Can you hear me, Ravi Shankar?

Ravi Shankar, Mohammed Ashraful, Konnie Huq (sorry I can't think of any more Bangla Deshis) can you hear me Konnie Huq? Your boys took one hell of a beating.

Actually it wasn't that one sided after all.

It's not just GCSE's that are being dumbed down

I wish the new government well, and I mean them no harm, but you have to wonder when you look at who is running the national finances.

First of all we start with Boy George whose sole demonstration of financial acumen appears to have been to be born into a substantial wallpaper fortune. His financial pronouncements appear to have been cobbled together by a scriptwriter who picks up their ideas (and jargon) from the business pages of the Evening Standard.

But the latest financial appointment is even more of a mystery. At a time when the greatest problem we face is to reduce the extraordinarily high level of government borrowing, the new Financial Secretary is a Lib Dem with no financial experience, who 5 years ago was the public relations officer for the Cairngorms National Park and whose only financial transactions of note was to claim second home allowances for a property that he later sold free of capital gains tax by claiming a primary residence exemption.

There is more financial talent in one of my little fingers than in the entire cabinet.

They may be rated as favourites for the World Cup

But not by Fitch Ratings

Fitch Ratings-London-28 May 2010: Fitch Ratings has today downgraded Spain’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘AA+’ from ‘AAA’. The rating Outlooks on both Long-term IDRs are Stable. Fitch has simultaneously affirmed Spain’s Short-term rating of ‘F1+’ and the Country Ceiling of ‘AAA’.

“The downgrade reflects Fitch’s assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term,” says Brian Coulton, Fitch’s Head of EMEA Sovereign Ratings.

“Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA rated sovereign governments, which is why the agency has downgraded Spain’s rating to AA+,” Coulton added.

Good news for home-owners

The value of your house will increase today by the discounted expected cost of all future home information packs associated with your home.

Weird headline of the Week

Shares hit by German short-selling ban
Shares in Europe and Asia fell on Wednesday after a surprise move by Germany to ban some types of short-selling of shares.

As reported on the BBC. Probably not what the German authorities expected.

Can you hear me Germaine Greer?

Shane Warne, Ian Chappell, Les Patterson, Kylie Minogue, Germaine Greer. Can you hear me Germaine Greer? Your boys took one hell of a beating! Your boys took one hell of a beating!'

Standards in public life

Am I just getting old, or am I not alone in thinking that there is something uniquely deplorable that a a man who has done little apart from espousing the communist doctrine of asset appropriation, should following a career as a trade union leader with a period as an inner city councillor should be inexplicably be promoted to be the head of the Football Association, where he carries on an affair with a woman 29 years his junior, who secretly records their conversations on tape and passes the tapes (presumably in return for cash) to a national newspaper, who publish his unfounded (but not necessarily untrue) allegations and thereby wreck this country's bid to host the World Cup in 2018 - a bid which has cost several million pounds to prepare?

There is so much ineptitude, I really don't know where to begin with this one, except to say: Labour peer. End of story.

Never trust a Liberal Democrat

I never did and I never will. The LD's started the weekend spouting some principled clap-trap about giving the first opportunity to the party with the most votes, but before that has had a chance to play itself out, we find that they have been holding sneaky talks with the other side, and then before negotiations with the Conservativcs are complete they rush over to talk to Labour because Gordon Brown has resigned. Meanwhile, I didn't see the number of seats held by each party increase.

Normally, in these circumstances I would pick a stock that should do well in the current political climate, but the company I see as most likely to prosper is a private one, Spear & Jackson, whose hay fork LK is about as close as you will come to the traditional pitchfork. Also pretty handy looking, but for export only, is their range of plantation tools , while others might find the hardwood pick-axe handle useful.

For those looking for exposure to European stocks I find that my large wooden felling axe from Fiskars brings out the "inner psychotic", and we can see an inxcrease in UK sales for this Finnish company.

EU broke it, EU fix it

It seems that the EU would like the UK to be part of the group that bails out Greece in order to save the Euro. Nicolas Sarkozy tabled a measure in an emergency meeting late on Friday night to create a €60bn "European stabilisation mechanism" to provide bail-out support for countries which may face similar strain to Greece in the coming months. The Frenchman's idea is that this will be funded by all EU countries. As ever, the French try to push the cost elsewhere.
Sorry pal, but it is not our currency. We specifically decided not to be part of the Euro because we didn't like the profligate spending in some countries and we didn't think it would work. We were right. You were wrong.
That might seem a bit stingy, but it is like having a divorcing couple living next door. I can put up with the flaming rows and crashing of saucepans in the middle of the night. That's life. It happens. But don't ask me to pay for the divorce settlement.

A city close to my heart

Not my home constituency, but a place of which I am fond, is the ancient city of Winchester, whose voters made one of the loudest statements about the conduct they expect form their MPs.

In the past they punished the antics of Conservative John Browne, who made an exhibition of himself and embarrassed his supporters by harrassing his American ex-(but very wealthy) wife through the courts to squeeze out a larger divorce settlement for himself.

Now it seems they have turned on the Lib Dems with a 9% swing (that's an 18% change in vote) from the Liberal Democrats to the Conservatives in the seat vacated by Mark Oaten. Sorry, I know that term doesn't sound right in the circumstances.

Still, hats off to the three time Lib Dem loser (Winchester, NW Hants & Ealing), not for his political activities, but because at one time he was a salesman for Proctor and Gamble in Austria. Anyone who can sell healthcare products in a German speaking country with a name like Martin Tod has my respect.

Lighten up Levin

I was going to post something earlier in the week about banker bashing at Goldman Sachs and how Carl levin seemed to be going over the top, but I had flu and I reckoned that it would just be read as an apology for bankers so I passed. However, since the Guardian is running something on similar lines, here goes.

The essence of Mr Levin's charges appears to be that Goldman made less than full disclosure about their own commercial position to customers when selling them assets, and furthermore that Goldman's held a different commercial view on the assets (which Mr levin thinks is wrong).

Both of these statements are of course tosh.

Goldman, or the creator/promoter of any other security, has always had an obligation to provide adequate information to potential purchasers of a security. They have an obligation to be diligent in the preparation of the information, to not mislead or withhold relevant information, but that is as far as it goes. They do not have to think the product is the best - the customer may well share their view. As ever, best advice in business is caveat emptor.

But the second point is more absurd. In business, there is always a difference of view between a buyer and a seller. A seller thinks the sellers are worth less than the cash price, and a buyer thinks they are worth more. That is why the deal goes through. If we all put the same value on every asset, nothing would ever be sold.

Wise up, Mr Levin.

I can solve the UK budget deficit at a stroke

How? Answer: go to the IMF for a bailout. The markets might still be open for UK sovereign debt, but the IMF would insist on the same terms as Greeece, which of course the UK would have to accept, even for a very small bailout:

• 2-3% increase in value-added tax
• Three-year public sector pay freeze; recruitment frozen
• 14% pay reduction for public sector workers; 5 per cent cut in allowances
• No renewals for short-term public sector contracts
• Closure of quangos
• Opening up of more than ‘closed-shop’ professions
• Raising average retirement age to 67 for men and women; cutting state corporation pensions.
• Privatisation: sales of state corporations; flotations on stock exchange; sale and leaseback of state assets

Simples.

Where do these bigots come from?

One can't help being disappointed with the British media once again over the minor spat between the prim minister and a 70 year old widow from Rochdale. Not that they shouldn't be concerned when elected politicians act spitefully towards members of the public, but because they missed the irony that he should call her a bigot simply because she enquired about the number of Eastern Europeans.

"bigot" is a very old word, and as far as we can tell it comes from the same French word, which the Parisians applied to the neighbouring Normans, implying that they were sanctimonious and stubborn bores. The Normans as we know had Scandinavian origins and were somewhat brutish fellows, so the epithet is hardly surprising, but where did it come from?

As any student of comparative linguistics will tell you, the consonants 'b' and 'v' are often interchangeable and as a result, it would not be a wild surmise that the "bigot" is in fact a contraction of the word "visigoth", a tribe whose sanctimonious boorishness far exceeded that of the most zealously partisan Norman.

It speaks volumes about today's media that Wapping's finest failed to spot that the Prime Minister had condemned Mrs Duffy as a member of a tribe that originated in North East Bulgaria in the 4th century AD.

Which didn't answer her question, but almost did.

Now there's a coincidence

Greece, home of the Olympic Games and cradle of European civilisation, has had its bonds rated as junk by Standard & Poor's. The Greek government needs to raise 9bn euros ($11.9bn; £7.7bn) by 19 May, but has said it cannot go to the markets because of "prohibitive" interest rates.

Which makes the position of the British government even more precarious, with a much higher deficit as a percentage of GDP, and a £170bn annual deficit to fund.

But the coincidence is that the British government is paying about 9bn to host the Olympics (not including the funding from other sources).

Obvious statements part94.

The next government will have to cut public sector pay, freeze benefits, slash jobs, abolish a range of welfare entitlements and take the axe to programmes such as school building and road maintenance – or make a set of equally politically perilous choices, according to an analysis by the Financial Times.

Wow, those chaps at the other pink paper don't miss a trick.

The government could also borrow its way to oblivion, devalue the currency until it is worthless or any other reckless ideas. The only way they could get away with it would be to reduce accountability through voting "reform".

Reasons to not vote Lib Dem

1. Because you believe in representative democracy, not some hypothetical "fair" allocation to a party based on the misplaced assumption that because you put up a candidate in every seat you deserve greater representation in Westminster.
2. Because the Lib Dems are living off the proceeds of crime (£2.4 million to be exact).
3. Because Nick Clegg's wife will not be voting for him. If she won't why should you?

Reasons to vote Lib Dem

Can't think of any, but feel free to add your own in the comments.

Think laterally - make a buck or two

European airlines are complaining that they can't make money withtheir planes grounded and should therefore be compensated for losing money while their staff are idle.

This should be resisted, but probably won't be. While Europe is covered in ash, those pilots could be usefully employed as emergency window cleaners. With 25 million houses in the UK alone at £20 a time, that is £500 million of revenue up for grabs.

New Taxes

Whoever gets into power will need to raise taxes. I am not in favour, but it is a likely necessity.

So if it happens, let us give credit where it is due and call it he Brown Overspend Tax or somthing like that.

Boat Race Result

Hugh Gaitskell, Tony Benn, Michael Foot, Melvyn Bragg, Jeremy Thorpe, Cardinal Newman, Peter Mandelson, Natasha Kaplinsky, Fiona Bruce, Tony Blair, Richard Dawkins. Can you hear me Richard Dawkins? Your boys took one hell of a beating! Your boys took one hell of a beating!'

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