FutureObservatory

11:15:30 o'clock BST

It is generally accepted by both West and East (even the one remaining country theoretically adhering to Marxism – China), that the market represents the most efficient management model; and profit is the only worthwhile measure. As Francis Fukayama said nearly two decades ago: “History [in his eyes the battle between market values and communist ones] is dead [‘free market economics’ was now the only valid approach]”

 

The problem which remains is what to do with the half of the economy which provides ‘public’ goods and services. Marxist economics, despite its problems with efficiency, had no problem with the public sector; it simply exhorted its managers to do what was best for the public – though rampant corruption rarely allowed that in practice. Market capitalism, on the other hand, has major problems from the start. Mostly it tries to make the public sector look like that of the private sector. Instead of a nationalized train service it lets private companies run it; but has to hand out massive subsidies to them – as it applies ever more arcane rules to these subsidies to make them look like market decisions when in fact they are social value based.

 

Thus, the BBC must be ‘profitable’. This is a rule which is being applied to an organization whose main objectives certainly are not commercial but are central to the government’s development of future society:

 

1. Not least it is the main purveyor of the image of the UK to us, and the rest of the world. It does far more than the British Council, or even its beloved nuclear deterrent, whose budgets are rarely questioned, to persuade those pesky foreigners that Britain deserves her seat at the top table. Moreover it is just as much its domestic services as its World Service that do this; where the former’s quality programmes set the standard round the world.

 

2. It is also the main deliverer of education; remember someone’s “Education, education, education.” TV, and these days almost exclusively the BBC, is still the main delivery vehicle for adult education; where few adults spend any time in the classroom but spend hours each week glued to the box. Just a decade ago we were all clamouring for LLL (Life Long Learning) as we needed to educate the whole population to meet the challenges of the 21st century. This has long since been forgotten, except that the brave BBC still carries on the tradition for the government.

 

3. As an extension of the above, the BBC in general – and in particular its news programmes which are faced by the most savage cuts – helps set the ideal social agenda which we want to apply to the whole of society.

 

Despite all the brave agreements written into the latest charters of the independent channels, the vast amounts of trash they pour out – in search of the lowest common denominator which will attract the largest audience whilst absorbing the least costs of production – are no longer challenged by the regulator. The fact that there are many others competing to provide even less savory menus is justification, in a market economy, that all must be well.

 

Diverted by the need to attract audiences, partly by government’s populist nature but also by the very real need to generate audience it can educate, the BBC may have partly lost its way; hence the Jonathan Ross fiasco. But the answer is surely not to cut off its nose to spite its fate. We all need the BBC to create the values and culture which enriches our nation; even if we are slobs who prefer to watch the presciently named Big Brother.

 

This doesn’t mean that creative people aren’t hell to manage. Commissioning material, on behalf of part of the Open University, from the BBC I found it almost impossible to manage their creative teams to produce what I wanted. In particular, I was many times stymied when I wanted to use library material, partly because it was cheaper but often also because it was better, by directors who refused to do so; arguing that only their own re-shooting of the material would do artistic justice to the programme. But, even so, the final result of their artistic temperaments was always better than anything else I could find! In any case, applying a profit motive to such artistic people is, as the saying goes, like herding cats!

 

We need to find better ways of managing our resources, and especially our people, across the whole of society. Moreover, the financial scandals now taking place at the highest levels in our private sector suggests that even there not all may be as well as Fukayama predicted.

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

11:14:01 o'clock BST

So Ming Campbell has fallen on his sword, as I suggested he should, on this blog just over a week ago. It is clear, however, that he did this to himself. The rumours of assassins stalking the corridors of the National Liberal Club were grossly untrue. His party not merely respected him, they loved him; even, almost uniquely, those in his shadow cabinet. If you had ever have met him, as I was fortunate enough to do – one on one – for any length of time, you too would have been overwhelmed by his sheer integrity.

 

In practical terms his achievements as leader were out of sight of the general public. He brought the party together again after the trauma Charles Kennedy’s departure, he reorganized the party machine and he put in place new policies for the future. In other words he did exactly what any true leader should do, and his party loved him for it. They would have backed him all the way until he was a distinguished octogenarian.

 

But there still were lots of assassins around, not so much in the opposing parties (for that was to be expected and was in reality quite gentle since they too respected him) but in the media. He provided a nice easy target for the same media who in a not too dissimilar a way drove Tony Blair out of office and Diana to her death. He was the ideal target of the playground for name calling – “Don’t you lack charisma?” “Are your party out to get you?” “What about the polls?” “Are you too old?” – and, in the final indignity, “Do you wear sock suspenders like other Edwardian politicians?”

 

The real tragedy is not his decent decision that, by being the story rather than his party’s policies so that this would swamp the press (as it did with Blair), he should resign. Rather it is what it says about our modern political lives and the media that infest them.

 

Most of the leading politicians I have met, and spent time with, are decent honourable individuals; in private! In public, under the glare of publicity, their feral nature rises to the surface, to swamp any sense of perspective they might have. It is almost as if, as the red lights on the TV cameras call them to attention, they have an instant lobotomy. The joy of Ming was that he was just as decent in public as he was in private; one of the very few politicians who achieved this. He, not David Cameron, never indulged in Punch and Judy politics; though the media loved Cameron and Brown for the very knockabout which brought politics into disrepute. The truly dedicated politician, egged on by the media, will sacrifice anything for the cheap political trick; as Gordon Brown tried in his trip to Iraq – though that went too far for even the cynical media observers.

 

It may be useful to revisit the Judgment of Solomon to see how life has changed over recent years:

The Judgment of Solomon (according to Wikipedia): Two new mothers approach Solomon, bringing with them a single baby boy. Each mother presents the same story… In essence the baby must be hers and Solomon has to choose between them…

Aftersome deliberation, King Solomon calls for a sword to be brought before him. He declares that there is only one fair solution: the live son must be split in two, each woman receiving half of the child. Upon hearing thisterrible verdict, the boy's true mother cries out, "Please, My Lord, give her the live child - do not kill him!" However, the liar, in her bitter jealousy, exclaims, "It shall be neither mine nor yours - divide it!" Solomon instantly gives the baby to the real mother, realising that the true mother's instincts were to protect her child, while the liar revealed that her only motivation was jealousy.

The moral used to be clear. The problem now is that the baby is awarded to the one who pushes everything to the extreme, and is willing to sacrifice the baby. Moreover, she is the one applauded by the media for her courage in risking all – even the baby’s life – and (especially) for her providing such entertainment value. The values of decency have been overturned.

 

We, or rather our media, now choose the worst possible leaders; those who – like most villains – are ‘interesting’ rather than sound. Even now the media are starting to call for the return of Charles Kennedy, the alcoholic who dragged the Liberals to the brink of disaster, because he is fun!

 

If you need one more lesson, look to the US; and to Al Gore. Like Ming he was honourable, so much so that – like the Judgment of Solomon – he gave in to the political machinations of Bush and the neocons rather than see the US pulled apart. He has since built a reputation in a new (green) field and deservedly won the Nobel Prize for Peace. Yet what does the press have to say: “What has he ever done to deserve it?” This is about one of the great (almost tragic) figures of our time. What do you have to do to win their applause. Of course, like Charlie Kennedy, you have to play the engaging drunk!

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

11:40:22 o'clock BST

So Ming Campbell has fallen on his sword, as I suggested he should, on this blog just over a week ago. It is clear, however, that he did this to himself. The rumours of assassins stalking the corridors of the National Liberal Club were grossly untrue. His party not merely respected him, they loved him; even, almost uniquely, those in his shadow cabinet. If you had ever have met him, as I was fortunate enough to do – one on one – for any length of time, you too would have been overwhelmed by his sheer integrity.

 

In practical terms his achievements as leader were out of sight of the general public. He brought the party together again after the trauma Charles Kennedy’s departure, he reorganized the party machine and he put in place new policies for the future. In other words he did exactly what any true leader should do, and his party loved him for it. They would have backed him all the way until he was a distinguished octogenarian.

 

But there still were lots of assassins around, not so much in the opposing parties (for that was to be expected and was in reality quite gentle since they too respected him) but in the media. He provided a nice easy target for the same media who in a not too dissimilar a way drove Tony Blair out of office and Diana to her death. He was the ideal target of the playground for name calling – “Don’t you lack charisma?” “Are your party out to get you?” “What about the polls?” “Are you too old?” – and, in the final indignity, “Do you wear sock suspenders like other Edwardian politicians?”

 

The real tragedy is not his decent decision that, by being the story rather than his party’s policies so that this would swamp the press (as it did with Blair), he should resign. Rather it is what it says about our modern political lives and the media that infest them.

 

Most of the leading politicians I have met, and spent time with, are decent honourable individuals; in private! In public, under the glare of publicity, their feral nature rises to the surface, to swamp any sense of perspective they might have. It is almost as if, as the red lights on the TV cameras call them to attention, they have an instant lobotomy. The joy of Ming was that he was just as decent in public as he was in private; one of the very few politicians who achieved this. He, not David Cameron, never indulged in Punch and Judy politics; though the media loved Cameron and Brown for the very knockabout which brought politics into disrepute. The truly dedicated politician, egged on by the media, will sacrifice anything for the cheap political trick; as Gordon Brown tried in his trip to Iraq – though that went too far for even the cynical media observers.

 

It may be useful to revisit the Judgment of Solomon to see how life has changed over recent years:

The Judgment of Solomon (according to Wikipedia): Two new mothers approach Solomon, bringing with them a single baby boy. Each mother presents the same story… In essence the baby must be hers and Solomon has to choose between them…

After some deliberation, King Solomon calls for a sword to be brought before him. He declares that there is only onefair solution: the live son must be split in two, each woman receiving half of the child. Upon hearing this terrible verdict, the boy's true mother cries out, "Please, My Lord, give her the live child - do not kill him!" However, the liar, in her bitter jealousy, exclaims, "It shall be neither mine nor yours - divide it!" Solomon instantly gives the baby to the real mother, realising that the true mother's instincts were to protect her child, while the liar revealed that her only motivation was jealousy.

 

The moral used to be clear. The problem now is that the baby is awarded to the one who pushes everything to the extreme, and is willing to sacrifice the baby. Moreover, she is the one applauded by the media for her courage in risking all – even the baby’s life – and (especially) for her providing such entertainment value. The values of decency have been overturned.

 

We, or rather our media, now choose the worst possible leaders; those who – like most villains – are ‘interesting’ rather than sound. Even now the media are starting to call for the return of Charles Kennedy, the alcoholic who dragged the Liberals to the brink of disaster, because he is fun!

 

If you need one more lesson, look to the US; and to Al Gore. Like Ming he was honourable, so much so that – like the Judgment of Solomon – he gave in to the political machinations of Bush and the neocons rather than see the US pulled apart. He has since built a reputation in a new (green) field and deservedly won the Nobel Prize for Peace. Yet what does the press have to say: “What has he ever done to deserve it?” This is about one of the great (almost tragic) figures of our time. What do you have to do to win their applause. Of course, like Charlie Kennedy, you have to play the engaging drunk!

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

15:54:03 o'clock BST

So we were all wrong! I, at least, added the caveat that it would ultimately depend on the opinion polls; and that is exactly what happened

 

But, despite the views of the pundits, the change was not due to a storming performance by Cameron, he was good but not prime-ministerial, or to Osborne’s ‘millionaires’ inheritance tax’; since the latter was potentially an own goal - in terms of the vague funding for it but especially in terms of a return to being the party of the rich, and image which has long bedeviled the Tories.

 

What I had not expected was that Gordon Brown would get his strategy so wrong, going for political overkill when he already had the election in his grasp. As I hinted, in my earlier entry to this blog, Brown’s new found popularity had resulted from him hiding his true nature. The new, reformed, Brown was a ‘good guy’. The electorate liked what they saw; and forgot the old Brown who had spent so many months destabilizing his predecessor’s government. In that earlier blog I wondered just how long, after winning the election, it would be before the old Brown rose from the grave.

 

Of course the answer was that the zombie just couldn’t wait. He rose from the dead, far too early, after the very successful Labour conference; where Brown had acted out his new persona perfectly – no knockabout at all, just seriously running the country.

 

Then, far too early, came his trickery. He just couldn’t resist putting the knife into the Tories, but it rebounded with a vengeance:

 

1.    Election Rumours: Using his old techniques, so effective in destabilizing Blair, his henchmen – led as always by Ed Balls – started the rumours about the snap election. Designed, no doubt, to unnerve Cameron they failed and he held his nerve in a bravura (if hollow) performance. More important they forced the Tories to band together, to fight the upcoming election. All the back-stabbing which was due to happen was overtaken by self-preservation; and a a result the Tories were able to claim a good conference (where any lack of backstabbing is now seen as a success).

2.    Visitation in Iraq: It must have been seen, by Brown and his advisers, that this visit – and the accompanying announcement – would derail coverage of the Tories’ conference. Of course it did, but for all the wrong reasons. It was correctly seen as the worst sort of spin, not helped by dressing up existing troop withdrawals as new ones. It was an unnecessary failure of judgment; for he had no need to go there, and his announcement should have been made – as he had promised – to parliament. Worse still he was seen as guilty of using our brave lads out there for political purposes.

3.    Taking His Eye Off The Ball: A less obvious consequence was that, so busy spinning their Iraq story, his strategists failed to see – let alone answer – George Osborne’s inheritance tax goal. Tony Blair set up his war-room to handle such ‘emergencies’, but where has that gone under Brown? In fact this goal needn’t have been a game winner. There were obvious problems, open to a well thought out answer, not least with the very vague funding of this obvious give-away. Above all, though, it should have been presented by Labour as the Tories returning to be the party of the rich. Blair would have had them pinned to the ropes within a matter of hours. But Brown’s Labour – almost mesmerized by their own cleverness - carried on with its spin of the Iraq trip; and allowed the Tories to win the argument by default.

4.    Digging An Ever Deeper Hole: Not recognizing even then what was happening, the Labour spin doctors clearly put its projected election victory above the national good – by bringing forward a whole range of what it thought would be election winning events. And, behind the scenes but in front of the media, it boasted about how clever it was. Of course Brown was always out of sight; but, by then, we all knew (not least from the way Blair was stabbed in the back) that he always used his henchmen to do his dirty work. The scene was set for everyone to recognize who the real Brown still was: the devious, scheming, self-centred ‘nasty’ – who was totally untrustworthy.

5.    Bottler: Then he bottled out, losing the last positive element of his image. He was no longer a strong, decisive decision-maker.

 

Two weeks ago Brown was heading for a famous victory. By letting his true self overtake his political judgment he is now a loser due to follow James Calaghan, who was at least a genuinely nice guy, into Labour’s hall of infamy. He has two or more years to recover, and David Cameron is an ideal light-weight opponent, but will anyone ever trust him; let alone like him!

 

Brown will no doubt hang on by his fingertips, lurching from one crisis of confidence to the next; much as those he subjected Blair to. Of course he won’t give up power. He has already spent a decade and a half selling his soul to be PM, and nobody in New Labour will dare challenge him. Come back Tony, all is forgiven!

 

Similarly Cameron will stagger from one crisis to the next, fending off the challenge of George Osborne; who is increasingly seen as the champion of Labour’s defeat. But, not knowing when the election will be due (Brown’s one remaining trump card), the Tories will not be able to shake off his boyish charm, but fatal lack of strategic decision-making.

 

The Liberals are the ones with the best chance of a recovery. I have long admired Ming, having respected (and almost hero worshipped) his judgment on each of the occasions I have had any extended time with him, but he now needs to pass the baton on to the new youngsters who have emerged untainted by the party’s past. He has, very successfully, pulled the party together and, moreimportant, given it a coherent sect of potentially election-winning policies. Now he needs a young turk who can take forward the battle cry of destroying the cosy Labour/Conservative consensus. I, for one, hope he succeeds in this. We electors need a real choice, not spin, in the government we hope for.

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

14:12:59 o'clock BST

I almost feel sorry for David Cameron. He will only be leader of the Conservatives for a few more weeks; and he knows it – as his defensive body language, and uncharacteristic stumbles in his interviews, show.

In writing this political obituary, however, I have to recognize that at least he knew what was needed to make his party electable again and he tried hard – very hard indeed – to make the necessary changes. But in the end he lost the battle; for a number of reasons:

1. The defender of the centre, as – thanks to (the unmentionable)Tony Blair - Labour now is, has all the advantages. Even if the Tories ever managed to become a party of the centre they would still have, by some miracle, to find a magic ingredient which meant that they could claim at the same time to be different yet the same.
2. Unluckily, Cameron chose to emulate Tony Blair just as he went out of fashion. Moreover he chose to emulate his ‘spin’ without noticing that, underneath the spin, Blair introduced the dramatic changes in policy which put New Labour into its unbeatable position. As a result Cameron has always been an emperor waiting for somebody to point out that he has no clothes.
3. At this point in time he is also doubly unlucky, a bad fault for any politician. Presumably he made the same calculation as the rest of us; that Brown would go to the country next year – after he had established himself. That would have given Cameron time to consolidate all those conflicting reviews, and put in place something like a genuinely new manifesto for the Tories. Instead, of course, his own stumbles over the summer, combined with Brown’s masterly political manoeuvrings, have suddenly given Labour a chance of an election when Cameron is at his weakest. As Harold MacMillan famously said: ‘Events, dear boy, events!” Cameron has been very unlucky and Brown has been very lucky. The result is that Cameron has been forced to retreat to the traditional Tory tax-cut (“the millionaires’ inheritance tax charter”) and flog (“send the unlucky sick to the poorhouse”) policies, which his predecessors also chose when they were forced into a similar corner. Like them, of course, he will lose – possibly by a landslide.
4. The final problem was the Tory Party itself. It has still not got its head around what it must do if it is ever to regain power. At this point into Labour’s own low ebb Neil Kinnock had already changed his party into a viable contender, having defeated his extremists, and as a result he very nearly won the 1992 election. Then it was just bad luck, too, which defeated him. Cameron has never been able to similarly confront his extremists, but has been forced to sweep all the contentious issues under the carpet; and this was probably the main reason for all his spin – he didn’t want his own backbenchers to know where he was really taking them.

So what of the future? Barring more of those ‘events’ Cameron will vanish into the mists of time and enjoy the benefits of his upcoming baronetcy and inherited fortune. George Osborne and William Hague are already campaigning to take over. But they will surely have little worthwhile to take over. The Conservative Party is by now a busted flush. It has no policies to win the centre ground, and in any case too many of its members don’t even want to go there. The chances are that it will slowly drift ever further into obscurity.

Then there is Gordon Brown. With his new mandate, in a single party state, he will be able to implement all those unpalatable things he has managed to keep hidden for the past 100 or so days. God help us!

Perhaps there is still a chance for the Liberals. After all they are now the only possible alternative – as the traditional holders of the centre ground and now the only real viable opposition – so why not give them a chance and switch all those wasted Tory votes to them!

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

11:04:19 o'clock BST

The speculation about the date of the next election gets ever more feverish. But let’s get one thing clear. Gordon Brown will not truly know himself until after the focus groups and opinion polls have settled down; say a couple of weeks after the conference season. As Frank Lutz on Newsnight last night showed, public opinion has rarely been more volatile; the only thing his panel agreed on was ‘a plague on both your houses’ and the result is the massive swings in the polls from day to day.

 

Assuming, though, that his pollsters find good news what are the arguments for an election now?

 

1.    VOLATILITY: Public opinion is getting ever more unpredictable. So he will be well advised to seize what advantage he may now have.

 

2.    THE ETERNAL QUESTION: Tony Blair found that his last year was crippled by the media focus on when he was going; this one question wiped out coverage of everything else he did. Brown may find his first year equally swamped by much the same question. When will he go to the country? Putting the media out of its misery may, though, be a good reason for calling an election now; and will show how mature he is and how much he puts the country first!

 

3.    THE KNOWN UNKNOWNS: It is bad enough to be at the mercy of totally unknown future events – Callaghan destroyed by the winter of discontent, Wilson simply by England being knocked out of the World Cup – but there are already a number of spectres on the horizon. Iraq, with Bush capable of every mistake in the book, is never safe. Equally the arguments over the Channel about the new treaty EU could have very unpredictable results. But the biggest threat of all is the looming meltdown of the US economy; already trillions of dollars in debt and with a banking industry totally out of control – and the Fed reduced once more to throwing around cheap money. The problem is that this will roll over into the global markets and hence to the UK. The problems will, more than likely, swamp our governments efforts; and destroy Brown’s carefully fostered image of financial probity.

 

4.    CAMERON’S WEAKNESS: We have yet to see the outcome of the Tory Conference, and our hero may with one bound be free. So, like our PM we will be best advised to wait and see. But Cameron, the ultimate celebrity famous for being famous, has lost his invulnerability – along with his boyish good looks! The call has been made that this emperor has no clothes; and, where he can no longer duck the issue of a total lack of policies, he will be brought to his knees by Brown’s long list of actions not promises. With an immediate election he is totally exposed. It is too late to create and sell a viable manifesto of policies; though – given another year – he might do just that (another reason for Brown to go to the country now!).

 

I think the PM’s speech showed that, subject to the polls, he has already taken the decision to go now. It was a carefully crafted masterpiece of selling an election manifesto; the trustworthy giant of a PM versus the boy pretender. However time, just three weeks or so, will tell!

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

16:38:39 o'clock BST

The Northern Rock fiasco is just the tip of the iceberg. The truth is that the global money markets are out of control.

Go to any other commercial organization and ask what their operating position is and they will be able to tell you more of less what is happening. In terms of their balance sheets, which now depend so much on judgments as to their valuations of intangibles (especially now that ‘off-balance sheet’ has become the subject of so much creative accounting), there may be some questions to be asked. But in terms of their day to day operations, and resulting cashflows, they will be able to tell you pretty much what is happening. If all else fails they will be able to take you the warehouse and show you the stocks or to the computer to see the timeslots booked and available, and the same computer will tell you who owes them money and in turn who they owe.

On the other hand, go to a high street bank these days and ask them where their ‘product’ is, the money they lend and borrow, and they will be unable to say much at all. Despite all their wonderful computer systems, and perhaps because of them, they no longer know this simple fact of business life.

Like any stage act by a competent magician, the smoke and mirrors that their rocket-scientists have created has dazzled their managements. If you can win at ‘find the lady’ you can make a killing; but who can ever beat the sleight of hand of the magician. As the banks often warn us, if it’s too good to be true than it probably isn’t. Shame they never took their own advice.

The problem is that the international money markets are now so riddled with termites that the whole house may have to be pulled down. Best put your money in the few remaining building societies, such as Nationwide, since they are now almost unique in knowing where their money really is!

However, a few top-level facts still are clear; even if nobody wants to talk about them. Property markets in general, not just the sub-prime ones, are still grossly overvalued in the US and UK. Both governments have recklessly used the growth in credit, especially in property, to fuel the growth that their electorates demand. In particular, though, the US has not merely allowed but encouraged its public to run up global debts running into trillions of dollars; and run up public sector debts which are in its own control by almost as much. The British government has been much more subtle, but its ‘off-balance-sheet’ accounting in the public sector, in the form of its much vaunted PFI, may have been almost as profligate. How are they, and we, going to sort out this mess?

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

08:41:33 o'clock BST

This is an interesting concept, but hardly new. In particular, the revelation that co-operation is a driver of organizational activities loses some of its shock value when you consider that this has been the basis of civilization for something more than six millennia; and it was even enshrined in Adam Smith’s famous example of the pin factory.

Competition, derived from the predations of the robber barons of old and so beloved of right-wingers, has been grafted onto the basic drive relatively recently. Despite the obsessive focus on it since the neo-classical economists of the 19th century, modern society could survive without competition but it couldn’t exist without collaboration.

The new dimension may be the use of the Internet to allow individuals, and not just organizations, to co-operate with each other; and in the process to gain the maximum fulfillment possible to them. It is this aspect, perhaps, we should be investigating; since this level of personal involvement has been missing since the industrial revolution.

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

11:03:46 o'clock BST

The markets have rebounded. Hurray. We can all now relax, safe in the knowledge that the end really isn’t nigh. Or isn’t it?

Why did they rebound?

Over here the Bank of England firmly stated that it would not bail out any bank foolish enough to have saddled itself with such abysmally, and obviously, bad debts. That might have chastened the banks to think twice about their chase after magically profitable derivatives.

Over there, though, the Fed lost its nerve and promised to bail out anyone with a bad debt problem. That is equivalent to the banker in a game of poker saying they will accept IOUs without limit from anyone regardless of their financial probity. Of course the game will go on, and the bets will get bigger; but who will really pay in the end?

For a number of years, unlike the conservative Bank of England, the Fed has been fuelling the US boom – desperate to avoid any hint of recession which might dent the US image of invulnerability. In the process it has happily seen the US national debt escalate by trillions of dollars; so that it – and not the poor of the Third World – is the biggest debtor in history. It has, indeed, led the way to legitimizing ever riskier forms of debt; from the sub-prime loans which are now shaking the financial world, to the private equity holdings by the new robber barons and of course to the derivative markets which are used to cloak the risk. Alan Greenspan should not be amused by the gyrations of his successor!

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own

12:27:25 o'clock BST

As I predicted a week ago, the market slide is continuing. But, also as I predicted, the blame is still placed on the US sub-prime defaults.

Unfortunately the problem is much wider. After the recession of the late 1980s/early 1990s, which might have been expected to result in a degree of caution, we – and our political masters – have lurched in the opposite direction. The subsequent decade and a half-long boom has been fuelled by speculation at all levels; from the domestic to the global.

At the domestic level the willingness of individuals to fund current lifestyles on the back of (plastic) borrowing, in the dubious hope of paying later, clearly puts their future at some risk; especially where their old age no longer is protected by guaranteed final salary pension schemes. The accompanying gamble by them on their property investments has stretched their risks from four figures well into five. Even the high-profile defaults in the US property markets are making little impact on the cavalier optimism in the UK housing market; even though the evidence is that our own markets are even more over-stretched. The old caveat that ‘investments can go down as well as up’ seems no longer to be even considered.

There is, however, a much bigger problem at the corporate and national/international levels. The massive profits being made in the City come not from well-considered investments in the wider economy but from speculation within the financial markets themselves. Even the clearing banks, whilst grudgingly carrying on with their traditional roles, have been forced by their shareholders to put their own equity – and perhaps that of their domestic customers – at risk in the pursuit of speculation on the most hazardous of derivative markets; including exposure to the US sub-prime, leading to second-line investments they would never have considered from their domestic customers. Indeed, the stock market has always been led by speculation; with the gamble not being on what the value of the companies being invested in might be, and not even on where those investment values might be going, but on what the others in the herd of investors judge this future might be. It was Lord Keynes who, the best part of a century ago, described the process as ‘animal spirits’. Now the speculation has been compounded by the availability of derivatives as a main vehicle for this speculation, where the derivatives markets add immeasurably to the risk by being totally opaque. Nobody knows how they work or what they contain and, in particular, what black holes lurk below the surface.

On the other hand, the wider business environment is almost as risky. Share prices, which these days seem to be the only factor which motivate corporate managements, do not reflect the underlying strength of the companies, but are too often driven by speculation as to what takeovers might be in the offing. This process has recently been escalated by the impact of the private equity organizations; which use their very high levels of gearing to strip out obscene levels of profit. Of course, as we will soon see, the (so far unreported) downside of this is the equally high levels of risk they represent.

As I said at the start, all of this reflects the new values of a society which admires the gambler, from the ephemeral ‘celebrity’ (who is famous just for being famous) to the ‘entrepreneur’ (who can make billions for themselves by their speculations but whose potential losses have to be covered by the rest of us), above the more traditional heroes of earlier times.

It is perhaps significant that the Conservatives are today backing the speculative society; promising to cut taxes on speculative gains (especially on property) and simultaneously pledging to remove legislation which protects us from the worst excesses.

Are we starting on the long slide to the hell which awaits all gambling addicts?

Written by mercerdavids Link to this entry | Blog about this entry |  Add to del.icio.us |  digg this This entry has 0 comments: Add your own