Saturday, December 24, 2011

A financial nativity tale


A telling conversation with ghost of Christmas present

Christmas Eve at St Andrew's Square, in the centre of Edinburgh's financial district.
Wet snow falls on the scattering of tents housing the Occupy protesters. Jake Rice sweeps the slush out of the mess tent ... and onto the £300 hand-made shoes of Andrew Duncan, an investment banker.
AD: Jesus Christ!
JC: Oh, sorry. Didn't see you.
AD: Aye, well. You can now. And I'm bloody soaked.
JC: Um, but who ... what d'you want.
AD: Well, I was going to give you these bottles, but I'm tempted to drink them myself now.
JC: Why? You look like one of the people who've stolen 1% of the wealth. You're not from the tabloids again are you?
AD: No, and I've stolen a damn sight less of the wealth this year, I can tell you. Bonuses have been trashed by the crash.
(Sound of child crying.)
AD: Christ! you got kids here? In this?
JC: Only during the day.
AD: Yes I forgot, you lot all go home at night don't you – back to your warm middle-class beds.
JC: Actually we don't. I've been here for two months. Before that I was at St Paul's.
AD: Hear they've given up.
JC: No they haven't. They've agreed to move on rather than be forcibly removed in the New Year. We aren't going anywhere.
AD: OK, sorry. Look, I've been watching you here every day since you pitched up. Never believed you'd last. Which is why I'm bringing this crate. Just thought you deserved a bit of a winter warmer.
JC: That's kind of you, but I'm not sure we should really be taking donations from the people who've been wrecking the financial system, destroying public services and throwing people out of their homes.
AD: Ha, ha, ha! What school did you go to?
JC: That isn't the point. It's not where you come from that matters; it's what you do.
AD: Aye, well. I went to one of the worst schools in Edinburgh. We used to throw stones at people like you in your poncy blazers.
JC: Now it's my turn to tell you where to go ... If you don't understand why that doesn't matter then you can't possibly understand why we're here.
AD: Actually, I understand a lot better than you might think. Look, I'm sorry, I didn't come here for an argument or to jeer at you. As I say, in a curious way I respect what you are doing here. I'm glad someone's doing it.
JC: Why don't you join us then?
AD: Nah, I'm just not into that. I'm not a demo kind of person, never have been. Can't take it seriously.
JC: What do you actually do?
AD: I work in financial derivatives – currency mainly, and a bit of securitisation – but that's all frozen up at the moment.
JC: So you're a speculator then.
AD: Not really. I try to predict what various currencies will be worth, then we short on exchange traded funds valued in euros. At any rate, that was what we did.
JC: What possible value can there be to society in speculating on currencies? Don't you realise how people like you have driven commodity prices so high that people in Africa are having to sell their bodies to eat?
AD: Look, I never made the system. Really, it's just a job. Actually, I'm one of the people who agree about a Tobin tax, you know a tax on currency transactions – like George Soros says.
JC: A Robin Hood tax? You?
AD: I hate that phrase, but yeah. Why not? You have stamp duty on houses. Currency is just a market, it's just like selling anything – clothes or food. You make a profit on the sale. If you didn't have markets you'd not have this tent.
JC: Actually, this came from Blacks which has just gone bust thanks to people like you.
AD: I'm not to blame for high-street shops being hit by the internet. That's you lot with your MacBook Pros. You don't realise how you are changing everything with those things.
JC: OK. But if you look at the crisis as a whole, it's got a lot to do with greed, lax regulation, inequality, tax avoidance ...
AD: Well, actually. I agree with a lot of what you say. It's been appalling. Those financial scandals: endowment mortgages, payment protection insurance, private pensions, precipice bonds ... It's an utter disgrace. Trouble is ordinary people just don't understand the financial system. The politicians don't either. Next year, this Government is going to introduce a new semi-compulsory pensions system for the low paid which has been designed entirely to protect the profits of the pension providers. Bet you'd never heard of the National Employment Saving Trust?
JC: I don't have a pension.
AD: Course not. People like you don't work at all.
JC: The people are kept in ignorance by a compliant media, by the lies of the banks, and by corrupt politicians.
AD: Tell me about it. I couldn't agree more. People are completely defenceless. They should be taught about finance at school. They don't know how much they're being robbed because they're blind.
JC: But you make a living out of it. How can you stand there and say that?
AD: Actually, we're not so smart either. Look around this square at these grand bank buildings. There's absolutely nothing behind them. Empty shells. The money has all gone. They've killed themselves by their own greed.
JC: What about the trillion in public money that the Government gave you people to pay for your mistakes?
AD: Got me there, friend. Madness. Rewarding failure. Government handed a trillion to us, no strings. So what were we going to do? Go bust? That would have meant an economic depression.
JC: We're in an economic depression, or hadn't you noticed?
AD: (Turns to go) Actually I had kind of ... I've just been made redundant. Happy Christmas.

Wednesday, December 21, 2011

The last throw of the dice? ECB gives bankers a happy Christmas..

  Turns out that Francois Baroin, the French Finance Minister, wasn't far wrong last week.   The most hated man in the City of London said that Britain was in just as bad financial shape as eurozone countries like France, and that the rating agencies should be downgrading British debt.  We have higher inflation, lower growth and larger debts than France which is currently on the downgrade 'list of shame'.   Now Moodies has put the UK on credit death watch too. 

Thursday, December 15, 2011

Douglas Alexander, Scottish nationalist?

    It's extremely uncomfortable, especially at mealtimes.  All week my mouth has been dropping open inconveniently, bouncing off my chest, getting in my food, stifling coherent speech.   The reason:  the Shadow Foreign Secretary,  Douglas Alexander's,  jaw dropping intervention in the independence debate.  In a speech in Glasgow the one time protege of Gordon Brown (they're not so close these days) appeared to dump the Scotland bill in the dustbin of history and promised "an open-minded approach as to how the architecture of devolution can be improved".

   The clear implication is that Labour at least are no longer viewing the Calman Commisson report, and the Scotland Bill it inspired, as the last word on Scottish home rule.  Or rather, Labour is no longer prepared to go into the Scottish referendum allowing Alex Salmond to have an each way bet on the result, by supporting devolution max and independence.   Alexander is unspecific about exactly how far he is prepared to go down the road towards "devolution max" but there is no doubt that Labour is now resolved not to go die in the last ditch defending the status quo, while the SNP adopt the mantle of devolution.  I talked with him in the BBC studios on Saturday, and his irritation at the way the SNP have claimed credit for home rule, and made the Scottish parliament their own, even though they boycotted the Scottish Constitutional Convention, is very clear.
If there is a better devolution available, Labour will sponsor it.

  This is an astonishing moment.  The ground is moving under our feet.  If Labour is now contemplating fiscal independence, and though Alexander has not said this, I believe that is what he means, then we are on the verge of a constitutional revolution.   Let me explain:  the Calman Commission was, in a sense, unionism's last throw of the dice.  Professor Calman made what I argued at the time was a compelling argument for the Scottish parliament to have tax raising powers.  A grown up parliament must take on the responsibility of raising the money it spends, he said.  It must be accountable for its actions, transparent, fair, efficient.  However, the Calman solution, a fifty fifty split of income tax, was never very coherent and had all the hallmarks of a Whitehall fudge.  Even its supporters have difficulty explaining how it would work, or be an improvement on the present arrangements of a bloc grant from Westminster.

    The only way forward from Calman is a form of fiscal autonomy where the Scottish parliament raises the vast majority of the money it spends.  This has the advantage of moral clarity, and fiscal transparency.  There is no jiggery pokery with revised Barnett Formulas,  no deflationary fiscal devices.   There will be tax sharing, as there is in all federal arrangements, but the fundamental principle that parliament should be accountable is upheld.  Scots would no longer, under fiscal autonomy, be able to blame Westminster for "fiddling the figures".   The responsibility falls on the Scottish parliament to balance its books, pay its way, tax as well as spend.  Make the hard choices. And they are hard.  Fiscal autonomy is no easy ride for the SNP because it's main propaganda message - 'it's all London's fault' - is whipped from under them.

  No wonder Douglas Alexander/s namesake, Danny - the Treasury (?) is sounding increasingly desperate.  The unionist coalition built around the Scotland Bill has fallen apart. But this is only a recognition of reality.  Calman was a victim of the May election, when the SNP won an absolute majority in the Scottish Parliamentary elections.  Alex Salmond can do exactly what he wants in Holyrood, and he has made clear he is not going to vote through the Scotland Bill in its present form.  Since the passage of the bill requires the consent of the Scottish parliament this has killed the bill because the SNP will simply it.  What is Westminster going to do?  Impose a radical new tax regime which has been rejected by the Scottish Parliament?  Hardly.

   Douglas Alexander is a gifted political strategist and he saw the meaning of May long before his Scottish party had woken up from their post election hangovers.  It changed everything. Not just the balance of power in Holyrood, but the whole trajectory of Scottish, and British politics.  His sister, Wendy Alexander, may have set up Calman but that was in a different age.  Labour now faced the danger of being left out of the new order - forced to go down with a bill that has been moved by the hated Liberal-Tory coalition.   Labour had no option but to change course, as he tried to tell them in October when he reminded them that they had been "gubbed".  If Labour go into the independence referendum chained to a Tory bill they will be gubbed for good.

Wednesday, December 14, 2011

Salmond's first own goal. Sectarianism

  From The Herald.    Like most people concerned about freedom of speech, I've been watching the progress of the Offensive Behaviour at Football and Threatening Communications Bill, with mounting alarm. Outlawing the singing of songs at football matches seemed such a ridiculous proposition that initially I thought the Scottish government weren't serious. That Alex Salmond just wanted “send a message”, and that the loopier parts of this unnecessary legislation would be dropped. And if not, MSPs would realise that such a law as unworkable as it is objectionable. Surely, reason would prevail. It hasn't.
Yesterday, MSPs in Holyrood passed a law that could make the singing of the national anthem punishable by a five year prison sentence if it is associated with “offensive or threatening behaviour” in any context that involves football. No one knows exactly what “offensive and threatening behaviour” is, and anyway, because of the Catch 22 drafting, the very singing of “sectarian” songs is itself deemed offensive. There is no list of proscribed songs because to compile one would invite ridicule - “Give Ireland Back to the Irish” - Paul McCartney? This dumb law could also make the carrying of flags, colours or religious symbols illegal at football matches, in the trains going to football matches or in pubs or any public place where football is being shown. It could make singing The Sash illegal in a pub, but not in the street outside it. This is utter madness.

Tuesday, December 13, 2011

Who are the separatists now? Take Britain out of Europe and you can take Scotland out of the UK

David Cameron's decision to take the UK out of Europe will take Scotland out of the UK.  The Prime Minister's use of the veto against the EU treaty on budgetary reform looks like the game-changer that the SNP leader Alex Salmond has been waiting for.   Attachment to the Union in Scotland is likely to evaporate as Scots realise that they have become an appendage to an essentially isolationist England with a sceptic media saturated with an ugly chauvinism. The hostility shown towards European nations is like a bad version of the hostility that old school Scottish nationalists used to show towards England. Only they grew out of it. 

  David Cameron's narrow nationalism, putting the interests of the City of London above those of resolving the EU budget crisis, has fatally undermined the moral case for sticking with Britain.  If the UK is now a Banker's Union, dedicated to protecting the privileges a delinquent financial elite, what price internationalism, democracy, social welfare or any of the values that were supposed to define the common British project?

The SNP has suffered greatly in the past from accusations that it is a "separatist" party, seeking selfishly to divide the UK, and pit nation against nation.  But who are the separatists now?

  The argument for sticking with Britain was always that this gave Scotland representation at the highest levels of decision-making in Europe.  This is clearly no longer the case.  The UK is marginalised in Europe, whatever the Prime Minister may say - a "union" of one against 26.  This isolation is the culmination of decades of revanchist anti-Europeanism,  which has coincided with the decline in popular attachment to the symbols of Britishness on both sides of the border. 

   As England turns in on itself, lapsing into a financial parochialism, Scotland turns out - seeking to rediscover in Europe the communitarian values that it believed underpinned the UK.  The SNP used to be criticised for demanding "Scotland's Oil", for seeking to grasp the nation's natural resources for itself.  Well, Scotland gave the oil away, and now finds that it was used, not for the common good, but to build an evil empire of greed.  It surely won't get fooled again. 

£500 for independence?

From the Herald.   It sounds cheap at the price. 65% of Scots would opt for independence if they were £500 better off as a result, according to the latest poll from the Social Attitudes Survey. With all that cash the SNP has been accumulating recently through legacies and donations, Alex Salmond must be tempted just to send out a brown envelope with every referendum ballot paper. Perhaps they could redirect redirect some of that £60bn in fantasy funding for infrastructure projects announced this week. Scotland could be taking its seat in the United Nations before the decade is out.

There has been much scorn heaped upon Scots for appearing to put a price on their continued membership of the UK. Almost as much as has been heaped upon the Scottish Infrastructure Secretary, Alex Neil's, Mega Plan for road and rail projects, including a high speed rail link, with a sprinkling of housing and hospitals. Most of the projects won't come to fruition until the 2020s and beyond, and rely on optimistic funding from NPD, PPP, PFI or whatever form of private finance initiative happens to be in favour at the time. The Mega Plan also depends on the Scottish parliament getting the borrowing powers contained in the Scotland Bill, to which the SNP government is vehemently opposed. The consensus amongst the Mcchattering classes is that it has the ambition of Roosevelt's New Deal, but little prospect of becoming a real deal.

But at least the SNP are trying to do something. Industry bodies, including the Scottish CBI which is no friend of nationalism, have been praising the scheme for trying to inject confidence into a flatlining economy. Some foreign pension funds are reported to be interested in financing projects which, like rail, have guaranteed revenue streams. Most of the scornful newspaper comment concedes that someone somewhere really needs to be talking about growth and the SNP government is at least suggesting there may be life after the recession. Certainly Neil's plan puts the UK government's £5bn infrastructure plan announced in the Autumn Statement in the shade.

In a country like Scotland, where half the economy is the state, no one will invest if the government isn't taking a lead. For every £100 million invested, 1400 jobs should emerge in the wider economy. It's just a pity that so many of the projects are unimaginative road improvements, picked from the briefing sheets supplied by transport lobbyists: Forth Road Bridge, M8 link, A9 duelling, Aberdeen bypass, etc. I thought that the SNP was supposed to be in the green investment business, developing renewable energy.

But there is a broader political objective here. The SNP is playing a game of fantasy independence – giving voters some idea of how life might be in future if Scotland were to to it alone. Everything the SNP does right now, from Alex Salmond lecturing the Chinese on Adam Smith, to getting civil servants to research a “Scandinavian” prospectus for independence, is all about preparing the ground for the referendum, which looks like coming in the middle of 2014. The task is to eliminate the negatives – make independence sound like a bracing hill walk rather than a leap in the dark. The SNP is trying to think us into leaving the UK.

And that much-derided poll from the Social Attitudes Survey is, they believe, an indication that Scots are thinking the unthinkable.. A £500 a year bung may seem a crass, materialistic reason for seeking national freedom, but read differently it suggests that most Scots would now opt for independence if they thought it could be made to work economically. . Certainly, there appears to be precious little romantic or emotional attachment to the United Kingdom, kith and kin, the flag or any of the other symbols of Britishness.

Perhaps this a consequence of the very materialistic way that unionists have posed the argument. Opponents of independence invariably resort to versions of the “divorce is a costly business” argument. - the £4 billion deficit, the loss of the Barnett Formula.   Scotland hurled out of the EU and left destitute like a single parent on a bleak housing estate. It is the cost of the divorce that is always emphasised, not the emotional bonds that led to the original marriage.  In fact, the Union – Parcel o' Rogues aside – was a moral project as well as an economic one. 
   Even during the days of the British Empire, when Scottish soldiers shot the natives, Scots graduates ran the colonial administration, and Scottish bankers took all the money, there was a sense of mission: that this was somehow bringing civilisation to the world. After the fall of the British Empire there was a new moral union. It was based on working class solidarity, trades unions, the war against fascism, the 1946 Labour government and the National Health Service. Scots were fully signed up to the social democratic project, to the welfare state, and largely remain so today, even though the industrial working class is no longer a political force, and the welfare state is under challenge as never before.

Scots are thinking hard cash because they no longer recognise any coherent moral message from an increasingly eurosceptic United Kingdom, dominated by the City of London, and run by a government largely composed of ex-public schoolboys. Why should Scots keep faith with a union based on plutocracy, where personal enrichment is the only mission around? The SNP believe Scots are ready for a new political narrative in which Scotland figures as a rugged equalitarian Nordic nation, with a history of self-reliance and self-help, that doesn't need state handouts and can do very well on its own.

And talking of prospectuses, the nationalists think they can offer a pretty convincing IPO for the referendum: highly educated and versatile work force; £350bn in North Sea Oil; a quarter of Europe's wind and wave energy; thriving tourist industry, five world class universities and an awful lot of water.     It would be pretty poor management that could make a mess of those numbers. If I were a Japanese pension fund, I might consider investing in it.

    So, unionists should take little comfort from that risible price drop poll.  Scots are increasingly taking independence seriously, and are costing the future. A leap in the dark might be better than being left in the lurch.

Tuesday, December 06, 2011

Black November: it's enough to drive you to drink.

     November was when the banking crisis of 2008 finally hit home. The governments of Europe have bankrupted themselves by taking on the debts of the banks.  The latest move by Angela Merkel and Nicolas Sarkozy is the final nail in the coffin of the eurzone economies.  It saddens be greatly to say that, but I can't see any way out for them now. 

   What was decided in Paris was that, in future, private investors will not incur any losses in future defaults by eurozone countries.  In Greece, the banks and investment houses who had bought up Greek debt were forced to take a "haircut" of some 30-40%. This freaked bond investors and made them wary of taking on sovereign debt of any Mediterranean states - which is why Italy's borrowing costs leapt above the crucial 7%.   Markozy decided that the only way to calm the markets was to give them a promise that future losses will be taken onto the state.

   All very well, but the sovereign states of Europe are already effectively bankrupt, not because of public debt, but because of the 23trillion that has been lent by eurozone banks. This is the real wild card.  By any reasonable standards, the eurozone countries are already insolvent.  And there is no one left to come along and pay their debts for them.  This is why the rating agency, Standard and Poor's (what a wonderful, Dickensian name that is) has put them all, even Germany, on notice of credit down grade.  This will make it even harder for them to borrow money, and will increase debt. 

   But all those gloating over the misfortunes of the eurozone should remember that Britain is deep in the debt pit as well, and it is only because we have been debauching the currency and igniting inflation by Quantitative Easing that we have been left alone for the time being.  There is a reckoning here too. 

Friday, December 02, 2011

Everyone should have a decent pension.

   That's what the strikers' placards said, and they are right.  Everyone should have a decent pension.  The trouble is that the vast majority of workers in Britain don't have one, and don't have the remotest hope of having one.

   The basic state pension in Britain is worth only 17% of earnings the lowest in Europe, £102 pw for a single person, or just over £5,000 a year.  The average in Europe is 57% of average earnings, around £14,000.   Even in the Netherlands, the second lowest, pensions are worth twice what they are here.  Hardly luxury, but at least it is just about possible to live on it.   The UK pension simply isn't enough to live on.

   People here are expected to save for their retirement.  But the iniquitous means testing that is applied to the pension credit actually discourages people from saving. Which is why so many don't.   The average private sector pension is only worth around £20 a week, and yet this can disqualify a pensioner from receiving the pension credit which bumps the state pension from a £102 to £137 for a singe person.  And to add insult to injury, this is classed as taxable income - unlike tax credits or interest on an ISA.    Britain has the most complicated pensions system in the world, and many people who are eligible for the pension credit don't manage to complete the pages and pages of form filling.

   Let the public sector workers keep their pensions - but only if the rest of the working classes are given similar security.  The danger is that the majority of workers, who are not employed by the state, and who cannot afford any pensions, will refuse to continue to pay, through their taxes, for the relatively generous pensions of public sector workers.  There has to be some kind of equity here.