Tuesday, 12 May 2009

MP's expenses

See my God and Stuff Blog for some thoughts on MP's expenses.

I am going to try and claim for having a moat installed around my house. Then to have it cleaned. Well, it's not against the rules?!

Thursday, 30 April 2009

50% Tax rate for the super rich

Well this has caused a stir hasn't it. The Daily Tory was awash with its usual nonsense. Can anyone spot the problem with their logic

1) it won't raise any more money for the treasury because the super rich will find ways to avoid paying it
2) the super rich will be so upset at having to pay an extra 5% on their income over £150,000 that they will move to Afghanistan instead. They would rather live in a war zone than pay 5% more tax on income over £150,000.

Is that a camel over there?

Wednesday, 11 February 2009

Banks must take risks

In my blog on the 17th October 2008 i wrote that in a free market banks have no choice but to take big risks in order to make big profits, so long as other banks are doing the same.

I said that any bank that failed to take that route, that opted for a more cautious approach would most likely get taken over as profits would fall in comparison with other risk taking banks, resulting in a lower share price and so on.

Today we have the breaking story that something similar thing did actually occur in HBOS. Mr Moor who was the head of regulatory risk at HBOS from 2002 to 2005 was allegedly sacked by the chief executive of the bank for predicting that the reckless lending of the banks would end in disaster and that a less riskier approach was prudent.

The lone voice of reason was shouted down in the scramble to grow assets at any cost.

In an unregulated free market economy banks could not risk being left behind so had to gamble, and anyone who suggested otherwise, well..

Check out the full story here.


Monday, 9 February 2009

Lily Allen - the Fear

And I am a weapon of massive consumption,
and its not my fault it’s how I’m programmed to function."

The Good Consumer video

Friday, 17 October 2008

Need for Regulation

I read an interesting article this week that explained why there is a desperate need for external regulation of the market and why the market is not able to regulate itself.

The role of a bank is simple. To make profit for its shareholders. It has no obligation to its staff (they are a factor of production and a means to an end), or the wider community. It has one sole aim, to make a profit. This is basic free market economics. So, the bank sets about its business to do just that. And, if other banks around it are taking big risks, but in return making big profits, it will have no choice but to do the same. If it chooses to take a less risky position, it will make less profit that its rivals, its share price will fall and it will be liable to a take over. Again, this is basic free market stuff.

But thinking back a year to the sub prime mortgage market problems - it is pretty clear that the banks knew trouble was brewing. But in isolation, none of them could have taken a lower risk high liquidity position. Market forces and this focus on profit maximisation meant they were forced to take a high risk high profit position. No CEO could have sold a different strategy – let’s increase our liquidity for the next 12 months chaps because things might go wrong - but it might mean getting taken over and losing our jobs if i am wrong.

So, even if banks knew problems were pretty likely, this need to make a profit, or risk falling share prices and a take over, meant that they had to keep reducing liquidity to keep increasing profit.

What does this all mean - well, it means that the idea of a free market working in our best interests - or rather the idea that if we have banks et al maximizing profits, it will automatically be good for the community - is utter rubbish.

How can energy firms maximising their profits be good for the community?

There needs to be regulation - and we are seeing some of this coming into effect. World governments buying into banks and giving new rules for how they are governed. In the UK we have seen government intervention to force energy and petrol prices down (would the market without pressure from our government have led to prices for unleaded falling below £1. I don't think so. Prices are always slow to come down and it took some pretty assert behind the scenes pressure to force them down.

Again, the markets are not able to work in our best interests.

So, we are seeing across the globe a move to more government regulation. And this is surely welcomed. And i hope that it leads to a more equitable economy. We will see.

Thursday, 9 October 2008

End to free market capitalism?

So, the UK has followed the US and bailed out the banks. Latest estimates are that it could cost £500 billion. This is on top of the £200 for Northern Rock and £50 billion for B & B. I make that £750 billion. That is a serious amount of cash. Over 1/3 of the GDP of the UK. That is pretty worrying.

But, we are told, our cash is safe and may even result in a profit! And, most importantly, there are strings attached and the top execs will have limits placed on pay and bonuses etc. What these will be in practice is not clear.

And, the banks will have to reform their practices, increase their liquidity, and thus stop taking such massive gambles leaving them exposed to a similar problem in the future. Gate, horse and bolt spring to mind, but never mind.

But, and this is where there is a glimmer of hope. The mood on the street seems to be increasingly anti free market. Obama is talking about a retreat from unregulated markets in the US, and there seems to be an appetite for regulation over here too. There seems to be a recognition that many of the assumptions about free market capitalism are wrong. Allowing unregulated competition doesn't result in trickle down wealth, it results in large profits for a few large companies.

For example, we are told that the price of our utilities has gone up because the price of wholesale gas has gone up. We can cope with that. But why have utility company profits jumped at the same time? The only explanation is that the price we pay has gone up by more than the price of wholesale gas. If not, their profits would remain unchanged. And without regulation, will the markets prevent such blatant profiteering. The answer is clearly no.

The same is true with the price of petrol. We all know that the price of fuel has fallen by far less than the cost of oil. Oil is back to what it was 9-12 months ago and we are still paying 20% more than we were a year ago. Without regulation, the market will not lead to reduced prices.

While a bail out of the banks may be necessary to prevent a total meltdown of the economy, unless it is accompanied by a new and brave world of increased government regulation to correct market failures - namely profiteering by the big boys - this will prove to be a wasted opportunity.

If this is indeed Mr Brown’s Falklands moment, I hope he is brave enough to do the right thing and once and for all reject unregulated free market capitalism.

We will wait and see.