Saturday, 30 March 2013

How Cameron can avoid being toast

The Economist is one of the only Newspapers that provides worthwhile comment on the state of British politics and their latest iteration of the "Issues Facing Britain" research carried out by Ipsos-MORI on behalf of The Economist is again revealing for a number of reasons.

March 2013

Interestingly, although we are still struggling with a "flat-lining" economy there has been a significant reduction in the rating for the economy since the election in 2010. This is probably because people are have recovered form the shocks of 2008-9 and are now bored and worn down by the bad economic news; I doubt this reduction reflects any sense of recovery.  The other 4 top 5 issues are the same, with modest reductions in people anxiety about unemployment and crime.

June 2010 - after the election

The for the coalition government the issue is now more about where the blame rests for performance.  They can take some credit for the declines in both unemployment and crime and probably will escape any blame for the increasing anxiety around the NHS, which will be due to the scandalous revelations on poor care, that occurred on Labour's watch before the election.

In 2010 voters blamed our economic mess on Labour.  Today both of the main parties have an issue of trust to overcome on the economy and I have a feeling that it will be largely a matter of luck on events outside the control of our politicians.  If the US economy continues to improve and the Eurozone survives the Tories may stand a chance, if either of these goes the wrong way Labour will capitalise.  The chart below is from the Independent:

An important swing item is immigration, all though the statistics haven't changed much since 2010 the heat is rising on this topic.  The nervousness is due to the impending tidal wave of Romanians and Bulgarians expected to arrive in the UK in 2014, a year before the next election.  The Tories have done well to control non EU immigration but the problem is how to deal with old eastern block counties now in the EU.  The UK's second language is now Polish, with approaching 1 million Poles now enjoying the benefits of our overly generous welfare state, and this has happened in 10 short years.  Without a plan on EU immigration (which is a huge issue for their core vote) and some luck on the economy the Tories will be toast.

Friday, 29 March 2013

Man bites Dog

To relax from the grind of work and the horrors of commuting I have become a serial dog walker.  My elderly Golden Retriever and I enjoy the amazing free amenity of walking through our beautiful countryside on a network of footpaths that have been a right of way for centuries.  Occasionally, this rural idyll is shattered when we meet an owner who has a killer dog for a pet.  There is no nice way of saying this but these owners are not the Mercedes driving, Barbour wearing crowd who offer a polite good morning as we pass.  No, they are more likely to be wearing an over-sized baseball cap and huge trainers.  One cannot help wondering if their choice of dogs isn't also an important part of the image - as its is for us Golden Retriever types!

Would you live with this in your home?

To safety navigate the killer dog owners without having my dog eaten or my leg bitten is an vital skill to develop, where ever you live in England.

This day to day problem is the backdrop to the awful news earlier this week that an English teenager was mauled to death by a pack of dogs (Staffordshire Bull Terriers and Bull Mastiffs) when visiting a friend's house.  Her death has left a community devastated, a family distraught and the public debate on what to do with dangerous dogs raging.

We should be appalled by this incident but should we be surprised. The sad truth is that for a section of our broken society dangerous dogs are something of a fashion accessory.  Strutting around the district with a four legged killing machine gives a growing minority of dog owners a kick and some much needed self esteem.  Also breeding these dogs is a helpful way of generating income in inner city areas. Puppies from a Staffordshire bull Terrier will sell for £300-£400 each, so the industry now vies with drug distribution and racketeering as a gainful employment for a broken underclass.

We have failed to deal with this growing problem over the years and this is mainly because our liberal elite are always nervous of legislation that obviously penalises this section of our society.  This social distinction in the ownership of these killer dogs is the main reason the dangerous dogs act has been such a failure.  We can be sure that the toxic cocktail of dogs bred for killing (Staffordshire Bull Terriers were bred for bull baiting) and owners who haven't the first clue in animal husbandry will be the cause of more deaths.  The statistics are already worrying with over 120,000 dog attacks every year and most of these on children.  Almost one in three dog owners have been bitten or attacked by a dog.

There are some initiatives on the way - micro-chipping of all dogs by 2016, and the introduction of  Dog Control Notices, as introduced in Scotland and currently under consideration in Wales, and might be extended to England.  My preference is to beef up the dog licencing to ensure that any dog owner can prove:
  1. They can afford to keep a dog, including a more expensive licence
  2. They understand how to train and take good care of the dog
  3. They understand their liabilities as an owner 
And we should also ban the pet ownership of our most dangerous breeds like we have banned hand guns.  - list here

Thursday, 28 March 2013

Finding an audience for Abu Qatada

When considering human rights, the good people of Britain are in a very fortunate position.  The serial injustices of the 60's and 70's, committed by the police and the Army against innocent Irish men and women, have left a legacy of extreme tolerance in the Judicial establishment. This tolerance has been at its most noticeable when we have to deal with the rights of foreigners.  Our privately educated upper middle class judges have a myopic world view.  This Judging class suffer an acute colonial angst and this combined with an inflated opinion of international legal conventions has created a series of farcical deportation stalemates.  The current case of the unpleasantly bearded cleric Abu Qatada is just another ‘brick in the wall’ for our judicial ivory tower.

Wednesday, 27 March 2013

A political death in New York

News that David Miliband, the former Foreign Secretary and Tony Blair protégé is taking a job away from British politics to run International Rescue Committee in New York (I hope he thanked bill Clinton for the leg-up) ends an interesting chapter in British  politics.

David Miliband was always going to be Blair’s heir – but he lacked the political and personal ambition to grab the prize, on three occasions he blew his chance.  Firstly, in 2007 by not standing against Gordon Brown who was then elected unopposed.  Secondly, in 2010 before the election when we could all see how bad Gordon Brown was as PM, but despite a groundswell of support he bottled it.  And final, in the leadership face off with his younger brother after the 2010 general election.

Peter Oborne writing in the Telegraph is not sad to see him go:

This move to New York signals the final convulsion of the fratricide Ed committed on his more talented brother’s political career.  Who will forget the moment when the five candidates, for the Labour leadership heard the results of their campaign to succeed Gordon Brown.   Ed Miliband was at the centre of a semi-circle of candidates with David standing next to him.  His main rival and the man expected to win.   When the vote went the wrong way the room fell silent as all the losing candidates squirmed with embarrassment for David.  Ed Miliband won by a wafer-thin margin of just 1.3 percentage points, thanks to Trade Union block votes.  I am sure David Miliband is a loss to British politics but he was obviously never cut out for the top job in the Labour Party, much less Prime Minister.  His brother however is a different kettle of fish.

Since being elected leader of his party Ed Miliband has shown himself to be an amazingly adept politician.  Although he patently has no strong views or beliefs he has got Cameron on the run and it’s possible he will win a majority in the 2015 election.  His success is founded on a knack for opportunism.  His approach in opposition has been to stick to a limited script which focusses on painting the Tory Cabinet as group of amateur politicians with enormous private incomes.  His relentless negativity has been successful but he has embellished this campaign against privilege with some master strokes of opportunism.  In no particular order my favourites are:
  1. Presenting himself as pro-Europe but siding with the hard right wing of the Tory party to vote against Cameron’s hard won budget deal
  2. Jumping on the plebgate bandwagon with a hateful zeal
  3. His resounding opposition to the welfare changes that he will have to enforce if he gets into power.  As fellow Labour MP John Crudas says "Simply opposing the cuts without an alternative is no good"
  4. His support for the anti-libertarian 'Hacked off' campaign in the question of Press regulation
  5. And the defence of the indefensible NHS
  6. And of course the fratricide of his brother’s political career.

This mixture a childish class war rhetoric and inspire opportunism is proving to be a popular cocktail, the only question is, will it last?  My bet is that he will jettison the campaign against privilege at some point and focus more on the obvious ineptitude of some government departments.  But we can be sure he won’t lose his touch for bare faced political opportunism – sit back and enjoy a master at work!

Tuesday, 26 March 2013

The Dutch cap set to create another financial crisis

The Dutch have made a few decisive contributions to the global financial system since the debacle of the Tulip-mania the first recorded financial bubble,  of 1636-1637.  An episode in which tulip bulb prices were propelled by speculators to incredible heights before collapsing and plunging the Dutch economy into a severe crisis that lasted for many years.  

This 'glorious' history did not appear to hold back Jeroen Dijsselbloem,  chairman of the eurozone finance ministers. who has led the charge on Cyprus.  The final deal is that Mr Anastasiades (Cyprus's PM) agreed to the closure of Laiki, the island’s second-largest bank, and the radical restructuring of Bank of Cyprus, the country’s biggest. In both banks, large uninsured deposits of more than €100,000 will be used to pay for the bailout; in Laiki, senior bondholders will also be “bailed-in”.

Monday, 25 March 2013

Cyprus - When a bail-in is not a bail-out

The last minute deal done in Brussels to cement the 15.6bn bail-out for Cyprus is, as with everything in Europe, something of a fudge.  The bail-out is required to re-finance both the Cypriot banks and the Government. The troika of the IMF, the EU finance ministers and the ECB have agreed to hand over 10bn of the loot but only if Cyprus can find the other 5.6bn.  Given that the country is bust the only immediate source of finance left on the island is private capital held by the insolvent banks.  The Cypriot government have decided that they cannot raid (tax) all deposit holders so the money will be raised exclusively from savers with bank deposits in excess of 100,000 (the insurance limit).  The blanket ‘tax’ will take no account of income or the value of other assets (property, stocks, etc.) and will probably have a disproportional impact on overseas investors who were attracted to Cypriot banks by the benign regulatory regime and overly generous interest rates.  Many of these investors are Russian and they may well have to take a haircut of over 20%.  Quite apart from the distasteful precedent of getting foreigners investors to finance the bail-out, the solution raises some other important questions.

Since the ECB put together its fighting fund to rescue the failed economies in the Eurozone there has been a principle that Banking debt and reconstruction would be separated from government solvency.  So in Spain a number of banks have been bailed out in advance of the deal to resolve government indebtedness.  With Cyprus there was apparently no willingness to use European Stability Mechanism (ESM) money directly to recapitalise the banks, even though that is being done successfully with the Bankia in Spain.  By linking government debt and banking debts the troika risk the flight of capital from fragile banks all over Europe.  If you had over 100,000 in an Italian bank this morning what would you do?  The answer is - move it to Switzerland!  This may be a good time to buy shares in UBS!

The second major issue is that to successfully raid private deposits in Cyprus the government will have to put in place capital controls to ensure the banks don’t lose deposits.  Russian depositors were threatening to remove their spoils if they are subjected to any kind of a haircut.  Any significant fight of capital would quickly render these organisations insolvent;  as almost no amount of capital is sufficient for a bank which has lost the confidence of its depositors.  These temporary capital controls replicate what happened in the Icelandic banking crisis, where temporary controls have proven impossible to remove.   Interestingly to have these controls within the borders of a “single currency” is in breach one of the basic principles of a single currency; as by introducing capital controls Cyprus is creating its own currency within the Eurozone. 

So the results for the Troika is the worst of all worlds;  they have had to inject money into Cyprus at the same time as guaranteeing its exit for the Eurozone, they could have saved themselves  10bn and simply pushed Cyprus into default!  Additionally, they have probably destroyed any confidence the wider European public might have in the ESM.

Sunday, 24 March 2013

We need some dexterity in Austerity

Britain is struggling through the coldest March on record, our long, and miserable winter just won't go away. High pressure from the Arctic hovers to the east driving bitingly cold winds across the whole country; the daffodils that have come into flower are wishing they hadn't. Many of us gardeners are despairing for a little warm weather to get some important jobs done, the time for sitting around is over.  

More weather woes at -

There are some uncomfortable parallels between the climate here and the economy, which has been stuck in a recession, or something close to it, for five long years. Like much of the western world we have had enough.

The argument raging on how to turn things around has now become quite banal, two camps have emerged. We have the "austerity is working" crowd, of which George Osborne is a cheerleader and the Keynesian opposition who insist that governments need to increase the level of debt and spend more to supplement low levels of private consumption. The noisest and probably the most eloquent proponent for the Keynesian approach is the Nobel Laureat Paul Krugman, who blogs in the New York Times.

The hardening of attitudes over time can be attributed to concerns around ulterior motives.  The Keynesian guys suspect the Austerians of using recession as an excuse for downsizing the state and on the other side there are concerns that increased borrowing is an excuse for reintroducing 'big government'.  Austerians worry that reactive measures (like the Bankers Bonus law) will signal a new era of over regulation.  This entrenchment of ideologies is not helpful.  The unsightly glee that the opposition Labour party displays when more bad news in unveiled is patronising beyond belief, similarly the stubborn adherence to plan A from our Government creates the same feeling of dejection.

It's becoming clear that this polarisation in the debate has the potential to become very dangerous as opportunistic politicians try to sloganise extremely complex arguments for unknowing electorates. We are seeing the early signs of this in Japan and in some countries of the Eurozone, where economic policy making is becoming quite childlike in its simplicity. We now see Japan borrowing billions and Spain cutting back billions to resolve the same problem. The sadness is that a thoughtful debate might lead us in a better direction; the mantra politics that we get is likely to prolong the economic pain.

As is so often the case the solution to our economic woes will lie somewhere in the middle, in economics grey is the colour of success not black or white. Austerity in some areas of the economy will be helpful and some demand and supply sides initiatives could also be positive. So we need some dexterity in austerity and some latitude on the supply side and most of all a bit of luck.

Friday, 22 March 2013

Losing the sky at night

An Englishman's home is his castle or more appropriately his castle of debt.  The value of mortgage debt has risen by 88 per cent since 2002, from £675bn to £1.27tn, according to Halifax (part of Lloyds Banking Group).  Over the same period of time, the value of the UK’s housing stock to reach £4.2tn by the end of 2012.  Telling us that we have housing equity of £2.90tn or a debt to equity ratio of  1 : 3.3 - my thanks to:  

Should the English have a vote on Scottish independence?

All those years ago a simple act of Parliament sealed one of the most successful unions in world history.  The initial article simple said - 

That the two Kingdoms of England and Scotland shall upon the First day of May which shall be in the year One thousand seven hundred and seven and for ever after be united into one Kingdom by the name of Great Britain And that the Ensigns Armorial of the said United Kingdom be such as Her Majesty shall appoint and the Crosses of St. George and St. Andrew be conjoyned in such manner as Her Majesty shall think fit and used in all Flags Banners Standards and Ensigns both at Sea and Land

During the intervening 308 years this partnership has been unbelievably successful, between us we have:
1.  Colonised about about a quarter of all the earth 
2.  Forged the industrial revolution
3.  Kept freedom safe in Europe twice
4.  Spawned 119 Nobel prize winners (More the either France or Germany)
5.  Survived some of the worst weather on the planet and come up smiling!

Thursday, 21 March 2013

George Osborne - Trick cyclist extraordinaire

In his budget speech the chancellor styled himself as the driver of a three wheel vehicle -  “our economic plan combines monetary activism with fiscal responsibility and supply side reform”. The main drawback of this plan is that it’s missing a wheel.  This Three wheeler economic plan has no demand side plan, and given that 63% of GDP comes from private consumption this is an oversight of heroic proportions.

Wednesday, 20 March 2013

George Osborne finds no room for manoeuvre

The great Captains of history all understood that that generalship is about having choices, without choices the commander becomes predictable and outcomes become dull. There are countless examples of this kind of leadership, from Earl Haig (the Butcher of the Somme) to Monty.  England has produced more than its fair share.  Occasionally the gene pool throws up a one-off, someone who is able to break the mould and produce the proverbial rabbit from the hat – one thinks of Henry V, The Duke of Marlborough, Nelson and Geoffrey Howe.  How Howe I hear you say? 

Where did it all go wrong for George Osborne?

Harold Macmillan said that he thought Budget Day to be "rather like a school Speech Day: a bit of a bore, but there it is" and I expect fellow toff George Osborne takes a similar view.  As he enjoys a hearty breakfast and takes his throat tablets this morning in preparation for his budget speech (normal about 90 minutes long to a packed and noise House of Commons) George knows that his head is on the block.  Any repeat of last years 'omnishambles' could see him dispatched back home to his Cheshire constituency.

Tuesday, 19 March 2013

Rugby round-up

Now the Six Nations is over It’s time to review the  progress that Stuart Lancaster has made since the autumn internationals.  When he inherited the job in 2012 everything was broken, selection, moral, coaching team and the support at Twickenham.  With some dogged performances in 2012 we clawed our way back from the precipice.  In the autumn we miss-fired in the first three games and then it all changed. 

It all started with that win in November against the All Blacks.  From out of the blue we beat the world champions with style and guile.  Not since 2002 had we lifted the Cook Cup so this was an important event.  The question on everyone’s lips was “were the All Blacks over cooked or were England the masters of the Universe”?

Monday, 18 March 2013

Small is beautiful

Time running out on the Superstate

In the old world the European Union is seeking safety from the economic storms by looking for scale.  The Eurozone is seeking monetary, fiscal and banking structures that provide a federal solution to the currency and banking crises across the Eurozone.  Member countries seem alarmingly eager to hand over the management of their economies to the bureaucrats in Brussels, who will be enthralled to German policy making.   Interestingly as the EU seeks safety from the outside world through a more federal approach a glance across the pond tells us that there are alternatives to this vision of federalism.

Consumer spending - the key to recovery

The coalition government have been pilloried for the lack of an industrial policy and for the terrible performance in productivity and exports , but the truth is that these are pretty irrelevant.  When looking for pertinent commentary that illuminates rather than obfuscates the current economic situation in the UK and globally look no further than The Economist.  While the Chancellor, George Osborne, prattles on about ‘the march of the makers’ and turning the UK into a magnet for corporate in-ward investment, The Economist is happy to point out the elephant in the room. 

ECB mess up in Cyprus

Why does the Eurozone’s bail-out of Cyprus and its banks matter, when the island contributes only 0.2% of the EU GDP?   Up until a couple of days ago it didn't matter and we were expecting the European Central Bank (ECB) to swot this annoying fly with ease, but we should have known better.  Rather than find the full amount required to restructure the Island and its banks, €17 billion, they have appeased German taxpayers and come up with a deal for €10 billion.  Both of these numbers are insignificant in the scheme of things.  This change of heart now raises a number of important questions that hang over the multi-trillion € restructuring required in Spain, Italy and France.

The ECB grabbed the €7 billion bail-out saving from the clients of Cyprus’s outsized banks. As expected a one-off 10% levy will be imposed on all deposits over the insurance threshold of €100,000 before banks reopen after a bank holiday on Monday, hitting wealthier savers. What had not been anticipated was a 6.75% 'haircut' for all other savers. Perhaps the Cypriot government wanted to spread the pain around rather than penalise non-resident depositors and de-stabalise its important relationship with Russian.  This crass local decision could now set off a series of events that impact the global economy.

Some insurance scheme

The ECB are still facing the restructuring cliff with the much larger economies of Spain, Italy and France, all of whom need support.  This deal in Cyprus sends a strong signals to the rest of Europe that: all savings are at risk, shareholders / bond holders are to be protected and within this framework of unfairness almost any tactic might be employed.  This could have three important results:

  1. Large number of savers will start to withdraw their savings from banks, further weakening the already broken banking sector.  This will have the effect of lowering bank liquidity ratios, which the ECB are so keen to increase.
  2. There could be further political unrest over the escape trick the bond holders (other banks in the EU) have pulled to avoid any 'haircut'.  A sense of unfairness could become the spark for political crises that will finally trigger a full blow economic melt down
  3. Perhaps most dangerous of all is that no one will know what to expect next time. If the ECB's restructuring tactics vary from country to country how do other States prepare themselves politically and economically for this restructuring?  Well, they can't and probably won't!
As the home-made bomb thrown in Sarajevo in 1914 sparked the Great War in Europe, let's hope a €6 billion mistake doesn't light the touch paper on a multi-trillion € financial crisis that the ECB was empowered to contain.

Get more doom and gloom from the FT

Sunday, 17 March 2013

Can England Rugby re-build?

Although it hurts - Well done Wales!

The English dream of a grand slam in Cardiff turned into a nightmare.  When we finally opened our eyes at the end the score was Wales 30 England 3, the biggest winning margin Wales  have ever achieved against us in the six nations. From the moment the 80,000 strong crowd started to sing Mae Hen Wlad Fy Nhadau (Land of my Fathers) the writing was on the wall.

A week ago I appraised the England team after a poor performance against Italy in the post

 - my reassessments after the Wales match are in bold.

The front five, always the corner stone of a good England team, are a young and hopefully improving unit but they are not destructive or frightening like their forebears.  The raw material is there but they will have to improve a lot if we are to be world beaters.
We were destroyed in the front five, repeatedly being penalised at the scrum for collapsing and other mysterious misdemeanors. This is where we lost the game and Graham Rowntree (forwards coach) should take responsibility for this national embarrassment.  The front row aren't technically good enough and our second row look light weight.

The Loose forwards are a concern, Tom Wood plays out of position and we lack a real openside wing forward.  The captain Robshaw has been inspired defensively but does not give us enough "go forward".  The lack of a credible number eight is perhaps the greatest weakness of the team.  I would play Wood at blind side, Croft at open but that leaves Robshaw without a berth.  This area is a big problem.
A manful effort from Robshaw but he could not stem the tide alone.  The other two Wood and Croft were invisible.  Without a proper number 8 or openside we are going to struggle.  But the main problem for these loose forwards was the fact that we were out gunned in the front five and the rest was history.

The half back pairing of Youngs and Farrell are good enough and there is cover as well.
This pairing were just not precise enough, Farrell defended bravely but passed erratically and didn't have the skills outside him.  Youngs struggled all afternoon at the base of a beaten pack. 

In the Centre we have plenty of grunt but no finesse.  Our inability to cross the line against Italy was a national embarrassment as we butchered chance after chance.  Tuilagi is obviously a presence but without some brains inside he can be marshaled, as the Italian's showed.
Out classed by their opposite numbers.  Tuilagi missed a great chance off a set move in the first half and Barritt defensively sound but one dimensional in attack.  Actually these guys rarely had the ball so dominant were Wales.

Finally the back three are talented but miss-firing, both Ashton and Brown are suspect defensively as the conceded tries show.  Goode is okay defensively but lacks pace and guile in attack.  We need more pace at fifteen and better defense on the wings. 
Goode was dull as normal, Ashton will now be dropped after his woeful display of non-tackling and Brown was good enough considering he is playing out of position.

So quite a bit for the coaching staff to digest, once they have replayed the video they might spot that we urgently need to find:
1. A frightening front row
2. A more balanced back row built around a specialist number eight
3. Some skills in the centre to go with Tuilagi's bulk
4. An all new back three

Highlights here if you dare watch -

Full player ratings from the Telegraph

Saturday, 16 March 2013

Hating the English when it comes to Rugby

James Corrigan writing in the Telegraph explores an obvious but uncomfortable truism, which is that when it comes to sport every Celt loves to see England lose.  As the England rugby team cross the Seven Bridge for the final showdown of the Six Nations we can be sure that every Welshman and 90% of Scots and Irish will be hoping the Welsh can inflict a drubbing on the "Red Rose".  Let's not forget the French who will also be hoping "les Rosbifs" get roasted.

Our band of brothers - beating Scotland!

Since the all conquering sides of the 1990s and the world cup winning team of 2003 its been open season on the English and how the Celts have loved it.  There have been dark days.  We English remember with acute pain the terrible failures in the final matches at Murrayfield in 1990 and 2002 against the Scots, at Wembley in 1999 against the Welsh, at Lansdowne Road in 2001 and again in 2011 against the Irish.

I know many Englishmen who are affronted by the bad manners of our Celtic cousins, where is their sense of Britishness they ask.  They find the whole thing tiresome and unfair!  However the rest of us love the hatred, history and rancour, it makes the winning so much sweeter.  And of course when it comes to armed neutrality we can mix it with the best.  Whenever Wales play and lose to Samoa I am happy to don a grass skirt and bang the drum for the Pacific Islanders, I could no more support Wales than boil my own head in a vat of tar.


Friday, 15 March 2013

The case for a Bad Bank

The Government's asset purchase scheme has 'spent' £375bn buying up gilts (UK Government Bonds) from our distressed banking sector, what they call Quantitative Easing (QE). The scheme was meant to be self financing but this week The Bank of England stressed that although likely deliver a £17bn profit, its possible that losses made on the sale of the gilts would rise to £75bn, producing a net loss of £8bn to the public finances in 2020.  As well as pointing out some long term risks they also confirmed that more QE is unlikely to beneficial, what a surprise!

QE - keeping the lights on!
In a parallel universe within the Bank the Deputy Governor, a Mr Bailey, confirmed that despite this massive commitment to asset purchasing our 'too big to fail' banks may still need a further injection of Capital, he said “I agree there is a need to strengthen the capital position,” he told MPs.  .  He hinted that the extra Capital might be necessary before Lloyds and RBS are returned to the private sector.  Some 'experts' suggest the figure could be as high as £50bn

The Bank of England and the Labour Government missed a big opportunity to resolve our banking crisis back in 2009 when they decided to prop up the banks rather than buy up the distressed assets to create a Nationalised 'Bad Bank'.  The coalition Government have also kept their heads firmly in the sand on this since 2010.  The result is that after four years on and with £375 billion spent on QE we still have a broken banking sector. 

If the Government had broaden the asset types for the QE programme we could now be in a situation where Lloyds, RBS and Barclays could be providing the credit and lending services that our economy so desperately needs.  Meanwhile the Bank of England could be managing the run-off of asset sales from 'Bad Bank'.  It's now emerging that this 'Bad Bank' construct maybe needed to bail-out the UK's over-blown and poorly regulated Private Equity business. When it rains ......!

Yet another Bank of England study (my they have been busy) has confirmed that many UK businesses have been left “fragile and susceptible to default” by private equity’s leveraged buy out (LBO) model.  In the first decade of this century Private Equity sector used leveraged finance to 'buy' many of our best UK companies, actually what they did was to borrow a load of money and then pass these debts on to the balance sheet of the acquired business.  Companies like Boots, Manchester United, Saga, Debenhams and all suffered the same fate.  These businesses are now loaded with the debt estimated at £160bn. See the chart on the left.

When people think of Zombie business we image small run down family companies hardly able to meet the pay-role, the reality is much more serious.  We now have some of our best business over loaded with debts that they will take years to pay off.  This is killing productivity and we are losing the opportunities to expand exports and employment at home because of the greed in our financial service industry.  This may is some way explain the UK's terrible productivity performance sine 2008.

But setting up a 'Bad Bank' the government could free both our banks and our leading businesses from the effect of the credit boom and bust setting the economy on a course of recovery.  The next question will be how do we get our money back from the Private Equity millionaires who have done their bit to wreck our economy.

Thursday, 14 March 2013

George Osborne in the last chance saloon

As George Osborne approaches his next budget everyone has a view on what the Chancellor should do revive our economy.  There are only two areas of broad consensus; first that there needs to be a change of direction and second that there needs to be a change of Chancellor.  I have been wondering for some time whether George Osborne can be hailed as the worst Tory Chancellor since Winston Churchill and we will know for sure next week – he has one final chance of redemption.

On being elected in 2010 the Coalition needed to do four things:

1.  Cut government spending to resolve the structural deficit, created by the collapse of the Banking sector revenues and the associated property bubble, estimated at about £130 billion annually
2.  Re-balance the economy away from financial services towards manufacturing and exports
3.  Reduce the private debt that was built up due to lax regulation of the Banks over many years
4.  Encourage the private sector consumption to fill the output gap  created by a shrinking state

So how are they doing against these four targets? 

Spending - They have hardly dented the over bloated State.  Having, wrongly, decided to ring fence Health and Welfare from the cuts they have then been overly cautious cutting back other departments.   Rather than making structural changes that lower long term costs, Osborne has focused cuts to capital expenditure.  This is a lazy approach to reducing debt as capital spending, although easy to spot,  is a tiny proportion of all Government expenditure and reducing it may well enforce the need for greater investment in the future.  The small cuts that have been made have been matched by rising interest on the debt and spiralling welfare cost.

Re-balance - With the weakness in the Eurozone (over 50% of our export trade) there have been no incentives to help domestic consumption or exporters open new markets.    Why British businesses are not productive enough to win more market share at home and abroad is a vexed question.  We should not have expected the chancellor to find a complete answer in three years but he should have made a credible start. The lack of a cohesive trade and industrial policy are very evident.  Flip flopping polices on: North Sea exploration, Scale fracking, national infrastructure projects and energy replacement and transport have created a sense of listless incompetence. The net result is that the trade gap is as wide as ever and the structural deficit is becoming a fixture.

Private debt - The Banks are still in disarray with corporate lending still at historically low levels.  The failure to separate out the toxic assets into state run “bad banks” has encumbered the much needed restructuring work in Lloyds, RBS and Barclays.  The Asset purchase scheme has been exclusively focused on Gilts and the opportunity has been missed to purchase other assets (some debt forgiveness) that would have given our banks a chance to clear the decks and get lending.

Private sector consumption – The main target of his tax increases have been the working middle class.  Asking this group to fund his inflation linked welfare increase and deficit reduction programme has killed a recovery in consumer spending.  The over-use of QE has also reduced disposable income for savers and pensioners, further reducing private expenditure.  By reducing disposable incomes for these two critical groups he has removed all hope of growing our way out of the crisis.

So having wasted three years what should he do now?

The liberal press, the Opposition and the BBC have all argued for the Keynesian solution – increase our indebtedness to fund Government spending on capital projects.  It should not be a surprise that I favour a slightly different approach

The first this to square aware is that recession in the public sector is no bad thing, it might be possible to off-set this with growth in the Private sector but having a positive balance on this is not the primary concern. Whilst we should be completely focused on growing private output we should not expect this to flow through, in the short term, to any growth in GDP.

The most important of the four objectives must be deal with the structural deficit and to do this we need to focus away from tax increases although I would reinstate the 50% top rate in the short term.  We need to make reductions in all areas of government spending and these reductions should be structural (not just capital expenditure) I would target real cuts in Health, Welfare and Defence.  I would also bring forward the privatisation of Lloyds and RBS by setting up a nationalised ‘bad bank’ for the distressed assets of these banks.

To galvanise some private sector output I would reduce VAT to 15% (funded by the privatisations) for a limited period and I would stop QE and let interest rates rise a little to give savers and pensioners a little more money in their pockets.

Finally, I would develop an industrial strategy that would be intent of solving infrastructure issues at home in energy, transport and housing that could then drive exports based on the acquired knowledge and skills.  We should be incubating industries that can feed off the national investments we need to make in Nuclear Energy, High Speed Rail and affordable housing.  Too often we have made investment decisions that suit our competitors abroad rather than feathering our own nest.  It time to start playing to our rules!

Wednesday, 13 March 2013

King Richard lll - Skeletons in the cupboard

The sensational archaeological find in a Leicester car park, which unearthed the bones of Richard III has sparked an Almighty row about where the remains should be interred.  There are three locations in the running: London’s Westminster Abbey - the parochial home of the Monarchy, York Minster - the ancestral burial place of the Dukes of York (Richard iii was also the Duke of York) and finally Leicester – famous for its car parks!

My post on the day they confirmed the bones were Royal:

York Minster

Legally the University of Leicester, which discovered and exhumed the remains have the responsibility, as holder of the licence, to decide where King Richard III remains are finally laid to rest.  Interestingly the Dean of York the Very Rev Vivienne Faull, has unilaterally and weirdly decided to support Leicester’s case and this has created an up-roar of biblical proportions.  The unwise Dean has received a number of threatening letters and emails and these toxic messages are now being investigated the Police.   There is also more civilised support from 25,000 people of York who signed a petition and the 9 living descendants of Richard all of whom insist that the crooked bones of the ‘Tyrant King’ should be laid to rest in York.
Leicester Car Park
Hugh Bayley, the Labour MP for York Central said , “I would say to everybody - calm down. Let's all respect the memory of a former king of our country.  “Let's discuss where his remains should be put to rest in a dignified and sober way. We don't want to reignite the Wars of the Roses.”  However, Jeremy Wright of Leicester University said the decision was up to the University.  He added “It is also right I think to point out that the default position of the Church of England... which is that the remains should be interred at the nearest Christian church and that of course is in this case indeed Leicester Cathedral.”

So why should the Dean go out on a limb against this well organised opposition in York, particularly as the Minster, for which she is responsible, would benefit financial from the additional tourist trade the Kings bones would bring. The answer is in her recent history, before becoming the Dean of York Minster Dean Faull was the Dean of Leicester, and it has been suggested by opponents that she is bias because of her previous links to Leicester Cathedral.  Perhaps and more interestingly maybe she has left some skeletons in the cupboard from her time in Leicester and needs to call in a favour!

Tuesday, 12 March 2013

Archbishop Justin Welby buries his Talents

The last Archbishop of Canterbury was a self confessed 'Bearded Leftie' and although he looked the part the wild looking Welshman kept his political power dry for most of his time in office.  Although he did have one memorable dart at capitalism, calling the bankers and speculators behind the credit crisis "bank robbers" and "asset strippers".  Adding that Karl Marx had been right in his assessment of the nature of capitalism!!

At least he looks like a bishop

So the new chap is in good company and it has not taken Justin Welby, the new Archbishop of Canterbury, long to become mired in political controversy. You might think that career that has taken in Eton, Oxford and Energy broking he would be cheering on the Tory party, but not  a bit of it.  In fact, he has joined some other Left leaning clerics in an attack on the Government’s welfare reforms. In a letter to The Sunday Telegraph, the chaps in fancy dress opined that “children and families will pay the price” if plans to change the benefits system go ahead. Next week, the House of Lords is due to vote on legislation to cap benefit rises at 1 per cent until 2016.  Given that most of us in the private sector have seen a real decrease in income of around 5% since 2009 he won't find much sympathy for his observations in the working population.

Justin 'Welfare' Welby
Unsurprisingly,  Yvette Cooper, the second most annoying politician in Britain (she is married to the title holder) and  shadow home secretary, said the Church was “absolutely right” to speak out and described the proposals as “immoral”. Iain Duncan Smith the Work and Pensions Secretary (responsible for this sensible adjustment), also know as the "quiet man" of British politics, is yet to respond.

Interesting in the US the highly successful and well attended Church is generally on the side of the working man and a smaller state.  But like so many pillars of our establishment the Anglican Church (along with the BBC and The Civil Service) is unremittingly left wing, taking up the cudgel for those would bury their Talents rather than put them to work - Matthew 25:14-30

Thomas Becket

The original turbulent priest - he had a beard!

Westminster Mash - digest of political posts

We are a tipping point in British politics, seldom has there been so much to be interested in.  We have the election in 2015, the Scottish independence referendum next year and an impending European Union in/out referendum in 2017.  To heighten the interest we have a coalition government who will have to  tread the line between being in power together and in (quite bitter) opposition to each other at the election.  This Post covers a range of subject that I have blogged about in an attempt to cover this fascinating but complicated landscape.

Where did it all go wrong?

Firstly, there is the referendum in Scotland and its potential impact on English politics, a vote for independence would be terminal for Labour.

Secondly, as a social media new boy, I looked at the anger of the Left and what motivates the school boy insults that Ed Miliband and his followers can't resist.

Thirdly, the Eastleigh bi-election provided a great insight to some of the problems the major parties
face.  The irrelevance of Labour in the south of England, The anti Government sentiment that is bringing down the libdems and the lack of talent the Tories have among their prospective candidates. All of these issues resulted in a spectacular protest votes that UKIP cashed in on.

Some people think David Cameron is a poor Prime Minister because he is too posh, others think he is
lazy.  My guess there is something else holding him back.

Looking back at how Gordon Brown saved his party from annihilation at the last election one gets a
clue as to how David Cameron might approach the problem of electoral unpopularity - two Posts cover the ground.

Finally, we look at David Cameron's mid term / life crisis and his pathetic attempts to woe the younger generation.

I took the recent speech verbatim from David Cameron's recent up date on the economy - basically sticking to plan A  - and created a word cloud and this is what we get, not exactly Milton Friedman is it?


Monday, 11 March 2013

Two Fairy Tales for the Economy - Plan A and B

Like the little Dutch boy David Cameron has his 'finger in dyke' of the coalition's economic policy.  Having set a course in 2010 to deal with the deficit through government spending cuts, supported by a monetary easing, there is now a flood of alternative advice coming from all quarters!

Britain's economic plight in 2010 was particularly bad as we had a fiscal deficit amounting to nearly 10% of our GDP annual, the highest of any major economy.  This was caused by  the emergence of a 'structural' deficit, which amounted to 6% of our GDP (lost receipts associated with financial services and associated sectors) added to the deficit caused by the general economic downturn, which amounted to a further 3%  of GDP.  When international benchmarks tell us that any deficit over 3% is unsustainable to be 200% over this was pretty dire.

The government responded by pushing through an austerity package that has 'reduced' government spending by £67 billion.  We are still only 40% through this programme, which has been extended out to 2018 - well into the next Parliament. It was hoped that reductions in government spending would be off-set but the private sector growth and this has been successful in part.  Many new jobs have been created, but continued spending on welfare, health and interest on the debt have meant that the deficit is still way too high.

Unfortunately the deficit is not the only issue.  There exists in the UK  high levels of personal debt, which is linked to a very high levels of private house ownership.  Our ability to apy down this debt has been hindered by drop in household incomes caused by private sector wage freezes and inflation in energy and food costs.  So our problems are two fold.  The state is too big and expensive and the private sector is burdened with falling disposable incomes.

The challenge is to try to get the economy growing and specifically the private sector.  And there are three options - Keep calm and carry on (Plan A), increase government borrowing to finance growth (Plan B) or increase the rate of austerity whilst giving tax breaks to generate consumer demand (Plan C).  In greater detail -

Plan A - The Governments plan
Stick with the austerity, which is planned to become more intense over the next two years and use quantitative easing (government buying up assets from the banks - mostly Government Bonds) to increase the availability of credit in the system.  According to David Cameron this is the only way forward.

Plan B - Promoted by Labour and other supply-side commentators
Ease back on the austerity and lengthen the time it takes to pay down the deficit.  Increase government spending on capital projects to kick start the economy and have a more active industrial policy- build roads, schools etc and fund apprenticeships.

Plan C - The one no one talks about
Accelerate government spending cuts and use some of this slack to cut taxes to raise real incomes and generate consumer spending and economic growth.

Of these options I think plan A is the least likely to work - everything is too tight, the government has to create slack to promote growth. so that leaves B and C.  The Keynesian approach set out in B is now a bit dated no one really believes that government officials are capable of conjuring up growth that has any long term benefits.  So I think its got to be Plan C.  We need to aggressively cut down the size of our state and this means all the state, including: Welfare and Pensions, Health (NHS) , Defence and Education. And in return we should give direct help to increasing disposable incomes, which will drive economic activity.  To do this we should reduce VAT (sales tax). Specifically the general rate of VAT should be reduced from 20% to 15% and we should zero rate VAT in sectors where we want to generate business growth - like building work on brown field sites.

We must turn our attention (although its hard to do) from the economically inactive (the unemployed, the ill, the old and the lazy) and focus on giving people in work a boost.  So to end on another fair story - by heaping most of the pain of austerity on to middle income earners we are killing the goose that lays the golden egg, we need to throw the goose some grain!

David Cameron's mid-life crisis - finding younger voters

David Cameron is having a full blown mid life (term) crisis.  After three years in office he is looking around for a bit more fun in his life hoping to trade up to a younger better looking set of supporters! It will not amaze you that the Conservative Party draws much of its support from the older generations, in fact Tory support trails Labour in all the age profiles except the over 65s.  As common sense dictates, conservatism is something that we grow into as we age.

Interestingly, the old tend to be more politically motivated and at the last general election, 76% of over-64s voted, compared with just 44% of 18- to 24-year-olds.  Like the chap above, doggedly determined to participate in our democracy!

The coalition government recognising their importance have tried to support the elderly poor maintaining universal benefits for pensioners of free television licences, free bus passes and winter fuel payments.  But quietly the coalition has been less kind on middle class pensioners who have savings of their own.  The policy of  QE / asset purchasing has has the effect of keeping interest rates very low reducing returns for savers and probably driving up retail prices by artificially devaluing the Pound.  So this group is hurting and they feel let down, they won't be voting Labour any time soon but are there other siren voices that will be more difficult to ignore?

To try to re-balance the demographic support in the party David Cameron has pursued a modernising agenda with Gay Marriage as the flagship policy.  Unsurprisingly old people are overwhelmingly opposed to gay marriage a YouGov poll on the eve of the vote found that 80% of 18- to 24-year-olds support changing the law to allow gay marriage. Among people aged 60 or over, support stands at just 31%.  Mr Cameron attempts to improve his appeal to younger voters is based on a firm belief that he is, when confronting Labour,  his parties strongest electoral asset (probably correct).  By setting himself against the core vote and many of his MPs, Mr Cameron believes he will have improved his standing with the under 60s and boost his prospects of re-election in 2015.

Cameron's tactic might have worked in a straight two party scrap but the rise of UKIP raises all kinds of uncertainties.  Specifically, UKIP have targeted David Cameron as a "poor excuse for a Tory"  and his strategy to attract young voters may backfire badly if UKIP can get traction beyond being a protest vote.  Many disaffected older voters might be tempted to switch allegiance if they feel that "their Party" is now led by a  man enthralled to the younger generation - They certainly don't see Nigel Farage as a hoody hunging, computer games addict who supports equal marriage.

Farage - flag waver for the Right

Sunday, 10 March 2013

Two Nations left - rugby showdown

Since November the England rugby team have won five matches in a row an on Saturday they face Wales, in Cardiff  in the final and deciding game of the Six Nations.  So what does the evidence of the last four months tell us.

First we can more or less discount the freak result against the world's top team, New Zealand as they were clearly exhausted at the end of a marathon season, in which they not been defeated since August 2011. England played well but it was just one if those days when it all went their way and, although famous, the victory cannot be compared the wins achieved by the dominant England team of 2001/2. The four wins against Scotland, Ireland, France and Italy are also inconclusive as the opposition is definitely of the second rank.  Stumbling wins against a spirited Italy and a very poor French team are telling signs that the team, although workman like, lack any star quality.  Much has been made if the work ethic and camaraderie and this is evident but its not enough.

Actually, the only star to emerge in the last year has been the coach Stuart Lancaster, who has had a pretty faultless year making the best of things with a young and untested squad.
Stuart Lancaster

In terms of performance its probably best to break the team down into it constituent parts :

The front five, always the corner stone of a good England team, are a young and hopefully improving unit but they are not destructive or frightening like their forebears.  The raw material is there but they will have to improve a lot if we are to be world beaters.

The Loose forwards are a concern, Tom Wood plays out of position and we lack a real openside wing forward.  The captain Robshaw has been inspired defensively but does not give us enough "go forward".  The lack of a credible number eight is perhaps the greatest weakness of the team.  I would play Wood at blind side, Croft at open but that leaves Robshaw without a berth.  This area is our big problem.

The England rugby player Manu TuilagiThe half back pairing of Youngs and Farrell are good enough and there is cover as well.  Not so in the Centre where we have plenty of grunt but no finesse.  Our inability to cross the line against Italy was a national embarrassment as we butchered chance after chance.  Tuilagi is obviously a presence but without some brains inside he can be marshaled, as the Italian's showed.

Finally the back three are talented but miss-firing, both Ashton and Brown are suspect defensively as    the conceded tries show.  Goode is okay defensively but lacks pace and guile in attack.  We need more pace at fifteen and better defence on the wings.

So can we win in Cardiff?  Yes, mainly because the Welsh aren't a great side either and man for man England probably shade it.  Obviously Youngs and Farrell must return and we should stick with the front five who started this week.  It's too late to mess with the centre pairing but hopefully Farrell can get more out of  Barritt and Tuilagi next week.  In the back three I would bring in Foden and replace Brown who doesn't have the pace for wing.  That leaves the real problem area of the loose forwards where we need (an on form) Morgan at number eight and Wood and Robshaw starting, with Haskell and Croft on the bench - with resolve to replace the talisman Robshaw if needs be.
Robshaw - great leader but not indispensably? 

My guess is that England will win but they will need to achieve parity with the Welsh loose forwards at least an this is going to be very tough for our worthy but uninspiring yeomen.

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