More window dressing than Bloomingdales

"Smart" financial deals come in 3 flavours:

1. The true value arbitrage, where assets are sold in one market for a better price than they would receive in another.
2. Tax "efficient" transactions, where the rate of return on an investment is enhanced or the cost of a borrowing is reduced compared to a similar profile loan
3. Accounting scams.

The first type might be exemplified by securitisation, where packaging up assets such as credit-card receivables and selling them into the capital markets secures a lower cost of funding for the seller than their own marginal cost of funding if they kept them on their books. There are many other examples in the financial markets when taking a bit more effort and being a bit smarter and working a bit harder can produce real savings. Project finance is an obvious example.

Then there are the tax plays. Some are as straight forward as leasing, where a company that does not pay a lot of tax (often in a capital intensive business such as transport) cannot use all of the tax depreciation available and so it leases some of its assets from a bank that can use the depreciation charge on a timely basis. Other tax schemes are more complicated, but I usually have no problem with these, because everybody has the right to arrange their affairs as they wish, tax outcomes are usually clearly defined by laws and the correct application of the laws are decided by impartial courts. If there is a problem, the government can change the laws.

I have much more of an issue with accounting scams, which I often liken to a fat man weighting himself with one foot on the scales and one foot on the floor. In the long run nobody is fooled and in the case of the company, they rarely fool anyone but themselves (and their shareholders). Analysts and competitors often see the true picture after a time, or as Monty Python put it, after a few times.

With that in mind let us consider Lehman Brothers and Repo 105, an arrangement by which Lehman underreported their economic assets and liabilities by many billion dollars. It may not have been the reason why the bank failed but it explains how an apparently healthy bank could disappear so quickly.

Let us not bother too much with the details of the arrangements, because the precise details are not that important, but a repo is in essence a trade whereby one party sells assets to another party for cash together with an undertaking to buy the assets back at a later date at a preagreed price. In substance this is effectively a secured loan and may be treated as such by either lawyers and accountants.

But not always. In more "primitive" legal and accounting systems the repo might be treated as a sale for cash and the ongoing purchase obligation left out of the accounts, which is how many Japanese banks managed to flatter their balance sheets in the 1990's when capita was tight and asset books were bloated. A quick one week repo with a bank with a different balance sheet dates could wipe billions of crappy loans off the books and the cash proceeds could pay down lots of market debt just before the balance sheet date, only to be reborrowed a few days later to finance the repurchase.

But the Anglo-Saxon accounting systems weren't so naive, or so they told us, but it seems that Lehman and maybe others had little problem in arbitraging the US and UK legal and accounting systems. In both countries it is likely that a plain vanilla repo would have been classified as a borrowing, but Lehman found a simple way through the two systems to achieve their intended result.

The US accounting for repos is ostensibly similar to UK or European GAAP, with the notable difference that in common with much of US accounting, classification of certain transactions will turn on the legal classification, whereas in the UK, the accountants will form their view more independently from the legal form.

Now nobody doubts that is US law Repo 105 would have been classified as a loan, with all the implications that follow in other areas of the law, such as tax, bankruptcy, banking and usury laws to name but a few, and hence under US GAAP the accounting treatment would be clear that the transaction was to be treated as a loan.

The UK legal system operates differently, stating that the sale is indeed a true sale, but with more specific rules in other parts of the law such as banking law and tax law to treat the transaction as a loan rather than relying on a legal recharacterisation as in the US. Likewise the UK accountants would give an opinion that the transaction should be treated as a borrowing, not withstanding the legal form.

And this is how Lehman executed the arbitrage. By showing their US auditors a UK legal opinion that the transaction was a true sale, they persuaded them to accept that the transaction should be booked as a sale, notwithstanding the fact that (a) if they had asked UK accountants for the same opinion they would have told them to book a loan, and (b) if they had asked US lawyers for the same legal opinion, they would have said the same.

Of course, Lehman, would have argued, the transaction was executed in England under English law, so the only valid legal opinion would have been an English law opinion, but in the end, like the fat man with one foot on the floor, they were fooling nobody but themselves .... and maybe the Fed.

Hester tested

Stephen Hester, chief executive of Royal Bank of Scotland, is to decline any bonus payment for 2009, which is really big of him because bonuses are for people who make profits, not for the chief executives of companies that are set to announce £4 billion losses.

Still, as an indirect shareholder through my interest in UK plc, it is nice to think that he is still motivated and thinking about his upside.

Brown starts the fightback ..

... by saying he never hit anyone.

Well, nobody ever said he did, but it seems that in response to Andrew Rawnsley's claims in the Observer, the spin-meisters in Downing Street have decided to invent a claim that wasn't made and denied that instead, making sure they get their denial out first, with a compliant BBC ready and willing to publish the denial before they had even heard the claim.

Likewise the denial that the Cabinet Secretary had launched an inquiry, rather than the investigation (i.e. asking a few questions) that was claimed. What's the difference? Not much, but enough to allow the Prime Minister and the Cabinet Secretary to deny that an inquity took place whilst not mentioning the investigation.

The voters used to fall for this sort of con-trick, but after 13 years, my guess is most of them aren't fooled any more.

Songs of Praise

It is a little known (and little cared about) fact that I sing in a choir. Not very serious, we do the occasional concert, church service and wedding (the distinction was deliberate). And I play lead guitar (well somebody has to), which it comes in useful for Bohemian Rhapsody and the like.

Anyway, it turns out that Songs of Praise is coming to a nearby cathedral and we have been asked whether we would like to join in with a massed choirs of SATB singers, which sounds like fun, so I put my name down.

But on reflection, I am a little surprised at myself, because if really pressed on the matter, I am not sure that I believe in television.

However much we like the French

We all enjoy having a good laugh at them from time to time. I could have skied further than that.

Fortunately, nothing hurt but her pride.

Vodafone introduce the first sub $15 corporate video

Cheap, but functional, like the phone

You have to hand it to Google

You can't knock their patriotism, but you might question their objectivity.

Winter Games: Medal Count - Add to iGoogle

Gold Silver Bronze Total 1. United States 1 2 3 6 2. Germany 1 3 0 4 3. France 2 0 1 3 www.vancouver2010.com

This table comes from the Google website, where in any other circumstances you might have expected the medal table to be listed in order of numbers of gold medals, putting the cheese eating surrender monkeys in first place.

Those tied according to the number of gold medals would be separated by silver medals and those ranking equally on that measure would be ranked by bronze medals, putting the Krauts ahead of the Yanks, but then spin is everything these days and if you tell enough people that black is white, eventually, it is.

BAE, BAE, black sheep

So it turns out that BAE Systems is to pay more than $400m in penalties to settle bribery allegations in settlement of US and British corporate corruption cases. The company will pay most of that in the US.

In the UK and plead guilty to a minor Companies Act accounting record offence and pay a £30 million fine, but will largely avoid the sort of criminal record that would make it ineligible for for further government contracts.

All this is not too surprising, as I blogged last year. For the simple fact dear reader is that the UK government is one of BAe's biggest customers and it is a 2 way street, because BAe is the largest manufacturer in the UK. As is well recorded elsewhere the relationship is very close and works for the mutual benefit of both. Not only does BAW supply the MOD with whatever defence systems it needs, but it also supplies the UK government with employment and investment.

To give an example, back in the days when BAE was directly involved in the production of Airbus civilian aircraft, a very close friend was invited to a meeting by the then DTI to act as their consultant during a discussion of a request from BAE for grant funding and soft loans to support the manufacture of wings at BAE's factory near Wrexham. The BAE personnel made their pitch listing the spin off benefits from such an investment, followed by the likely costings and the pay off from the project.

So first question from the consultant is "You told us all about the costs and the payback from the A380, but what is the value of all of the spin-offs?" At which point, the DTI man taps the consultant on the shoulder and tells him not to give BAE a hard time because the DTI were going to give them the money anyway. At which point the consultant asks why he is being paid £600 an hour to listen to the pitch from BAE?

The simple answer is that it is all an elaborate exercise to cover up the two-way relationship between BAE and the government. The government gets its arms and some UK employment and in return BAE got the occasional cash sweetener and a blind-eye turned towards dodgy overseas deals, particularly the 25% commissions on Saudi projects, some of which would flow back into the UK in the pockets of Denis Thatcher or the Wafic Said Business School, and sometimes BAE thought they could get the government to pull a few strings on their behalf such as the sale of aircraft to Iran, which needed US export licenses for the engines.

So we have to see the BAE £30 million fine in the context of a broader relationship and assume that the £30 million which landed up in the UK government's pocket (which might be considered unjust enrichment because it was the tax payers of other countries that got stitched up) will find it's way back to BAE through further sweetheart deals and favours.

The most profitable bank on Wall Street

For all the vilification of Wall Street banks, one firm managed to record a bumper profit without attracting derision for its employees or owners. Indeed for this bank, 2009 was a year of record profitability and the main beneficiary will be the American tax payer, because the bank in question, the Federal Reserve Bank, booked a $45 billion profit, the best result in its 96-year history.

The Fed's earnings for the year dwarf those of the large US banks, easily topping the combined profits of Bank of America, Goldman Sachs and J.P. Morgan Chase. Much of the higher earnings came about because of the Fed's aggressive program of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth.

At the end of 2009, the Fed held $1.8 trillion in U.S. government debt and mortgage-related securities. The interest income on those investments was a major source of profits, although the bank is likely to book a loss if it sells the securities to reduce the money supply.

The Fed also made money on its emergency loans to banks and other firms and on special programs to prop up lending. Although it lost $3.8 billion on loans it made to bail out Bear Sterns and AIG, it made $4.7 billion in interest from those loans.

Despite the record earnings, the CEO of the Federal Reserve, Ben Bernanke, received a modest cost-of-living pay rise for 2010. He now earns $199,700.

While I have your attention

At last, a use for Twitter: Shire Pharma have sussed that 140 byte messages can work on an ADHD support line:http://twitter.com/adhdsupport

He shoots, he scores, Masterley is on the ball

Back in September I suggested that the complaint against Chelsea from Lens, a French club, about the hiring of one of their trainees had no basis because Frenchlaw prohibits contracts of employment for minors.

Not surprisingly, the French controlled UEFA and Swiss controlled FIFA took a wholly predictable swipe at the English club, imposing a 4 month ban on transfers, although I said at the time that a good lawyer would run rings round Platter and Blattini at the Court for Arbitration in Sport

And so it turned out, but without a murmur of an apology from the Frenchman, who in one of his more unhinged monents accused the London team of child slavery.

Time for new chairman at FIFA and UEFA.

All those screens on the trading floor

Traders use them to watch prices move and book trades, right?

Yeah, sure they do. Watch the screen to the left of the speaker about 1:05 into the clip.

The Masterley tax return

Duly filed at 23:56. Having assiduously filed papers through out the year, this year's tax return completion started at 23:42, which I think makes this year about as late a start as I can remember.

UPDATE: Soon after I got a reply by email: "Thank you for sending the Self Assessment submission online. The submission for reference 32*******202 was successfully received on 2010-01-31T23:56:51.676 and is being processed."

So they acknowledge the time in milliseconds, and I wasn't really cutting it that fine.

I could have filed up to 488,323 milliseconds later.

Credit where it is due

I don't agree with his opinion on most things but I have to admit that Seumas Milne can write. His piece on Blair's appearance before Chilcott in the Guardian, is about as objective as an destructive criticism could be. But then this Marxist-Leninist firebrand was educated at one of this country's finest and most academic public schools, where incidentally he was my "pater":

Once again, the chance to hold Tony Blair to account is being squandered by questioning that has has ranged from the feeble to the shamefully complicit. Faced with such embarrassing cosiness (Lawrence Freedman plumbed the lowest depths), the former prime minister quickly overcame his initial nervousness. Far from conceding any ground over the aggression against Iraq, he repeatedly argued that the same "calculus of risk" now demanded similar action against Iran. The fact that he remains the Quartet's man in the Middle East should be cause for the deepest alarm.

It's been classic Blair: the lawyerly evasions over the wording of the September 2002 dossier, the self-deprecating asides over his Fern Britton interview gaffe, the deliberation conflation of the 9/11 attacks and Iraq's weapons programmes, real or imagined.

His defence of the claim that the intelligence showed it was "beyond doubt" Saddam Hussein had chemical and biological weapons was rendered risible by the fact that it was prefaced with the words "I believe", but that was duly allowed to pass by the assembled trusties – as was his entirely false insistence that you'd have been "hard pushed" to find anyone who didn't believe Iraq had WMD before the invasion demonstrated it hadn't.

Put Scott Ritter and Robin Cook on one side; both Vladimir Putin and Jacques Chirac said in the run-up to war that they had seen no evidence of a continuing Iraqi WMD programme.

Most outrageous, though, was his repeated and so far barely challenged assertion that Iraq was in "material breach" of repeated UN resolutions. In reality, the fact that Iraq had destroyed its WMD stocks in the 1990s means that it was not in significant breach of the resolutions at all. Even Blair's repeated claims that Iraq was failling to comply with resolution 1441 over inspectors' right to interview officials is simply not supported by Hans Blix's reports of the time.

Can any one explain this to me?

Public sector non-job of the week from the Times. Can anyone explain what the postholder will actually do every working day to become entitled to their £82,000?

http://jobs.timesonline.co.uk/job/387423/head-of-democratic-and-partnership-services


Head of Democratic and Partnership Services
£82,000
Calderdale has achieved a tremendous amount over the last few years. We have clear priorities and an ambitious change agenda, ‘Vision to Reality’, which aims to make Calderdale a place where we recognise that ‘everyone is different’ and where ‘everyone matters’.
This is a fantastic time to join Calderdale as we strike out in an ambitious, modern direction. Major change programmes are already rolling-out across the Council and our partner organisations and we are expecting all of our senior officers to play a key role in the delivery of our ambitious plans. We are confident that with the right team in place we will achieve our vision, delivering on what matters to local people.
As a member of the Council’s Extended Management Team, our new Head of Democratic and Partnership Services will be at the centre of this change, ensuring that the Council and its partners meet the requirements of the new Comprehensive Area Assessment regime. Specific challenges will include leading on the development of the external strategic partnerships of the Local Strategic Partnership, influencing cross-council partnership working and overseeing the development and support to Members through the modernisation of Member Support, Democratic Services and Scrutiny. As well as managing Democratic and Partnership services, the post-holder will also be the Council’s statutory Monitoring Officer.
To find out more, please visit http://jobs.calderdale.gov.uk/democraticandpartnership or contact our retained consultants for a confidential discussion: Nick Raper on 0113 205 6076, or Jemma McPherson on 0121 644 5714.
Closing date: 12th February 2010.

Brilliance disguised as ineptitude?

I am doing some advisory work for a business that is being taken over, although my work is nothing to do with the takeover and I will be long gone before it completes, but I get to see some of what is going on. The acquiring company has a method of communicating with the acquiree's staff which is either incredibly incompetent or a masterstroke in subterfuge.

The "timetable" for what the two parties call "transition" (a polite word for shafting half of the staff) is presented at staff meetings as an incredibly compact and unreadable slide which is accompanied by the words "I won't go into all the details here, but you can download electronic copies later", which of course the staff rarely do, and most of those that do never look down at the bottom right hand corner of the chart which tells them when they find out if they still have a means to pay their mortgage.

I am still trying to work out whether this was deliberate or just plain incompetence.

But I was struck by the same thought today when I heard Bob Ainsworth mention the likely date of the next General Election on the Andrew Marr Show. With a slight hesitation in his voice (as though he was struggling to remember his lines), Ainsworth said that voters might regret voting Conservative if they did so on May 6th.

OK, first thought is that this is just bumbling fool Ainsworth who can't be trusted to keep a secret. But the second thought is, well that is probably what Mandelson and Brown want you to think, so they got Ainsworth to say it.

But that means Mandelson and Brown want you to think that the the current government would be more competent than the alternative, so that, for example, we can trust the Secretary of State for Defence with military secrets.

Which of course we can't if it turns out that the election will be on May 6th. But if the election is on another day, Ainsworth will have done his job brilliantly.

The prez takes the Masterley line

I've said it before and I'll say it again. I have nothing against bank staff gambling for profit, but I object to them doing so with depositor's money backed up with tax payer's cash. So two cheers for Barry Obama for his announcement, and another one if he pulls it off.

Needless to say, The Monocular Leader is dead against any sort of separation of retail or commercial banking from investment banking, because , err, because he is. In fact his only reason is because the Conservatives like the idea.

"Oh no", says Aliaistair Darling, the sage of Omagawd, "it may have been a good idea in the 1930, but not in the 21st century", without giving a reason because he hasn't got one. Fact is, Glass-Steagall was in place until the late 1990's. Ten years after it was ripped up we had the mother of all banking crises, and that was entirely due to securitisation, OTC derivatives and a whole bunch of factors deriving from the interplay of retail and investment banking.

The world is a brighter place and the days are getting longer already.

Lib Dems in the Brown Stuff

From Private Eye, but too good not to lift verbatim

Michael Brown EMBARRASSMENT ahoy for the Lib Dems, just in time for the election campaign. Next month the party’s biggest benefactor, Michael Brown, will feature in Crimestoppers’ “most wanted” list, having given the party £2.4m in 2005 via a shell company, 5th Avenue Partners, of which he was the sole director Three years later he skipped bail while awaiting trial for fraud. He has not been seen since, though he is thought to be in the Caribbean. In November 2008 he was convicted in absentia of stealing £36m from investors to whom he posed as an international bond dealer. His appearance on the Crimestoppers website may prompt some voters to wonder what happened to his political donations. Those wholesome Liberal Democrats wouldn’t wish to get rich on the proceeds of crime, would they? Er, yes they would! Free helicopter flights They have refused to return the money, insisting that they accepted it “in good faith”. Was their curiosity really not aroused when someone they’d never heard of started writing them seven-figure cheques and giving the party leader free helicopter flights? Mightn’t a bit of due diligence have been in order? Apparently not. The Mallorca-based Brown was barred by law from making political donations, since he wasn’t registered as a British voter; but even this aroused no suspicions in those sweetly trusting Lib Dems. Luckily for them, the Electoral Commission is equally unworldly. Shortly before Christmas it published its final verdict on the tainted donations. Under the rules a British company must be “carrying on business” in the UK to give money to a political party, and the commission believes that 5th Avenue Partners was doing so. It had bought “office furniture and equipment”, and set up “trading accounts”. ‘Fraudulent from its inception’ This ignores all the evidence at Brown’s trial – and a previous high court action in 2006 – showing that the only business carried on by this shell company was that of diverting dosh from his victims to himself. As Mr Justice Cooke said in 2006, giving summary judgment in a case brought by four of the firm’s investors: “There was no trading and the scheme was fraudulent from its inception, it never being Brown’s intention that the money should be used this way. Funds had instead been shunted around various accounts in Europe. It is also clear that Michael Brown tried to hide the fact that there had been no legitimate trading with the funds supplied to him.” There was one other question the Electoral Commission had to consider. Was the true donor 5th Avenue Partners – or was it Michael Brown, in which case the Lib Dems would have to repay it? “There is no credible evidence,” the commission concludes, “that any of the donations came from Michael Brown’s own money rather than from one of his companies.” Well, they’re right in one respect. It wasn’t Brown’s own money, it was money he had stolen from investors and laundered through his company. According to the commission, this makes the gift entirely “permissible”. Case closed. Fugitive sugar daddy One wonders if this naivety will also dictate the outcome of another party-funding case. Last January the commission began investigating whether Bearwood Corporate Services, which is controlled by Tory moneybags Lord Ashcroft and has given more than £4.7m to the Conservative party since 2003, is actually “carrying on business in the UK”. One year on there’s still no answer. If the commission spins this out much longer, its report may not appear before the election, much to the Tories’ relief. Meanwhile, the wretched Lib Dems must endure the shame of having their fraudulent and fugitive sugar daddy displayed on Crimestoppers. Which should give some pleasure to the founder and chairman of Crimestoppers… one Lord Ashcroft!

Absence of posting

I have had a few comments and emails bemoaning the lack of posting for the last few weeks, indeed a few hoping that I have not given up posting. Apologies to those who have missed getting their financial fix but this due to a number of reasons:

1. Christmas is a big even at Masterley Towers. Not just on the day but also in the ays leading up to Christmas. So much to do, so little time.
2. December is a busy month for deal completions. This year there wasn't a lot of new business but there were some time consuming restructurings.
3. There hasn't been a lot of financial news.

At least not that was really ground breaking or significant enough to blog about. Two items that might have merited a post they hadn't been done to death here over the last year would have been the government's spending outturn, which came in at £617.9 billion, and the Oxford Economics report which said that UK GDP per capita is lower now than it was in 2005.

On the first point, the issue wasn't so much the headline figure for Total Managed Expenditure but the shenanigans by which the government arrived at the figure. The details are here.

This year the government "spent" £91.449 billion on "non-cash" items of resource departmental expenditure up from £49 billion last year and on a rising trend from £28 billion from 2004/5. They also spent £85 billion on "other capital expenditure" (prior years negligible or negative). Now because those two unpalatable sums would have upset the numbers, the government made 2 "accounting adjustments" (read that as "reductions in reported spending") of £87 billion of revenue expenditure and £98 billion of capital expenditure.

Now as already reported here, we know that a lot of the £87 billion of "non-cash" items that the government doesn't want to count as current expenditure relates to PFI, where departments sign as service recipients under service contracts on terms that would normally dictate that they should capitalise the underlying asset and book the service contract as a financial liability, only when it comes to reporting government figures, the liability is "adjusted" away.

And then again we now that the government argues that all of the money it spends on bank shares doesn't really count as expenditure because it is supported by assets - which is a bit like saying spending isn't spending if in the process a valuable asset is acquired (i.e. pure tosh). OK, say the government, it doesn't count as part of Total Managed Expenditure because it is a one-off. Try that line with your bank manager (e.g. "No, I am not really overdrawn, because it was a one-off, just like the government and the bank bail-outs").

So that's £185 billion of spending that the government says we didn't really have, but the media and the opposition don't make a fuss.

And then we have the Oxford Economics report, which made some of the papers, saying that GDP per person is no higher than it was after the last General Election. Which sounds bad, but as discussed here throughout 2009, the reality is far worse.

GDP is a measure of public and private consumption, and whereas public consumption has grown at the rate or 6-8% for the last several years, public sector activity has gone the other way, so that as reported here 6 months ago, in inflation adjusted terms, private sector consumption per capita has declined by 25% since 2003, whereas public sector consumption has grown by more than 30%, so that GDP (interpreted by the government as a measure of economic activity) is largely flat.

Brown play ed on this as Chancellor, knowing that he could put his foot on the government spending gas pedal at any time so that he could always say that GDP was growing at 3% and hitting growth targets. The reality was that the "quality" of the GDP declined. The value of goods and services freely traded in the private sector, rather than the value of money blown by the government to support whatever scheme they thought would give the illusion of economic growth, has fallen rapidly. We have now reached a point where the government bleats that cutting expenditure would lead to a further recession, even though the value for money from current expenditure is very poor. How many £1,000 a day consultants does the NHS really need? But if we follow their Keynesian logic with 3x multiplier effects (not that I believe that figure) we would conclude that instead of a £175 billion deficit, £525 billion of GDP is unsustaianable. The best solution is to cut spending back to mid-2000 levels, suffer the pain and rebuild the economy on a more realistic basis.

Let us hope that the media start to bite on this.

A dun of iniquity

One of the commenters to a post early this week questioned why the bonus tax is iniquitous, so here goes:

1. One of the principles of fair taxation is that it should apply to all tax payers equally. That doesn't preclude progressive taxation or even applying particular provisions to particular activities, but to discriminate against bankers and people working for banks smacks of vindictive victimisation.
2. A further principle is that taxes should not be applied retrospectively, which is why the Budget sets out the tax rates to be applied for the financial year starting after the Budget. To create a new tax in the middle of the financial year to be imposed on bonuses to be paid for work already performed goes against that principle even if the bonuses have not yet been determined or awarded.
3. The banking industry is very wide. Although there are many companies that might have acted recklessly before the credit crunch, most of those (Bradford & Bingley, Northern Rock, RBS, HBOS, Lehman, Bear Stearns, AIG) have now disappeared. The argument that the rest have all benefited from the bailout is largely incorrect. Many other financial institutions were not involved in investment banking activities. For example, the Australian banking system is very conservative, so that ANZ, Commonwealth Bank, National Australia Bank and Westpac, who have all in the past lost heavily through ambitious traditional bank lending largely avoided any exposure to losses on assets similar to those held by the British banks. Similarly, it is hard to see why Standard Chartered or HSBC who do most of their business in Asia and emerging markets should be penalised for the activities of banks exposed to the US and UK asset backed securities markets.
4. The government says that it bailed out the UK banks and all the other banks benefitted as a result. To an extent that is true, but they only bailed out 2 UK banks and nearly crippled a third (Lloyds) in the process. On the other hand, they didn't bail out any of the foreign banks on whom they are imposing this tax. Those banks are in London for the international debt and foreign exchange markets. They are not in London to provide credit to the British markets, and many of them will have very few dealings with RBS, HBOS and the other failed UK banks. They are there to buy and sell international syndicated loans, letters of credit, to finance exports and projects, often in dollars and euros, not sterling, and in parts of the world where neither RBS or HBOS ever show their faces.
5. Traders in banks are typically paid a far lower base salary than anyone would reasonable expect to be paid for the hours that they put in, and the better and more successful they are, the greater the percentage is paid in bonus. If the government doesn't like that balance they should regulate against it rather than tax the traders after the event.
6. Believe it or not there are many people working for banks who do not use any capital. Typically they work in an advisory capacity, perhaps on mergers and acquisition, privatisations, PFI, project finance advisory work and private placements. The only risk to the bank is the overhead and base salary against failure to earn fees, yet the fees earned, entirely from the wits, knowledge and hard work of the bankers concerned can be substantial. To stop the bank paying these people bonuses is clearly wrong-headed.
7. On the debit side of the balance sheet, the government failed in its supervision of 4 failed banks and 1 failed building society and they completely missed the fact that AIG was running a $800 billion credit default swap book unregulated out of its offices in Curzon Street that underpinned a vast part of the securities market. To turn round and blame all the remaining banks for the government's own failings is no more than we would expect from this clapped out administration.

So I am not surprised that the bankers are upset, but neither am I surprised that the government would use it as a smokescreen for a desperate Pre Budget Report.

Grouchy doctors can save the NHS

The PBR says that the NHS is ring fenced from cuts, but imposes NI costs on the service. But leaving aside the fact that we are run by mendacious headless chickens, what can be done to make savings?

One idea comes from the training of doctors, who these days are trained in their bedside manner, dealing with patients very differently from their older colleagues.

But that care comes at a cost, because the more high-handed older consultants cover more patients in less time than new trainees. Kindness costs nothing? Dream on.

You ain't seen nothing yet

The 1% increase (0.5%employer, 0.5%employee) in NI contributions will raise £3 billion. That's 1% of salary, not 1% extra NI. So it would take another 66% of workers' salaries to wipe out the deficit.

One of my favourite cartoons

.. features two old soldiers, one of whom says to the other "Young people! Our generation fought so they could be free, and now they go and do what they bloody well like."

I was reminded of this by the talk that the government, in a fit of pique, says (through the Peston mouthpiece) that it wants to tax the banks or the bankers, well the British one, or maybe those that are in Britain or something.

After all, runs the government's line to the media, we bailed out the banks, so we deserve something back. Well yes we did. We bailed them some of them out, and got something back in the form of equity at a knockdown price. We guaranteed some of their assets, and they paid us a fee. The government negotiated these deals over many months, so are they telling us they negotiated a bad deal? Indeed, can anyone trust this government if they negotiate a deal in good faith only to find that the government stitches them up by changing the law shortly afterwards?

But, protest the government, if we hadn't bailed out the banks the whole system would have collapsed and all the banks would have gone under. So this justifies taxing not only UK banks but also those that operate here. Not so, the banks that would have gone under were the ones that did go under. The other banks had their own capital cushions and would have survived, in part because they have the capacity to rebuild their capital through earnings, which is precisely what the government wants to tax.

The idea that the government want to slap a tax on foreign banks in London just because they are making a lot of money, from amongst other things, advising the government on dealing with the bailed out banks, shows that the government doesn't really have a clue. Somebody should draw a cartoon about this.

I've got a little list

It looks like a mole at RBS has been feeding a line to the Times to try get their bonuses back, because the paper carries this story this morning

"More than 1,000 investment bankers have quit Royal Bank of Scotland to join rival firms for guaranteed cash bonuses and big salary increases, according to banking sources.

The staff exodus, which has cut a swathe through the senior ranks of RBS, has been gathering pace since the government first ordered it to clamp down on bonuses this year.

Although they account for less than 5% of staff in RBS’s investment division, the traders and corporate financiers who have been lured away are estimated to have earned it between £600m and £700m last year — almost 8% of its 2008 income."

Well hang on a bit because these numbers don't stack up, because that is £600-700k top line revenue per "investment banker", which would have been the minimum top line revenue to stay in your job as an investment banker 20 years ago - say $1 million, and that would be the benchmark for bankers who don't use the balance sheet (M&A, some corporate finance advisory). Touch the balance sheet and you would have to make far more in fees and spread to justify your seat. Personally I wouldn't be seen dead in a team that kept bankers who performed so poorly.

And the giveaway is that the 5% of staff made 8% of income. Well if you are only making 160% of the average when all the IT, operations, HR, PR, security, audit and management are factored in, then like the Poobah-before-Mandelson said, "They'll none of them be missed".

The Feds always get their man

Ben Bernanke doesn't get everythng right, but he is righter than most, and on the state of UK, yes UK, bank supervision he is spot on

"Over the past few years the government of Britain removed from the Bank of England most of its supervisory authorities. When the crisis hit - for example when the Northern Rock bank came under stress - the Bank of England was completely in the dark and unable to deal effectively with what turned out to be a destructive run and a major problem for the British economy.

So currently the trend in UK and elsewhere is quite the opposite of taking away those authorities - it is to give the central bank the authority and information it needs to know what's going on in the banking system... for financial stability maintenance I think it's very very important for the Fed to have that kind of information and insight into the banking system"

Why the fuss?

Let's get something straight: there is nobody at RBS who is worth £1m a year even in a good year, and no US bank is going to rush out to grab their disaffected staff, but...

Why are the government having a go at the bank in the press for possibly paing out mega-bonuses? After all, RBS is 70% owned by the taxpayer, and will soon own 80%, so the Chancellor can tell the board what to do through a special resolution and they must obey.

So, if the government really wants to change the pay policy at RBS, they can.

Here's one I made earlier

Margaret Thatcher ruined the British manufacturing sector, right? Well, probably wrong. While it fell from 25.8% of GDP to 22.5% under the Thatcher government, the general increase in GDP meant that the size of the sector increased significantly.

There was another fall during the seven years of the Major government to 20%, but in the 12 years since 1997, it has fallen to ... 11%. Bearing in mind that a significant proportion of that capacity is actually food processing which is likely to be processed near the point of consumption because food doesn't travel as well as, say, ball bearings or machine tools, and we can see that it has fallen far faster under Labour, who as we all remember were critical of the size of the industrial base when they came to power.

Of course a simple look at Labour policies shows the reason, favouring the film industry, R&D (not tied to UK production) and the offshore shipping industry with investment allowances not permitted to the rest of business whilst reducing the rate of capital allowances and eliminating finance leasing. It is hardly surprising that there has been no investment in industry, and its relative importance in the economy has halved under Labour.

Lib Dems unfit to govern

The Lib Dems again show how incompetent they are by bleating about higher rate tax relief on pension contributions which they try to frame as a loophole.

Well excuse me,but income tax is a tax on income as and when it is actually received, not a tax on the accumulation of rights to income (should you actually live long enough to recieve it).

By way of example, take the case of a businessman who pays £1.5m into a pension fund and dies the day after retiring. The £1.5m is partially taxed as income, but it is never received

Next example, assume the businessman lives for another 20 years, and with accumulated earnings the fund pays out £3m. The £1.5m is taxed (partially) on its way into the fund, and again on its way out. If the £1.5 million had been paid into a bank account there would have been no tax on the withdrawl of capital.

So all this does is encourage higher rate earners not to use pension funds as currently structured. And oif course let us not forget that Mr Cable and Mr Clegg will not be taxed on the state contributions to their pension pot because it doesn't exist and their pensions will be paid out of future taxes.

Some choice cuts from the Chilcut inquiry

This from Sir Peter Ricketts , former head of the JIC and now head of the Diplomatic service as reported by the BBC:

Asked about the threat posed by Iraq in early 2001, Sir Peter Ricketts, who was the then chairman of the Joint Intelligence Committee - which oversees MI5, MI6 and GCHQ - said it was palpable.

Sir Peter, now Head of the Diplomatic Service, said there was a "clear impression" that Saddam had a "continuing intention" to acquire weapons of mass destruction, having used them in the past.

Despite there being no evidence of a direct link between al-Qaeda and Iraq, Sir Peter said there was a "tone of voice" in Washington after 9/11 that there would be "major implications" for Iraq if that was the case.

Oh, so that's alright then. Giving a clear impression of a continuing intention to acquire weapons of mass destruction is now grounds attacking a foreign country, even if that perceived intention is the perception of the country waging war? Military intelligence is, yet again, an oxymoron.

Freedom of speech exercised

For the benefit of anybody who has come this way, from Richard Murphy's blog (I wouldn't go there unless you have professional interest in hearing what sort of tax advice is fed t0 the TUC), I have had a comment deleted by the blog moderator. This a common occurrence and I find myself barred there from time to time and the occasional irate email from Mr Murphy, but no matter. I only mention it because he mentions the fact and comments that it was patronising and rude. Well that's his opinion, but for the benefit of the prurient who may have wade their way over here, this is approximately what it said.

In response to a question on alternatives to share ownership one poster commented "hmmm - the problem is the common ownership bit. How do you imagine that will work?"

To which I naturally replied "The state owns all businesses. You work for the state. The state owns you. You don't like it? The state shoots you in the back when you try to get over the wall. Simples."