs and speculators” who allegedly brought Scotland Halifax Bank of Scotland, to its knees. http://news.bbc.co.uk/1/hi/scotland/edinburgh_and_east/7621153.stmThere was real passion here; Alex Salmond is a former banker himself, an oil economist with the Royal Bank of Scotland before he went into politics, and he takes this personally. You felt that he was ready to get tooled up and go visit a few hedge funds.
But also in his sights is the Prime Minister, Gordon Brown, for arranging so precipitately what Salmond called a “shotgun marriage” of HBoS and Lloyds TSB. Though Salmond didn’t say so openly, many in the Scottish National Party suspect a degree of English perfidy in the manner in which this great Scottish institutions appears to have been “bought and sold for English gold” to quote Burns.
There is potentially a huge sense of national grievance here. The Bank of Scotland has emotional significance almost equal to its financial clout. It was set up under an Act of the old Scottish Parliament in 1695, twelve years before the Act of Union. It was the first European bank to successfully issue its own bank notes, a function it retains to this day. But perhaps not for much longer. The Bank of Scotland was tainted by association with the Jacobite rising in 1715, which led indirectly to the loss of its banking monopoly and to the creation of the Royal Bank of Scotland in 1727. Rivalry between the two banks - which are by far the two largest companies in Scotland - has waxed and waned for nearly three centuries.
Even after it merged with Halifax in 2001, to form Britain’s largest mortgage lender and fourth largest clearing bank, HBoS was still regarded as a great Scottish institution. It’s massive Roman Baroque headquarters on Edinburgh’s Mound has dominated Scotland’s capital city since 1806. There was gallows humour on the Mound yesterday among the hacks posted on death-watch outside the building. “It would make an awfy nice hotel, wouldn’t it?”
Well, it could come to that. The new Lloyds Halifax superbank will almost certainly have its headquarters in London.http://www.timesonline.co.uk/tol/news/uk/scotland/article4776672.eceThis will be fought bitterly by the Scottish Government, and by many in the opposition parties. HBoS employs 17,000 people in Scotland, and it dominates the financial sector which has been the growth area in the Scottish economy since the departure of the electronics industry in the Nineties.. The nationalists are adamant that, under an independent Scotland, such a loss would be unconscionable. But the reality is that an independent Scottish government would have been pretty powerless against the global financial holocaust which brought HBoS to its knees.
Alex Salmond suggests that the regulators should have stepped in to bolster HBoS; that the FSA had ruled it to be a sound and solvent institution, and it should have stuck to its guns. The short sellers, or “spivs and speculators” could have been fought off, he believes, by determined government action to protect the integrity of HBoS. Perhaps. But equally, HBoS’s fate could have been similar to Northern Rock, and that would have been an even greater national humiliation. Even the United States government has been powerless to halt the destructive domino effect that has decimated Wall St and has now spread to the City of London and the City of Edinburgh.
The truth is that HBoS is not the canny and prudent institution that existed before the merger with Halifax in 2001. It became intoxicated with securitisation and became dependent on the wholesale markets for much of its mortgage finance. It bought heavily into American sub-prime mortgages and started throwing big money at the UK mortgage market, which is now in meltdown. Perhaps if the Bank of Scotland had stuck to its old fashioned banking practices, which stood it in good stead for nearly three centuries, it would still be standing today, and perhaps picking through the carrion of other fallen banks. But no one can turn the clock back, and this is beginning to look like the end of another “auld sang”.
Monday, September 15, 2008
David Cairns resigns.
David Cairns is being described as an obscure Scottish politician of whom we know nothing. That may be true in England, but not north of the border, where Cairns is well known and respected as one of the brightest and ablest politicians in the Scottish parliamentary group, and a sound media performer. The departure of the Scotland Office minister has caused blank astonishment among the Scottish political classes precisely because he seemed the ultimate party loyalist. If Cairns can turn against his leader then anyone can.
There may be no evil genius orchestrating this rebellion - except perhaps the leak machine in Number Ten - but the “revolt of the clones” seems pretty effective nevertheless. First “Blair’s Babes” burned their pagers and demanded a leadership election. http://news.bbc.co.uk/1/hi/uk_politics/7616243.stm Then the Lancashire Mafia, led by MP George Howarth stuck in their knives, along with left wingers like the former minister, Peter Kilfoyle. Now the Scots - supposedly the last bastion of Brownism - have broken ranks. This is a multicultural, cross -gender, north-south, left-right rebellion led by people who never normally rebel. That’s what makes it so damaging.
Cairns is well equipped to deliver the message that something must be done. He had the misfortune to be Labour’s official spokesman for the Glasgow East by-election, when Labour lost its third safest seat in Scotland on a 22% swing to the Scottish National Party. http://news.bbc.co.uk/1/hi/scotland/glasgow_and_west/7522153.stm It was a salutary experience discovering that, in the very citadel of Scottish Labourism, in the constituency of John Wheatley, Labour’s core vote was disintegrating. Cairns genuinely believes that doing nothing, while Labour is 20 points behind the “vacuous Tories” as he describes them, is morally indefensible.
Nor can Labour afford to hand Scotland over to the SNP which is effectively what is happening Nowhere is Brown more of an electoral liability than in his homeland. This may sound surprising given Scotland’s propensity to big up its favourite sons. But there is widespread disillusion, verging on a sense of betrayal, among Labour’s Scottish tribe over their leader’s performance. He’s become a national embarrassment.
The Scots wanted a clean break from Blairite ‘modernisation’; they got Blairism with an unacceptable face. They hoped for someone who understood Labour’s roots and would return to recognisably social democratic policies. What they did not expect what the scrapping of the ten pence tax band and bungs to the wealthy like the abolishing of inheritance tax on £600,000 estates. The proposal for tackling the energy crisis by loft insulation has gone down particularly badly in a cold country where a lot of working people still live in tenements and don’t have lofts to insulate.
Cairns was a Roman Catholic priest before he entered politics and represents a Christian socialist tradition which is still very much alive in West Central Scotland. He was a researcher to the rebel MP, Siobhain McDonogh, who was sacked last week for calling for nomination papers to be distributed to MP to precipitate a leadership election. Cairns says is was the abrupt dismissal of the matter by Labours National Executive Committee that finally forced him out.
http://news.bbc.co.uk/1/hi/uk_politics/7619553.stm
With its chilling bureaucratic prose it certainly sounded like a decree from the desk of the Dear Leader. A statement released by the NEC chair Dianne Hayter said. “The Labour Party national executive committee is in agreement that internal procedural debates will not divert the Labour Party from our mission of building a fairer Britain and helping people through these challenging times”.
Well, increasingly, Labour MPs see Brown as the great diversion. Cairns is being denounced throughout the party organisation as a “traitor”. But he is also a realist. There is no way out for Gordon Brown. If ministers like Cairns have been prepared to sacrifice their careers, then it is surly time for someone in cabinet to have the cojones to do likewise. David Miliband must realise that if he doesn’t act now, he will lose the moment and end up as a footnote to history.
Cairns is convinced that Number Ten has been ‘outing’ disaffected party insiders, like himself, as a means of marginalising them. If so, it has been counterproductive, creating instead a rolling rebellion. It is a mirror image of the turbulence that preceded the 2006 Labour conference, and ultimately led to Tony Blair having to set a date for his departure. We’re not there yet, but pretty soon critical mass will be reached, and the clamour for change will become so widespread it cannot be ignored.
There may be no evil genius orchestrating this rebellion - except perhaps the leak machine in Number Ten - but the “revolt of the clones” seems pretty effective nevertheless. First “Blair’s Babes” burned their pagers and demanded a leadership election. http://news.bbc.co.uk/1/hi/uk_politics/7616243.stm Then the Lancashire Mafia, led by MP George Howarth stuck in their knives, along with left wingers like the former minister, Peter Kilfoyle. Now the Scots - supposedly the last bastion of Brownism - have broken ranks. This is a multicultural, cross -gender, north-south, left-right rebellion led by people who never normally rebel. That’s what makes it so damaging.
Cairns is well equipped to deliver the message that something must be done. He had the misfortune to be Labour’s official spokesman for the Glasgow East by-election, when Labour lost its third safest seat in Scotland on a 22% swing to the Scottish National Party. http://news.bbc.co.uk/1/hi/scotland/glasgow_and_west/7522153.stm It was a salutary experience discovering that, in the very citadel of Scottish Labourism, in the constituency of John Wheatley, Labour’s core vote was disintegrating. Cairns genuinely believes that doing nothing, while Labour is 20 points behind the “vacuous Tories” as he describes them, is morally indefensible.
Nor can Labour afford to hand Scotland over to the SNP which is effectively what is happening Nowhere is Brown more of an electoral liability than in his homeland. This may sound surprising given Scotland’s propensity to big up its favourite sons. But there is widespread disillusion, verging on a sense of betrayal, among Labour’s Scottish tribe over their leader’s performance. He’s become a national embarrassment.
The Scots wanted a clean break from Blairite ‘modernisation’; they got Blairism with an unacceptable face. They hoped for someone who understood Labour’s roots and would return to recognisably social democratic policies. What they did not expect what the scrapping of the ten pence tax band and bungs to the wealthy like the abolishing of inheritance tax on £600,000 estates. The proposal for tackling the energy crisis by loft insulation has gone down particularly badly in a cold country where a lot of working people still live in tenements and don’t have lofts to insulate.
Cairns was a Roman Catholic priest before he entered politics and represents a Christian socialist tradition which is still very much alive in West Central Scotland. He was a researcher to the rebel MP, Siobhain McDonogh, who was sacked last week for calling for nomination papers to be distributed to MP to precipitate a leadership election. Cairns says is was the abrupt dismissal of the matter by Labours National Executive Committee that finally forced him out.
http://news.bbc.co.uk/1/hi/uk_politics/7619553.stm
With its chilling bureaucratic prose it certainly sounded like a decree from the desk of the Dear Leader. A statement released by the NEC chair Dianne Hayter said. “The Labour Party national executive committee is in agreement that internal procedural debates will not divert the Labour Party from our mission of building a fairer Britain and helping people through these challenging times”.
Well, increasingly, Labour MPs see Brown as the great diversion. Cairns is being denounced throughout the party organisation as a “traitor”. But he is also a realist. There is no way out for Gordon Brown. If ministers like Cairns have been prepared to sacrifice their careers, then it is surly time for someone in cabinet to have the cojones to do likewise. David Miliband must realise that if he doesn’t act now, he will lose the moment and end up as a footnote to history.
Cairns is convinced that Number Ten has been ‘outing’ disaffected party insiders, like himself, as a means of marginalising them. If so, it has been counterproductive, creating instead a rolling rebellion. It is a mirror image of the turbulence that preceded the 2006 Labour conference, and ultimately led to Tony Blair having to set a date for his departure. We’re not there yet, but pretty soon critical mass will be reached, and the clamour for change will become so widespread it cannot be ignored.
Sunday, September 14, 2008
Is Iain Gray Labour's Scottish saviour
It’s been called the worst job in the world, and with cause. Since devolution, Labour has had five Scottish leaders. One died prematurely, two others left in disgrace, and the fourth resigned after Labour’s worst election defeat in half a century. Can Iain Gray do any better?
Well, things can only get better - especially his popularity ratings which are barely off the floor. Iain Gray has won the dubious honour of leading Labour MSPs in the Scottish parliament after a leadership election campaign which had very little impact on the Scottish public. His first job will be to tell people who he is.
He will labour under the taint of being “Westminster’s man” but this could equally be a political benefit at least in the short term. The fact that he is trusted in Number Ten and by Labour MPs may make it easier for Iain Gray to make some of the necessary changes to the party’s pitch to Scotland. He has already departed from the Downing St line in criticising the pay limits in the public sector and calling for council tax to be scrapped.
And at least Iain Gray, unlike his predecessors, has been elected after a one-member-one-vote ballot - albeit that some members’ votes counted more than others. That gives him a more rounded democratic mandate. Remember that, under Labour’s constitution, he is only the leader of the Labour’s MSPs; Gordon Brown remains the Labour leader in Scotland. But the fact that Iain Gray has been elected by MPs, activists councillors and trades unionists gives him a degree of additional legitimacy.
Moreover, there is a new mood of realism in the Labour Party, north and south of the Border. In Scotland, Labour now realise they no longer have a God-given right to ruler. In Westminster, Gordon Brown, seems to have come to terms with reality by agreeing further tax powers for the Scottish parliament. Some of the arrogance has gone; the micromanagement of Scottish affairs, and that can only be to the benefit of the new Scottish leader.
So much for the upside; here’s the down. Another crushing UK by-election defeat looms at Glenrothes in a few weeks. Then a possible Holyrood by-election in Motherwell and Wishaw when Jack McConnell finally flits to Malawi to be High Commissioner. However, the damage is likely to be greater to the Prime Minister than the new Scottish Labour leader.
Next up: the council tax hole, time to stop digging. Gray has made clear he isn’t willing to be buried with the council tax and, like the other leadership candidates, made clear he wants it scrapped. But how? And what will replace it? This is a key question which cannot be fudged for much longer.
Don’t expect any surprises, though, from Iain Gray. He is not going to call for any referendums on independence. He is an intelligent man and capable, but in trying to take on Alex Salmond at the height of the FM’s powers Gray has set himself up for the most bruising time of his life.
Well, things can only get better - especially his popularity ratings which are barely off the floor. Iain Gray has won the dubious honour of leading Labour MSPs in the Scottish parliament after a leadership election campaign which had very little impact on the Scottish public. His first job will be to tell people who he is.
He will labour under the taint of being “Westminster’s man” but this could equally be a political benefit at least in the short term. The fact that he is trusted in Number Ten and by Labour MPs may make it easier for Iain Gray to make some of the necessary changes to the party’s pitch to Scotland. He has already departed from the Downing St line in criticising the pay limits in the public sector and calling for council tax to be scrapped.
And at least Iain Gray, unlike his predecessors, has been elected after a one-member-one-vote ballot - albeit that some members’ votes counted more than others. That gives him a more rounded democratic mandate. Remember that, under Labour’s constitution, he is only the leader of the Labour’s MSPs; Gordon Brown remains the Labour leader in Scotland. But the fact that Iain Gray has been elected by MPs, activists councillors and trades unionists gives him a degree of additional legitimacy.
Moreover, there is a new mood of realism in the Labour Party, north and south of the Border. In Scotland, Labour now realise they no longer have a God-given right to ruler. In Westminster, Gordon Brown, seems to have come to terms with reality by agreeing further tax powers for the Scottish parliament. Some of the arrogance has gone; the micromanagement of Scottish affairs, and that can only be to the benefit of the new Scottish leader.
So much for the upside; here’s the down. Another crushing UK by-election defeat looms at Glenrothes in a few weeks. Then a possible Holyrood by-election in Motherwell and Wishaw when Jack McConnell finally flits to Malawi to be High Commissioner. However, the damage is likely to be greater to the Prime Minister than the new Scottish Labour leader.
Next up: the council tax hole, time to stop digging. Gray has made clear he isn’t willing to be buried with the council tax and, like the other leadership candidates, made clear he wants it scrapped. But how? And what will replace it? This is a key question which cannot be fudged for much longer.
Don’t expect any surprises, though, from Iain Gray. He is not going to call for any referendums on independence. He is an intelligent man and capable, but in trying to take on Alex Salmond at the height of the FM’s powers Gray has set himself up for the most bruising time of his life.
It's the stupid economy
Come back Alistair Darling all is forgiven. When the Chancellor suggested a fortnight ago that that this could be the greatest economic crisis for sixty years he was widely attacked for being alarmist. Now it’s beginning to look like an understatement, as passengers are left stranded at airports, house prices plunge, more banks collapse and Britain slides into recession along with the rest of the industrialised world.
A year on from the nationalisation of Northern Rock and the foundations of capitalism seem to be crumbling in the very epicentre of the free market: Wall St.. Another huge financial institution, Lehman Brothers, is going under as we speak. Last week, the US government effectively nationalised the giant mortgage companies, Fannie Mae and Freddie Mac, which between them account for half of all the mortgages in America - more than $5 trillion worth. This is the biggest state take-over in history, and makes the nationalisation of industrial companies like British Leyland and British Steel in the sixties and seventies look like an exercise in municipal subcontracting.
It is also the most astonishing economic u-turn of modern times, a complete reversal of the freewheeling market ethos Wall St. has always lived by. The very people who used to rail against regulation are now begging the state to come to their rescue, to save them from themselves. The economies of the West are being transformed before our eyes into a centralised system run by a financial oligarchy - the handful of banks who are still “too big to fail”. And they are using public money as collateral. As the New York economist, Nouriel Roubini put it last week: “Welcome you to the USSRA: The United Socialist State Republic of America”. It’s socialism for the banks: communism for the well off.
Politicians and most economists,say there is no alternative; that firms like Fannie Mae cannot be allowed to go bankrupt in case the entire financial system collapses. Perhaps. But if this transfer of financial liability to the state is inevitable, then surely it should be handled in an open and democratic manner, not least to ensure that the public interest is protected. There has to be a quid pro quo: transparency and accountability; a curb on profiteering; a more responsible attitude to lending; and a limit on the self enrichment of executives. Never has there been a better opportunity to strike a new social contract between private capital and the people.
Labour is failing to make this case. As the party prepares for its UK conference in Manchester later this week there is pessimism verging defeatism in the party, a loss of moral purpose. But why? Looking at the wreckage wrought by unrestrained greed during the boom years, this should be a great time for a social democratic party like Labour - a historic opportunity to reaffirm its fundamental values. The people who should be on the defensive are the free market Conservatives and their friends in the City who have brought us to this state thanks to their bonus culture and predatory lending. All those neoliberal nostrums about the evils of government interventionism have been swept aside as financiers fall over themselves to get their hands on state subsidies.
A student of history like Gordon Brown would surely learn from the example of the US Democrat President, Franklin D. Roosevelt. In the 1930s, the economic situation was very similar, with falling house prices, weak stock markets and widespread bank failures. Roosevelt turned it to his advantage by using political leverage to introduce policies that benefited ordinary people, taxed the rich and restructured the US economy such that it was based on productive industry instead of stock market speculation and property bubbles.
It was called “the New Deal", and Gordon Brown even borrowed the phrase to describe his own job-creation programme in 1997 - a programme which was financed by a windfall tax on the privatised utility companies. Unfortunately, he is not prepared to revisit his own early radicalism and to impose a new windfall tax on the energy companies who have again been making exorbitant profits at public expense by increasing domestic fuel bills up by over 30%. The EON executive, Mark Owen-Lloyd, established a new benchmark for callous indifference last week when he joked that a harsh winter “would mean more money for us”.
Brown said he would not resort to “short term gimmicks” int he energy crisis so he has resorted instead to a long term gimmick, proposing loft insulation as a solution to fuel poverty. This won’t even cost the energy companies much because they can set most of the cost of the programme against their corporation tax. Why is Labour so afraid of taking a stand against these people? Is it still afraid of being seen as antibusiness? Is the Daily Mail, which supported a windfall tax, antibusiness?
Labour would do well to remember Roosevelt’s words: “we have nothing to fear but fear itself”. The British economy needs to be rebalanced so that it is less reliant on house prices and financial services and more on making things that can be sold abroad. Manufacturing has been allowed to dwindle to 14% of GDP. This needs to be reveresed. Brown could revive the construction industry by restoring council house building, which it practically invented. Councils have hundreds of thousands of families waiting on their lists - people with no prospect of ever owning a home - and there are thousands of builders and tradesmen are being thrown on the dole.
Instead, Brown is spending public money on schemes to stop house prices from falling to levels at which people can afford to buy them again. This is futile.The government should do nothing to impede the correction that is taking place right now. Houses are still overvalued by around 30% and the sooner prices fall to the historic levels of around three times average earnings, the sooner we will have a stable housing market, instead of one pumped up by cheap credit and liar loans.
There are other areas in which Labour is simply not making sense - pay restraint, for one. The mantra from ministers is that wages must be held down below to stop inflation getting out of control. Well, what must be blindingly apparent to the most blinkered union basher is that inflation has got out of control without any help from wages, which are falling as inflation rises. Pay cuts will not stop inflation, but they will stop people buying in the shops. The Japanese government has just called on businesses there to start increasing wages - yes, paying workers more - to revive consumer demand. Even America has been handing out tax rebates.
But Gordon Brown seems to be stuck in the Thatcherite 1980s and has failed to notice the profound changes to the economic environment brought about by the credit crunch and its aftermath. We really are in a different era. And the irony is that it should be be Labour’s era. It will assuredly not be Gordon Brown’s.
A year on from the nationalisation of Northern Rock and the foundations of capitalism seem to be crumbling in the very epicentre of the free market: Wall St.. Another huge financial institution, Lehman Brothers, is going under as we speak. Last week, the US government effectively nationalised the giant mortgage companies, Fannie Mae and Freddie Mac, which between them account for half of all the mortgages in America - more than $5 trillion worth. This is the biggest state take-over in history, and makes the nationalisation of industrial companies like British Leyland and British Steel in the sixties and seventies look like an exercise in municipal subcontracting.
It is also the most astonishing economic u-turn of modern times, a complete reversal of the freewheeling market ethos Wall St. has always lived by. The very people who used to rail against regulation are now begging the state to come to their rescue, to save them from themselves. The economies of the West are being transformed before our eyes into a centralised system run by a financial oligarchy - the handful of banks who are still “too big to fail”. And they are using public money as collateral. As the New York economist, Nouriel Roubini put it last week: “Welcome you to the USSRA: The United Socialist State Republic of America”. It’s socialism for the banks: communism for the well off.
Politicians and most economists,say there is no alternative; that firms like Fannie Mae cannot be allowed to go bankrupt in case the entire financial system collapses. Perhaps. But if this transfer of financial liability to the state is inevitable, then surely it should be handled in an open and democratic manner, not least to ensure that the public interest is protected. There has to be a quid pro quo: transparency and accountability; a curb on profiteering; a more responsible attitude to lending; and a limit on the self enrichment of executives. Never has there been a better opportunity to strike a new social contract between private capital and the people.
Labour is failing to make this case. As the party prepares for its UK conference in Manchester later this week there is pessimism verging defeatism in the party, a loss of moral purpose. But why? Looking at the wreckage wrought by unrestrained greed during the boom years, this should be a great time for a social democratic party like Labour - a historic opportunity to reaffirm its fundamental values. The people who should be on the defensive are the free market Conservatives and their friends in the City who have brought us to this state thanks to their bonus culture and predatory lending. All those neoliberal nostrums about the evils of government interventionism have been swept aside as financiers fall over themselves to get their hands on state subsidies.
A student of history like Gordon Brown would surely learn from the example of the US Democrat President, Franklin D. Roosevelt. In the 1930s, the economic situation was very similar, with falling house prices, weak stock markets and widespread bank failures. Roosevelt turned it to his advantage by using political leverage to introduce policies that benefited ordinary people, taxed the rich and restructured the US economy such that it was based on productive industry instead of stock market speculation and property bubbles.
It was called “the New Deal", and Gordon Brown even borrowed the phrase to describe his own job-creation programme in 1997 - a programme which was financed by a windfall tax on the privatised utility companies. Unfortunately, he is not prepared to revisit his own early radicalism and to impose a new windfall tax on the energy companies who have again been making exorbitant profits at public expense by increasing domestic fuel bills up by over 30%. The EON executive, Mark Owen-Lloyd, established a new benchmark for callous indifference last week when he joked that a harsh winter “would mean more money for us”.
Brown said he would not resort to “short term gimmicks” int he energy crisis so he has resorted instead to a long term gimmick, proposing loft insulation as a solution to fuel poverty. This won’t even cost the energy companies much because they can set most of the cost of the programme against their corporation tax. Why is Labour so afraid of taking a stand against these people? Is it still afraid of being seen as antibusiness? Is the Daily Mail, which supported a windfall tax, antibusiness?
Labour would do well to remember Roosevelt’s words: “we have nothing to fear but fear itself”. The British economy needs to be rebalanced so that it is less reliant on house prices and financial services and more on making things that can be sold abroad. Manufacturing has been allowed to dwindle to 14% of GDP. This needs to be reveresed. Brown could revive the construction industry by restoring council house building, which it practically invented. Councils have hundreds of thousands of families waiting on their lists - people with no prospect of ever owning a home - and there are thousands of builders and tradesmen are being thrown on the dole.
Instead, Brown is spending public money on schemes to stop house prices from falling to levels at which people can afford to buy them again. This is futile.The government should do nothing to impede the correction that is taking place right now. Houses are still overvalued by around 30% and the sooner prices fall to the historic levels of around three times average earnings, the sooner we will have a stable housing market, instead of one pumped up by cheap credit and liar loans.
There are other areas in which Labour is simply not making sense - pay restraint, for one. The mantra from ministers is that wages must be held down below to stop inflation getting out of control. Well, what must be blindingly apparent to the most blinkered union basher is that inflation has got out of control without any help from wages, which are falling as inflation rises. Pay cuts will not stop inflation, but they will stop people buying in the shops. The Japanese government has just called on businesses there to start increasing wages - yes, paying workers more - to revive consumer demand. Even America has been handing out tax rebates.
But Gordon Brown seems to be stuck in the Thatcherite 1980s and has failed to notice the profound changes to the economic environment brought about by the credit crunch and its aftermath. We really are in a different era. And the irony is that it should be be Labour’s era. It will assuredly not be Gordon Brown’s.
Saturday, September 13, 2008
Big Bang averted in Scottish leadership race.
There had been forecasts of a big bang, a black hole, even the end of life as we know it. Yes, the world waited on tenterhooks last week as they switched on the LHC - Labour’s Leadership Has-been Collector. But all that happened was that particles of inert matter called “candidates” were propelled around Scotland very, very fast avoiding any collision with reality.
Suspended entirely by public disbelief, the tiny particles, called Jamesons, Greyons and Kerrks, have been able to defy gravity for unprecedented lengths of time, as they whizz round and round, but have so far failed to answer any of the fundamental questions about the Labour universe - where it came from, what it means and where it is going. Some critics are already saying the LHC been a waste of time and money. But others believe that the benefits could be immense once we find out what is inside the tiny particles.
Now that the LHC has made its trial run, attempts will be made to focus Labour’s proton stream directly on a collection of exotic SNP particles called Sturguons and Salmuons. When these entities collide, in the purpose-built Holyrood cloud chamber, huge amounts of hot air is likely to be expended as LHC does its atom-smashing work, perhaps revealing entirely new dimesnsions to the political universe. Some observers are hoping that this might see the emergence of the mysterious “God particle” called the Numpty Boson, which will explain why Labour has been lacking energy for so long.
It is thought that visible matter represent only 5% of the known Labour Party and that the rest is so-called Dark Matter - clustered around local authorities and Westminster. This Dark Matter is almost completely inert, incapable of movement or brilliance, and yet makes up the vast quantity of the Labour universe. If the Leadership Hasbeen Collector is able to cause enough friction, it’s believed that at least some of the Dark Matter might come to life, however fleetingly, to illuminate fundamental questions about the nature of matter.
However, there have also been fears that this disturbance of dark matter could open up a mini black hole at the centre of Scottish politics. New Labour particles could collapse under their own weight and be swallowed up never to be seen again. But we can all be confident, now that the LHC is switched on, that there will be no big bang, not even a whimper, and that whatever happens life outside will go on just as before. Andrew Marr is 14.
Suspended entirely by public disbelief, the tiny particles, called Jamesons, Greyons and Kerrks, have been able to defy gravity for unprecedented lengths of time, as they whizz round and round, but have so far failed to answer any of the fundamental questions about the Labour universe - where it came from, what it means and where it is going. Some critics are already saying the LHC been a waste of time and money. But others believe that the benefits could be immense once we find out what is inside the tiny particles.
Now that the LHC has made its trial run, attempts will be made to focus Labour’s proton stream directly on a collection of exotic SNP particles called Sturguons and Salmuons. When these entities collide, in the purpose-built Holyrood cloud chamber, huge amounts of hot air is likely to be expended as LHC does its atom-smashing work, perhaps revealing entirely new dimesnsions to the political universe. Some observers are hoping that this might see the emergence of the mysterious “God particle” called the Numpty Boson, which will explain why Labour has been lacking energy for so long.
It is thought that visible matter represent only 5% of the known Labour Party and that the rest is so-called Dark Matter - clustered around local authorities and Westminster. This Dark Matter is almost completely inert, incapable of movement or brilliance, and yet makes up the vast quantity of the Labour universe. If the Leadership Hasbeen Collector is able to cause enough friction, it’s believed that at least some of the Dark Matter might come to life, however fleetingly, to illuminate fundamental questions about the nature of matter.
However, there have also been fears that this disturbance of dark matter could open up a mini black hole at the centre of Scottish politics. New Labour particles could collapse under their own weight and be swallowed up never to be seen again. But we can all be confident, now that the LHC is switched on, that there will be no big bang, not even a whimper, and that whatever happens life outside will go on just as before. Andrew Marr is 14.
Tuesday, September 09, 2008
SNPTV?
Blair Jenkins, the chair of the Scottish Broadcasting Commission achieved the impossible last week: he got all the parties in the Scottish parliament to agree on something. What was even more remarkable is that they agreed to support something which many have thought of as an impossible tartan dream: a dedicated Scottish television channel.
Yes, wall to wall William Wallace and the news brought to you by Alex Salmond - at least that’s how the idea has been pilloried by some members of the Scottish broadcasting community. Jane Graham a Glaswegian independent producer summed it up in a piece in the Guardian last week when she announced that the idea of a dedicated Scottish digital channel: “sends a shiver up my spine...the vision for this channel exposes all that is small-minded and parochial about the SNP mentality.” It was a classic expression of the Scottish cringe: that uniquely Scottish sense of revulsion at anything, well, uniquely Scottish
The cringe runs deep. During the drafting of the devolution bill, the late former Scottish Secretary, Donald Dewar, agreed that broadcasting should be reserved to Westminster largely because he feared a “kailyard” broadcasting corporation. Many Labour MPs in Westminster believe a Scottish channel to be an intrinsically nationalist concept, designed to rip Scotland out of the union by getting Scots to see the world through a tartan prism.
All the more surprising then that Labour in the Scottish Parliament has hailed the Scottish Broadcasting Commission’s report as “excellent” and seem to be backing the idea to the full. Even the Scotland Office has been broadly sympathetic. The Scottish Conservatives have been vying with the Scottish Liberal Democrats to say who thought of a 'Channel Scotland' first. Alex Salmond has almost been elbowed aside in the rush to support “SNPTV”.
So, how did this happen? Well, largely it was down to the political skills of Blair Jenkins, who carried out a highly effective lobbying operation among the Scottish political classes, all of whom were left feeling they had ownership of the report. By side-stepping the issue of a Scottish Six, and by not calling for immediate devolution of legislative responsibility for broadcasting, Jenkins asserted his independence from the Scottish Government, which had set up the Commission, and created political space for a unique political consensus on the future of broadcasting.
Labour are understandably jubilant that the report says that “We do not believe, at the present time, that broadcasting should be devolved” and evidently regard this as game set and match. Though the report goes on to recommend that “the Scottish Parliamnet takes an active role in considering the broadcasting industry”. Alex Salmond is astute enough to accept concessions to the greater goal, which a Scottish television channel undoubtedly represents. As a result of the report, all the parties are committed to it and when the matter is debated, will almost certainly vote for it. Blair Jenkins is confident that this consensus will make it virtually impossible for Ofcom and the government in Westminster to reject the proposal, despite the vagueness about funding. He envisages the £75 million or so coming from the revenues released by the switch off of the analogue service by 2012.
But is he getting carried away with the success of his own presentational coup? The political success is undeniable and the report - largely written by himself - has certainly made a major intellectual contribution to the debate about broadcasting in Scotland. However, he may still underestimate the forces of small ‘c’ conservatism in Westminster. It is no mere technicality that the Scottish parliament does not have legislative oversight of broadcasting. This was why Scottish broadcasting was allowed to wither on the vine in the early years of devolution because the Scottish parliament didn’t feel it has any responsibility for it.
Lack of legislative authority does not mean that Holyrood cannot try to make its voice heard, but there is no guarantee that Westminster will listen. The Welsh Channel S4C may well be a model for a regional not-for-profit service, but metropolitan critics may argue that Scotland is already getting a publicly-funded language channel - MG Alba -which launches later this week, and that there is no justification for putting resources into funding a another one. I have already heard it suggested that there could be some token English-language programmes on the Gaelic service.
The unionist parties are able to support the Commission report because many think it will never happen, or that if it does, it will be a parochial switch off. Of course, it needn’t be - lots of small countries have their own television channels like Sweden and Holland. Ireland had six at the last count, so population size is not barrier to quality broadcasting. But whether we will see a Scottish television channel short of an independent Scotland remains to be seen. In the meantime, the risk is that the focus on the ultimate dream of broadcasting autonomy diverts attention from the matter in hand: how to improve the quality of existing BBC Scotland output, which is chronically under-resourced and relegated to the dismal nether world of the opt-out. With STV likely to retreat from public service broadcasting altogether, this is a pressing problem. We can all agree on the desirability of a Scottish channel, but we also need to get existing broadcasting into shape before Scotland can go live.
Yes, wall to wall William Wallace and the news brought to you by Alex Salmond - at least that’s how the idea has been pilloried by some members of the Scottish broadcasting community. Jane Graham a Glaswegian independent producer summed it up in a piece in the Guardian last week when she announced that the idea of a dedicated Scottish digital channel: “sends a shiver up my spine...the vision for this channel exposes all that is small-minded and parochial about the SNP mentality.” It was a classic expression of the Scottish cringe: that uniquely Scottish sense of revulsion at anything, well, uniquely Scottish
The cringe runs deep. During the drafting of the devolution bill, the late former Scottish Secretary, Donald Dewar, agreed that broadcasting should be reserved to Westminster largely because he feared a “kailyard” broadcasting corporation. Many Labour MPs in Westminster believe a Scottish channel to be an intrinsically nationalist concept, designed to rip Scotland out of the union by getting Scots to see the world through a tartan prism.
All the more surprising then that Labour in the Scottish Parliament has hailed the Scottish Broadcasting Commission’s report as “excellent” and seem to be backing the idea to the full. Even the Scotland Office has been broadly sympathetic. The Scottish Conservatives have been vying with the Scottish Liberal Democrats to say who thought of a 'Channel Scotland' first. Alex Salmond has almost been elbowed aside in the rush to support “SNPTV”.
So, how did this happen? Well, largely it was down to the political skills of Blair Jenkins, who carried out a highly effective lobbying operation among the Scottish political classes, all of whom were left feeling they had ownership of the report. By side-stepping the issue of a Scottish Six, and by not calling for immediate devolution of legislative responsibility for broadcasting, Jenkins asserted his independence from the Scottish Government, which had set up the Commission, and created political space for a unique political consensus on the future of broadcasting.
Labour are understandably jubilant that the report says that “We do not believe, at the present time, that broadcasting should be devolved” and evidently regard this as game set and match. Though the report goes on to recommend that “the Scottish Parliamnet takes an active role in considering the broadcasting industry”. Alex Salmond is astute enough to accept concessions to the greater goal, which a Scottish television channel undoubtedly represents. As a result of the report, all the parties are committed to it and when the matter is debated, will almost certainly vote for it. Blair Jenkins is confident that this consensus will make it virtually impossible for Ofcom and the government in Westminster to reject the proposal, despite the vagueness about funding. He envisages the £75 million or so coming from the revenues released by the switch off of the analogue service by 2012.
But is he getting carried away with the success of his own presentational coup? The political success is undeniable and the report - largely written by himself - has certainly made a major intellectual contribution to the debate about broadcasting in Scotland. However, he may still underestimate the forces of small ‘c’ conservatism in Westminster. It is no mere technicality that the Scottish parliament does not have legislative oversight of broadcasting. This was why Scottish broadcasting was allowed to wither on the vine in the early years of devolution because the Scottish parliament didn’t feel it has any responsibility for it.
Lack of legislative authority does not mean that Holyrood cannot try to make its voice heard, but there is no guarantee that Westminster will listen. The Welsh Channel S4C may well be a model for a regional not-for-profit service, but metropolitan critics may argue that Scotland is already getting a publicly-funded language channel - MG Alba -which launches later this week, and that there is no justification for putting resources into funding a another one. I have already heard it suggested that there could be some token English-language programmes on the Gaelic service.
The unionist parties are able to support the Commission report because many think it will never happen, or that if it does, it will be a parochial switch off. Of course, it needn’t be - lots of small countries have their own television channels like Sweden and Holland. Ireland had six at the last count, so population size is not barrier to quality broadcasting. But whether we will see a Scottish television channel short of an independent Scotland remains to be seen. In the meantime, the risk is that the focus on the ultimate dream of broadcasting autonomy diverts attention from the matter in hand: how to improve the quality of existing BBC Scotland output, which is chronically under-resourced and relegated to the dismal nether world of the opt-out. With STV likely to retreat from public service broadcasting altogether, this is a pressing problem. We can all agree on the desirability of a Scottish channel, but we also need to get existing broadcasting into shape before Scotland can go live.
Monday, September 08, 2008
Blacklisted by the BBC
People often ask what point would be served by devolving the power of broadcasting to the Scottish parliament. After all, we don't want political control of broadcasters, and isn't the BBC a UK institution? What difference would a bunch of Scottish politicians on a committee make to programme standards and service to the public?
Well, part of the answer is clear from the experience of the Scottish Broadcasting Commission which publishes its report today into the future of public service broadcasting in Scotland. In one sense the final report - calling for a dedicated Scottish digital TV channel - is secondary to the impact the commission under Blair Jenkins has already had in the year since it was set up by the Scottish Government. Just switch on to any network news bulletin and you'll hear it. Scotland has suddenly started to figure in the BBC's London editorial agenda in a way never has before.
In the last few weeks I've heard informed coverage on UK news bulletins of Scottish issues like council tax, Titians, licensing laws even the Highers exams. Last week's legislative statement in Holyrood wasn't nearly as significant as last year's, but it was given important airtime nevertheless on UK news output. London-based newspapers have started to wake up as a result, and issues like local income tax are being discussed on the op ed pages. The BBC discovered it was missing a lot of real news in Scotland.
This is welcome, a tribute to the BBC and an object lesson in how to address a grievance in a democratic culture. BBC bosses in London listened to what has been said by and to the commission. When it was made clear to them that the network news agenda has been "hideously White City" - as confirmed by a report from Professor Anthony King which recorded a complete absence of coverage of Scottish health and education in network bulletins in a four week period - the BBC responded. It reprogrammed its producers to recognise Scotland's existence.
And it isn't just on network news that the Scottish Broadcasting Commission has had a profound impact. A matter of months after the its investigation began the Director General, Mark Thompson, came north to Pacific Quay and announced a tripling of the value of network commissions from Scotland He accepted that the BBC had fallen down badly in allowing the number of programmes from Scottish producers to dwindle. This is unalloyed good news and will provide a lot of high value jobs.
However, more commissions for London will not address the number one issue in Scottish broadcasting today: the quality in BBC Scotland output. Much of what it produces for Scottish consumption simply fails to match up to the standards required of a national broadcasting service. This is will become a crucial issue if the commission's main recommendation is adopted and the case is made for a dedicated Scottish television channel.
I can already hear the moans from chattering Scotland threatening to leave the country if they get wall to wall BBC Scotland on the telly. This is unfortunate, because there are a lot of very talented journalists and programme makers in BBC Scotland working in an acutely demoralised organisation. Many others have left or gone south. The problem with BBC Scotland is not the people working for it, who are eminently capable of making excellent programmes. The problem is a lack of editorial ambition coupled with a chronic lack of funding and a culture of managerial complacency.
You could not expect BBC Scotland, as it is presently constituted and financed to run a proper national television service. Which doesn't mean a dedicated digital channel is a bad idea. After all, the BBC is launching a Gaelic TV channel next month, and what is good for the Gael is surely good for the rest of us. Once the analogue service is scrapped in 2012, we will be in a different broadcasting environment. That might be the time to refit Scottish broadcasting to match the new constitutional reality in Scotland.
But the benchmark has to be quality. For this to improve BBC Scotland has to face up to reality. It must stop congratulating itself and start fighting to become a national broadcast service worthy of the name. Above all, it has to stop being defensive and hostile to criticism. Former colleagues tell me that I am now persona non grata on BBC Scotland as a result of evidence I gave to the commission. This is faintly ridiculous - like having a fatwa taken out against you by the Ramblers Association - and I mention it only for what it reveals about the vindictive cronyism that pervades much of BBC Scotland middle management. Self delusion too, because the comments I made largely came from BBC Scotland producers who are not allowed to talk openly for fear of their jobs.
Speak to anyone at programme level in BBC Scotland and you will hear complaints about a culture of editorial mediocrity, about chronic under-re sourcing of programmes, a lack of imagination and ambition. Many highly able broadcasters are in a state of near despair at the lack of direction. Management at BBC Scotland know this - a recent internal staff survey revealed widespread discontent about the management's creative bankruptcy and its failure to communicate a coherent vision. Morale in BBC Scotland will not improve just because it freezes its critics off Good Morning Scotland.
Which brings us back to accountability, the essence of democracy. After the Scottish Broadcasting Commission shuts up shop, someone has to keep a beady eye on Scottish broadcasting. The proper body to do that is the Scottish Parliament. At present, Holyrood is specifically excluded, under the Scotland Act, from having legislative oversight of broadcasting. This is like saying that the Scottish Parliament cannot be trusted to handle this responsibility, which is a metrocentric attitude that is neither tolerable or practical. Holyrood supposedly has oversight of the creative industries in Scotland, and yet not of broadcasting which the key creative industry. Such constitutional ring-fencing makes no sense.
Devolving broadcasting has nothing to do with imposing political direction over broadcasters. Labour MPs say Alex Salmond will start writing the BBC Scotland news bulletins if Holyrood gets control, but this is just scaremongering. Westminster has control of broadcasting but that doesn't mean that Gordon Brown tells the BBC what to say in its news bulletins. There are important institutional bulwarks to prevent it.
I'm sure devolution of broadcasting will happen. It is a constitutional anomaly and will be addressed as part of the reassessment of devolution being conducted by the Calman Commission and the National Conversation. The SBC has started the job of reforming Scottish broadcasting; but it should be down to parliament to finish it.
Well, part of the answer is clear from the experience of the Scottish Broadcasting Commission which publishes its report today into the future of public service broadcasting in Scotland. In one sense the final report - calling for a dedicated Scottish digital TV channel - is secondary to the impact the commission under Blair Jenkins has already had in the year since it was set up by the Scottish Government. Just switch on to any network news bulletin and you'll hear it. Scotland has suddenly started to figure in the BBC's London editorial agenda in a way never has before.
In the last few weeks I've heard informed coverage on UK news bulletins of Scottish issues like council tax, Titians, licensing laws even the Highers exams. Last week's legislative statement in Holyrood wasn't nearly as significant as last year's, but it was given important airtime nevertheless on UK news output. London-based newspapers have started to wake up as a result, and issues like local income tax are being discussed on the op ed pages. The BBC discovered it was missing a lot of real news in Scotland.
This is welcome, a tribute to the BBC and an object lesson in how to address a grievance in a democratic culture. BBC bosses in London listened to what has been said by and to the commission. When it was made clear to them that the network news agenda has been "hideously White City" - as confirmed by a report from Professor Anthony King which recorded a complete absence of coverage of Scottish health and education in network bulletins in a four week period - the BBC responded. It reprogrammed its producers to recognise Scotland's existence.
And it isn't just on network news that the Scottish Broadcasting Commission has had a profound impact. A matter of months after the its investigation began the Director General, Mark Thompson, came north to Pacific Quay and announced a tripling of the value of network commissions from Scotland He accepted that the BBC had fallen down badly in allowing the number of programmes from Scottish producers to dwindle. This is unalloyed good news and will provide a lot of high value jobs.
However, more commissions for London will not address the number one issue in Scottish broadcasting today: the quality in BBC Scotland output. Much of what it produces for Scottish consumption simply fails to match up to the standards required of a national broadcasting service. This is will become a crucial issue if the commission's main recommendation is adopted and the case is made for a dedicated Scottish television channel.
I can already hear the moans from chattering Scotland threatening to leave the country if they get wall to wall BBC Scotland on the telly. This is unfortunate, because there are a lot of very talented journalists and programme makers in BBC Scotland working in an acutely demoralised organisation. Many others have left or gone south. The problem with BBC Scotland is not the people working for it, who are eminently capable of making excellent programmes. The problem is a lack of editorial ambition coupled with a chronic lack of funding and a culture of managerial complacency.
You could not expect BBC Scotland, as it is presently constituted and financed to run a proper national television service. Which doesn't mean a dedicated digital channel is a bad idea. After all, the BBC is launching a Gaelic TV channel next month, and what is good for the Gael is surely good for the rest of us. Once the analogue service is scrapped in 2012, we will be in a different broadcasting environment. That might be the time to refit Scottish broadcasting to match the new constitutional reality in Scotland.
But the benchmark has to be quality. For this to improve BBC Scotland has to face up to reality. It must stop congratulating itself and start fighting to become a national broadcast service worthy of the name. Above all, it has to stop being defensive and hostile to criticism. Former colleagues tell me that I am now persona non grata on BBC Scotland as a result of evidence I gave to the commission. This is faintly ridiculous - like having a fatwa taken out against you by the Ramblers Association - and I mention it only for what it reveals about the vindictive cronyism that pervades much of BBC Scotland middle management. Self delusion too, because the comments I made largely came from BBC Scotland producers who are not allowed to talk openly for fear of their jobs.
Speak to anyone at programme level in BBC Scotland and you will hear complaints about a culture of editorial mediocrity, about chronic under-re sourcing of programmes, a lack of imagination and ambition. Many highly able broadcasters are in a state of near despair at the lack of direction. Management at BBC Scotland know this - a recent internal staff survey revealed widespread discontent about the management's creative bankruptcy and its failure to communicate a coherent vision. Morale in BBC Scotland will not improve just because it freezes its critics off Good Morning Scotland.
Which brings us back to accountability, the essence of democracy. After the Scottish Broadcasting Commission shuts up shop, someone has to keep a beady eye on Scottish broadcasting. The proper body to do that is the Scottish Parliament. At present, Holyrood is specifically excluded, under the Scotland Act, from having legislative oversight of broadcasting. This is like saying that the Scottish Parliament cannot be trusted to handle this responsibility, which is a metrocentric attitude that is neither tolerable or practical. Holyrood supposedly has oversight of the creative industries in Scotland, and yet not of broadcasting which the key creative industry. Such constitutional ring-fencing makes no sense.
Devolving broadcasting has nothing to do with imposing political direction over broadcasters. Labour MPs say Alex Salmond will start writing the BBC Scotland news bulletins if Holyrood gets control, but this is just scaremongering. Westminster has control of broadcasting but that doesn't mean that Gordon Brown tells the BBC what to say in its news bulletins. There are important institutional bulwarks to prevent it.
I'm sure devolution of broadcasting will happen. It is a constitutional anomaly and will be addressed as part of the reassessment of devolution being conducted by the Calman Commission and the National Conversation. The SBC has started the job of reforming Scottish broadcasting; but it should be down to parliament to finish it.
Could Labour win Glenrothes?
Could we have a new prime minister by Christmas? Possibly, if the Glenrothes by-election goes wrong for Labour.
Another sensational by-election defeat, following Crew and Nantwich and Glasgow East, really could end Gordon Brown’s career. The fate of the Prime Minister, and perhaps the entire government, rests on the shoulders of the voters of this Fife constituency which must deliver its verdict sometime in the next two months
So what can Labour do to win this supposedly safe seat, which the bookies have already awarded to the SNP? So far the debate has centred on timing. Should Gordon Brown delay the vote - deploying the so-called Travolta-Micawber strategy of staying alive in the hope that something turns up? But timing isn’t everything - there is the small matter of the campaign itself. Labour cannot afford to repeat the shambles of Glasgow East, where they launched their campaign without a candidate and failed dismally to counter the Alex Salmond effect.
So, what can Labour do in to improve its chances in Glenrothes? Unfortunately, they can’t get rid of Gordon Brown, who is probably their main electoral liability there. This was made abundantly clear as early as February 2006, when the Liberal Democrat Willie Rennie snatched the nearby Dunfermline and West Fife at a by-election overturning a similar five figure Labour majority. Even when he was Chancellor, and supposedly at the height of his powers, Gordon Brown was a vote loser. Now, after Glasgow East, where Labour lost the third safest seat in Scotland on a 22% swing to the SNP, he is the electoral equivalent of toxic waste.
But they can’t just dump Gordon , so Labour will have to do the opposite - force him into the front line in the hope that he can reawaken some of the respect he used to command in Fife. He was brought up in the Kingdom, after all, and sits for the neighbouring constituency of Kirkcaldy and Cowdenbeath. Brown is part of the political landscape of the Kingdom, and if he has to make a last stand in defence of his leadership, then Fife is arguably the best place for it. His late father was a highly respected Church Minister and there must be a lot of residual affection for the prime minister and his family, especially given the health problems of his son. Sarah Brown is a highly respected figure because of her charity work and for her reluctance to hog the limelight in the manner the previous First Lady of Downing St.. Brown had a good relationship with John MacDougall, the late MP for Glenrothes, an ex boilermaker, and goes back a long way with the trades unions there, so he has deep roots to draw on.
But the SNP has roots here too. Glenrothes is a very much easier target for the SNP than Glasgow East. In West Central Scotland, nationalism is an alien creed; in Fife it is an accepted part of the political landscape, and the press is much more favourably disposed to the nationalism than in Glasgow. The SNP hold the equivalent Holyrood seat for Glenrothes, which makes it doubly difficult to see Labour avoiding another defeat. The nationalists also lead the coalition on Fife council and have a strong organisation on the ground.
To demolish that nationalist presence, Brown would have to tour every corner of the constituency, matching Alex Salmond, mile for mile. He would have to convince a sceptical constituency that as Prime Minister he would personally ensure that it doesn’t just become another moribund Labour backwater.
He would also have to defeat Alex Salmond soundly in intellectual debate, something he was certainly capable of in the past.
And like Salmond in Glasgow, Brown would have to elbow aside the Labour candidate. This is likely to be either Alex Rowley, the Labour group leader on Fife Council or Christine May, the former MSP for Fife Central. I cannot, by the way, see Brown honouring the former First Minister, Henry McLeish, as candidate for Glenrothes - there is not a lot of mutual respect there. Anyway it would be madness so soon after another Scottish leader, Wendy Alexander’s, resignation over her campaign finances. McLeish, remember, resigned as First Minister, and local MSP, after a funding scandal in 2001, and while many thought Henry’s subletting of his constituency offices wasn't a resignation matter, the fact remains that he did resign. The SNP would say that he wasn’t fit for Holyrood, but now Labour thinks he is fit for Glenrothes.
, Brown could of course, try to steal the election by political bribery. He has already signalled that there will be some measures - such as the stamp duty holiday, or the scrapping of road tax increases - to sweeten the Chancellor’s pre-Budget report in October. But these are unlikely to do much for him in Glenrothes, and may even create a negative reaction. It didn’t go down too well in Crewe and Nantwich when Brown cobbled together that £2.7 ‘rescue’ for those hit by the abolition of the 10p tax band. With inflation likely to be running at 5% by polling day, and with slide in house prices barely started in Scotland, Brown would have to think very carefully before he tries to introduce a by-election fix.
One other possibility might be to announce changes to the party in Scotland to make it more Scottish. Adopt some of the rhetoric being used by Andy Kerr in the Scottish leadership race and promise that the Scottish leader - whoever wins the current leadership race - is going to have more power to deliver those “Scottish solutions to Scottish problems”. He could talk up the Calman Commission which Wendy Alexander established to explore more powers for the Holyrood Parliament. Do not, however, expect the Prime Minister to call for a referendum on independence. Alex Salmond, will do that, quoting Wendy Alexander.
No it isn’t looking good, for Labour. The SNP will have to mount a dreadful campaign to lose in Glenrothes. I’m afraid this could be Gordon's big red one.
Another sensational by-election defeat, following Crew and Nantwich and Glasgow East, really could end Gordon Brown’s career. The fate of the Prime Minister, and perhaps the entire government, rests on the shoulders of the voters of this Fife constituency which must deliver its verdict sometime in the next two months
So what can Labour do to win this supposedly safe seat, which the bookies have already awarded to the SNP? So far the debate has centred on timing. Should Gordon Brown delay the vote - deploying the so-called Travolta-Micawber strategy of staying alive in the hope that something turns up? But timing isn’t everything - there is the small matter of the campaign itself. Labour cannot afford to repeat the shambles of Glasgow East, where they launched their campaign without a candidate and failed dismally to counter the Alex Salmond effect.
So, what can Labour do in to improve its chances in Glenrothes? Unfortunately, they can’t get rid of Gordon Brown, who is probably their main electoral liability there. This was made abundantly clear as early as February 2006, when the Liberal Democrat Willie Rennie snatched the nearby Dunfermline and West Fife at a by-election overturning a similar five figure Labour majority. Even when he was Chancellor, and supposedly at the height of his powers, Gordon Brown was a vote loser. Now, after Glasgow East, where Labour lost the third safest seat in Scotland on a 22% swing to the SNP, he is the electoral equivalent of toxic waste.
But they can’t just dump Gordon , so Labour will have to do the opposite - force him into the front line in the hope that he can reawaken some of the respect he used to command in Fife. He was brought up in the Kingdom, after all, and sits for the neighbouring constituency of Kirkcaldy and Cowdenbeath. Brown is part of the political landscape of the Kingdom, and if he has to make a last stand in defence of his leadership, then Fife is arguably the best place for it. His late father was a highly respected Church Minister and there must be a lot of residual affection for the prime minister and his family, especially given the health problems of his son. Sarah Brown is a highly respected figure because of her charity work and for her reluctance to hog the limelight in the manner the previous First Lady of Downing St.. Brown had a good relationship with John MacDougall, the late MP for Glenrothes, an ex boilermaker, and goes back a long way with the trades unions there, so he has deep roots to draw on.
But the SNP has roots here too. Glenrothes is a very much easier target for the SNP than Glasgow East. In West Central Scotland, nationalism is an alien creed; in Fife it is an accepted part of the political landscape, and the press is much more favourably disposed to the nationalism than in Glasgow. The SNP hold the equivalent Holyrood seat for Glenrothes, which makes it doubly difficult to see Labour avoiding another defeat. The nationalists also lead the coalition on Fife council and have a strong organisation on the ground.
To demolish that nationalist presence, Brown would have to tour every corner of the constituency, matching Alex Salmond, mile for mile. He would have to convince a sceptical constituency that as Prime Minister he would personally ensure that it doesn’t just become another moribund Labour backwater.
He would also have to defeat Alex Salmond soundly in intellectual debate, something he was certainly capable of in the past.
And like Salmond in Glasgow, Brown would have to elbow aside the Labour candidate. This is likely to be either Alex Rowley, the Labour group leader on Fife Council or Christine May, the former MSP for Fife Central. I cannot, by the way, see Brown honouring the former First Minister, Henry McLeish, as candidate for Glenrothes - there is not a lot of mutual respect there. Anyway it would be madness so soon after another Scottish leader, Wendy Alexander’s, resignation over her campaign finances. McLeish, remember, resigned as First Minister, and local MSP, after a funding scandal in 2001, and while many thought Henry’s subletting of his constituency offices wasn't a resignation matter, the fact remains that he did resign. The SNP would say that he wasn’t fit for Holyrood, but now Labour thinks he is fit for Glenrothes.
, Brown could of course, try to steal the election by political bribery. He has already signalled that there will be some measures - such as the stamp duty holiday, or the scrapping of road tax increases - to sweeten the Chancellor’s pre-Budget report in October. But these are unlikely to do much for him in Glenrothes, and may even create a negative reaction. It didn’t go down too well in Crewe and Nantwich when Brown cobbled together that £2.7 ‘rescue’ for those hit by the abolition of the 10p tax band. With inflation likely to be running at 5% by polling day, and with slide in house prices barely started in Scotland, Brown would have to think very carefully before he tries to introduce a by-election fix.
One other possibility might be to announce changes to the party in Scotland to make it more Scottish. Adopt some of the rhetoric being used by Andy Kerr in the Scottish leadership race and promise that the Scottish leader - whoever wins the current leadership race - is going to have more power to deliver those “Scottish solutions to Scottish problems”. He could talk up the Calman Commission which Wendy Alexander established to explore more powers for the Holyrood Parliament. Do not, however, expect the Prime Minister to call for a referendum on independence. Alex Salmond, will do that, quoting Wendy Alexander.
No it isn’t looking good, for Labour. The SNP will have to mount a dreadful campaign to lose in Glenrothes. I’m afraid this could be Gordon's big red one.
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