By Philip Stephens of the FT
Published: December 1 2008 19:21
The police are out of control. So is the government. We can only conjecture as to what possessed the senior officers who raided the homes and parliamentary office of Damian Green, the Conservative immigration spokesman. Yet their disdain for political process spoke eloquently to the authoritarian culture of our times.
In this respect, regardless of whether ministers played a direct role in Mr Green’s arrest, the blame rests squarely with the government. The police must be held to account for their heavy-handed intimidation, but ministers nurtured the climate in which such madness flourishes.
The absurdities of the incident are self-evident. A score of officers from the Metropolitan police’s “special operations directorate” barged into Mr Green’s London and constituency homes, hauled him off to the cells and stripped his office of computers and files. The alleged offence? To have put into the public domain leaked information that embarrassed Jacqui Smith, the home secretary.
There is not a hint here of any breach of national security. Mr Green exposed the incompetence that has long described the conduct of affairs at the home office. The official alleged to have leaked the information has already been arrested.
It is all but impossible to imagine a jury convicting Mr Green. Disseminating leaked information has been embedded in the custom of politics since time immemorial. Rightly so, given the stiflingly secretive British state. When he was in opposition, Gordon Brown used to boast of his skilful exploitation of such material. Can we expect the “special operations directorate” to be hammering next on the door of Number 10 to seize Mr Brown’s BlackBerry?
Mr Green was arrested under a part of the common law that proscribes “misconduct in a public office”. The police say (off the record, of course) that the MP was not a passive recipient of documents, but conspired with the official. They hint they have evidence enough to charge Mr Green.
We shall see. The purpose of this 18th-century law is to deal with corrupt public officials including, dare one say it, police officers. To deploy it in this fashion against elected members of parliament is to show, at very best, blithe ignorance of the democratic process. MPs are not above the law, but the police have no place in politics.
We have been here before. During the final year of Tony Blair’s premiership, a team of officers conducted a long, expensive and fruitless inquiry into allegations that the then prime minister had sold peerages in return for party donations. Once again the staged drama – dawn raids and off-the-record smearing of those under investigation – was in inverse proportion to the possibility of any prosecution.
Needless to say, no one was ever brought before a court. But it seems the police are still ready to trample over the line that separates legitimate investigation from the, albeit sometimes grubby, practice of politics.
You could say, though, that Mr Blair should not have been surprised. If the police think they can discard due process, they have been taking their cue from the government.
For more than a decade, first Mr Blair, and latterly Mr Brown, have rolled forward the boundaries of the state at the expense of civil liberties. The consistent opposition of the Liberal Democrats and, latterly, even of the Conservatives to this insouciant disregard for ancient freedoms has been brushed aside as the hand-wringing of feeble liberals.
Some measures have been explicable and justifiable in the face of the threat from violent Islamist extremists. The first duty of any government is to guard the security of its citizens. I have more sympathy than many with the view that the intelligence agencies and the police must be given sufficient means to thwart the terrorists.
But the powers of the state have advanced well beyond that. The present government sees no distinction between the rule of law and whatever piece of legislation it can force through parliament.
In the criminal justice system, the fragile balance between the rights of police, prosecutors and accused has been overturned. The presumption of innocence is scorned. Successive home secretaries, including Ms Smith, have mouthed the mantra that the police are always right.
Ministers have likewise greatly extended the state’s surveillance of law-abiding citizens. The pretence that it is all about al-Qaeda has been exploded by widespread use of anti-terrorism laws by local authorities and other public bodies. Parents suspected of “gaming” school admission systems have become the victims of elaborate surveillance operations by local councils. Almost anyone and everyone in public authority can now call up private telephone and e-mail records. We must suppose they will have equal access to the government’s Orwellian National Identity Register.
Little wonder the police seem to think they can abuse their power. The senior ranks of the Metropolitan police are overdue a serious clear-out. No one should be in any doubt, though, that the real culprit is the government.
More columns at www.ft.com/philipstephens
philip.stephens@ft.com
Wednesday, 3 December 2008
Monday, 24 November 2008
Western Banking Sells Out?
Barclays faces vote on £7bn stake sale
By Jane Croft and Kate Burgess of the FT
Published: November 23 2008 23:59 | Last updated: November 23 2008 23:59
Investors will today confront Barclays executives at a potentially stormy meeting called to approve a controversial £7bn capital raising that will result in Middle Eastern investors controlling about a third of the bank.
Barclays is holding an extraordinary meeting in London at which it hopes to gain approval to raise capital from the Qatar Investment Authority and Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family.
However, the encounter promises to be one of the most contentious votes of the year because existing investors are furious that the bank did not observe pre-emption rights to allow them to participate in the capital raising and offered preferential terms to the two Gulf investors.
In addition, Barclays has faced mounting criticism that it is paying more for its capital infusion than if it had accepted help from the UK government to raise the money. The government, which is helping recapitalise banks including RBS and Lloyds TSB, has insisted that its involvement comes with strings attached such as limits on executive pay and bonuses.
Full article at the FT
By Jane Croft and Kate Burgess of the FT
Published: November 23 2008 23:59 | Last updated: November 23 2008 23:59
Investors will today confront Barclays executives at a potentially stormy meeting called to approve a controversial £7bn capital raising that will result in Middle Eastern investors controlling about a third of the bank.
Barclays is holding an extraordinary meeting in London at which it hopes to gain approval to raise capital from the Qatar Investment Authority and Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family.
However, the encounter promises to be one of the most contentious votes of the year because existing investors are furious that the bank did not observe pre-emption rights to allow them to participate in the capital raising and offered preferential terms to the two Gulf investors.
In addition, Barclays has faced mounting criticism that it is paying more for its capital infusion than if it had accepted help from the UK government to raise the money. The government, which is helping recapitalise banks including RBS and Lloyds TSB, has insisted that its involvement comes with strings attached such as limits on executive pay and bonuses.
Full article at the FT
Shopping Beats Working?
In case you hadn’t noticed, Chancellor Alistair Darling’s giving a bit of a speech this afternoon.
He’ll be laying out the Government’s plans for saving the economy from an even worse recession than it’s already facing.
It’s quite a clever way to sell it. Regardless of how bad things get in the future, you can always say: “Well, it would have been even worse had it not been for the quick-thinking actions of the dynamic Brown Government.” That’ll be the spin anyway.
But can the pre-Budget Report really make much difference to our economic plight? Of course it can. It can make things a lot worse…
This government encourages shopping and discourages working
The main thrust of the pre-Budget Report seems likely to be a 2.5 percentage point cut in VAT, which will fall to 15%. There’s plenty of other stuff being mulled over by the papers, and no doubt a few nasty surprises as well. But we’ll find out what he’s really got in store for us in a few hours, so no point running through all the eventualities here.
Let’s just focus on this VAT cut. I’m not going to complain about tax cuts. Lord knows, we’ve seen too few of them in the past decade. But it’s interesting to have a look at the thought process behind what’s being done here.
VAT is a tax on consumption. As taxes go, it’s not the worst one. It treats everyone equally and fairly - you pay according to the quantity of resources you consume. You could even describe it as a green tax.
Income tax, on the other hand, is a tax on production. The harder you work, the more you earn. The more you earn, the more the state takes out of your pay packet. And oddly enough, this effect is felt most strongly among the least-well off in British society. Because of the way the ridiculous tax credits system works, certain workers face a marginal tax rate of 70% once they earn above a certain amount. In other words, there’s a point at which they only end up getting an extra 30p for every £1-worth of work they do. For an apparently dour Presbyterian, Mr Brown sure doesn’t believe in encouraging the work ethic.
So effectively, the Government heavily favours consumers over producers. And the pre-Budget Report makes this very clear. Because it’s tomorrow’s producers who will pay for today’s consumer boost. According to The Daily Telegraph this morning, Labour plans to introduce a 45% tax rate on those earning above £150,000 after the next election.
Yet Britain’s big problem is that we’ve been doing too much consuming and not enough producing. How does encouraging more consumption, and discouraging production, help us get any further forward? The answer is simple enough. It doesn’t.
A recession is nature’s way of telling you that your economy is heading down the wrong path. A depression is nature’s way of saying the same thing – only a lot louder.
Britain needs a new set of economic props
As a nation, we’ve become too dependent on three things, all of which have been fuelled by the credit bubble. First there’s the financial sector. The finance sector is meant to allocate capital efficiently. It gets money from the people who have it, to the people who need it, with a minimum of fuss. That’s the nature of the value that it adds to the economy. But it’s not performed that role anywhere near as efficiently as we’d like to pretend. Were all those new-build buy-to-let properties an efficient use of capital? No, I don’t think so either.
The financial system’s ability to allocate capital efficiently has been badly undermined by central banks making it much harder to gauge risk clearly – more on that in the future. In any case, the end of the credit bubble also spells the end for the consumption bubble.
People used easy money and grossly inflated house prices to boost their consumption of everything from household furniture to shoes to computer games. That in turn meant more jobs in the services sector. But now that economic prop is being kicked away too.
The third prop has been rampant government spending. Fuelled by cheap borrowing and extremely healthy tax revenues, the government has splashed our money all over the public sector. But it’s not been spent on useful jobs, but on increasing the range of administrative and management roles in health, policing and education.
What will replace finance as our 'specialism'?
What can we do about all this? We need to consider what will replace the financial sector as our ‘specialism’. If we want to maintain a developed world standard of living, we need to contribute something to the global economy that can sustainably generate high-paying jobs. That means we need to have well-educated, skilled employees. But given the Government’s propensity to view any institution that promotes academic excellence with suspicion and hostility, the chances of turning around our education system any time soon is a major challenge.
And right now, this is a debate for another day, argues the “something must be done!” brigade. So will the VAT cut be effective? Well, it’ll make goods in the shops cheaper. But then, so will deflation. Shops are already slashing prices ahead of what they fear will be a miserable Christmas. And consumers are – rightly - already in ‘cut-back’ mode. It’ll take a lot more than a couple of percentage points off prices to make them blow their budgets this year.
So Mr Darling will have to have a lot more in his box of tricks if he wants to make a dent in this recession. We’ll find out soon enough – and give you the reaction on the MoneyWeek website later this afternoon.
Big Thank you to John Stepek
He’ll be laying out the Government’s plans for saving the economy from an even worse recession than it’s already facing.
It’s quite a clever way to sell it. Regardless of how bad things get in the future, you can always say: “Well, it would have been even worse had it not been for the quick-thinking actions of the dynamic Brown Government.” That’ll be the spin anyway.
But can the pre-Budget Report really make much difference to our economic plight? Of course it can. It can make things a lot worse…
This government encourages shopping and discourages working
The main thrust of the pre-Budget Report seems likely to be a 2.5 percentage point cut in VAT, which will fall to 15%. There’s plenty of other stuff being mulled over by the papers, and no doubt a few nasty surprises as well. But we’ll find out what he’s really got in store for us in a few hours, so no point running through all the eventualities here.
Let’s just focus on this VAT cut. I’m not going to complain about tax cuts. Lord knows, we’ve seen too few of them in the past decade. But it’s interesting to have a look at the thought process behind what’s being done here.
VAT is a tax on consumption. As taxes go, it’s not the worst one. It treats everyone equally and fairly - you pay according to the quantity of resources you consume. You could even describe it as a green tax.
Income tax, on the other hand, is a tax on production. The harder you work, the more you earn. The more you earn, the more the state takes out of your pay packet. And oddly enough, this effect is felt most strongly among the least-well off in British society. Because of the way the ridiculous tax credits system works, certain workers face a marginal tax rate of 70% once they earn above a certain amount. In other words, there’s a point at which they only end up getting an extra 30p for every £1-worth of work they do. For an apparently dour Presbyterian, Mr Brown sure doesn’t believe in encouraging the work ethic.
So effectively, the Government heavily favours consumers over producers. And the pre-Budget Report makes this very clear. Because it’s tomorrow’s producers who will pay for today’s consumer boost. According to The Daily Telegraph this morning, Labour plans to introduce a 45% tax rate on those earning above £150,000 after the next election.
Yet Britain’s big problem is that we’ve been doing too much consuming and not enough producing. How does encouraging more consumption, and discouraging production, help us get any further forward? The answer is simple enough. It doesn’t.
A recession is nature’s way of telling you that your economy is heading down the wrong path. A depression is nature’s way of saying the same thing – only a lot louder.
Britain needs a new set of economic props
As a nation, we’ve become too dependent on three things, all of which have been fuelled by the credit bubble. First there’s the financial sector. The finance sector is meant to allocate capital efficiently. It gets money from the people who have it, to the people who need it, with a minimum of fuss. That’s the nature of the value that it adds to the economy. But it’s not performed that role anywhere near as efficiently as we’d like to pretend. Were all those new-build buy-to-let properties an efficient use of capital? No, I don’t think so either.
The financial system’s ability to allocate capital efficiently has been badly undermined by central banks making it much harder to gauge risk clearly – more on that in the future. In any case, the end of the credit bubble also spells the end for the consumption bubble.
People used easy money and grossly inflated house prices to boost their consumption of everything from household furniture to shoes to computer games. That in turn meant more jobs in the services sector. But now that economic prop is being kicked away too.
The third prop has been rampant government spending. Fuelled by cheap borrowing and extremely healthy tax revenues, the government has splashed our money all over the public sector. But it’s not been spent on useful jobs, but on increasing the range of administrative and management roles in health, policing and education.
What will replace finance as our 'specialism'?
What can we do about all this? We need to consider what will replace the financial sector as our ‘specialism’. If we want to maintain a developed world standard of living, we need to contribute something to the global economy that can sustainably generate high-paying jobs. That means we need to have well-educated, skilled employees. But given the Government’s propensity to view any institution that promotes academic excellence with suspicion and hostility, the chances of turning around our education system any time soon is a major challenge.
And right now, this is a debate for another day, argues the “something must be done!” brigade. So will the VAT cut be effective? Well, it’ll make goods in the shops cheaper. But then, so will deflation. Shops are already slashing prices ahead of what they fear will be a miserable Christmas. And consumers are – rightly - already in ‘cut-back’ mode. It’ll take a lot more than a couple of percentage points off prices to make them blow their budgets this year.
So Mr Darling will have to have a lot more in his box of tricks if he wants to make a dent in this recession. We’ll find out soon enough – and give you the reaction on the MoneyWeek website later this afternoon.
Big Thank you to John Stepek
Friday, 14 November 2008
Lower Interst Rates and Recession - Time for Gold
In its quarterly Inflation Report, the Bank forecast that national income could shrink by one to two percentage points over the next few quarters and growth would probably be flat by the end of next year. Consumer price inflation, which at its last reading registered an annualised rate of 5.2 per cent, will fall to its target rate of 2 per cent by the middle of 2009.
In remarks at a press briefing Mervyn King, Bank of England governor, said interest rates could fall much lower than their current 3 per cent and declined to rule out cutting rates to zero.
“We are certainly prepared to cut Bank rates again if that proves necessary,” Mr King said.
The Enemy of the State - You and Me!
Great article in Money Week
Governments love capitalism. As long as asset prices are rising, that is.
When prices are rising, governments will do anything to keep them up there. You want free money? We’ll keep interest rates low. You want light-touch regulation? We’ll give you off-balance sheet finance.
The deal between banks and governments in the past decade or so has been simple. “You lot keep the voters happy and feeling rich,” says the government. “And we’ll give you a nice cosy, risk-free world to play in.” Of course, capitalism without risk, is not capitalism at all. What we’ve had is sugar-daddy socialism, with the financial industry frolicking freely, safe in the knowledge that there’s always a bail-out around the corner.
But you can’t buck the market forever. And even though there have been plenty of bail-outs, prices just keep on falling. Yet governments don’t seem to learn…
Chaos in emerging markets
Yesterday I pointed out how Hank Paulson’s U-turn on the Tarp highlighted the dangers of government interference in the markets (to read about this click here: The pound has nowhere to go but down) . But you can get a much clearer idea of how the state can make a bad situation worse by looking at the havoc in emerging markets.
Like Western investors, investors in emerging markets came to believe that asset prices could only ever go up. And so when they fall, they start looking around for someone to blame.
That’s why Kuwait’s stock market (which has fallen by more than 40% since late June) was shut down yesterday. According to The Telegraph, an investor had filed a claim “over the heavy losses he had suffered on the exchange.” So the court stopped it from trading until Monday, finding that “the bourse management failed to take any measures to boost a flagging market.”
I imagine that the management didn’t realise that this was part of their remit, any more than the owner of a fruit and veg stall’s pitch would expect to have to keep the price of apples high.
The dangers of too much government intervention
But the plight of Russia probably demonstrates best the dangers of too much government intervention. The Russian Micex market has been the worst performing in the second half of this year so far, reports The Telegraph. Stocks have fallen by 75% since May.
A key problem for Russia is that it is massively dependent on oil. Its 2009 budget only balances if oil is trading at an average $95 a barrel. I can’t see that happening. So its markets, and the rouble, have come under pressure with falling oil prices. And of course, as an emerging market, it has taken a hit as investors pull their money out and repatriate it to the “safe haven” of the US.
But the state’s attempts to prevent the crisis with brute force, have only made things worse. The central bank has already had to spend $120bn of its reserves on defending the rouble, which analysts reckon is now 30% over-valued. This is just a waste of money. When a country, particularly a politically risky country like Russia, starts defending its currency, it’s a sure sign to the market that said currency is over-valued. No central bank in the world has enough reserves to defend against a forex market set on helping a currency to find its “real” worth.
Let's hope our governments learn to accept falling prices
The state is also making the stock market plunge worse than it has to be. They keep shutting the market because it keeps falling so hard. But a big part of the reason that it keeps falling so hard is because every time they open it, investors think “Quick! Let’s sell before they shut it again!”
If you limit the trading that can be done, you increase the liquidity risk. Anyone who is scared they might need cash at short notice, isn’t going to be happy to hold stocks that can only be easily traded as and when the government says it’s OK to do so.
All these measures rattle investor confidence further, and make it even harder to price genuine risk. At some point, most assets of any real value at all will reach a price at which fundamentals suggest they are worth buying. But if you have to worry about the government’s random reactions to such falls as well, it becomes impossible to make any kind of judgement based on these fundamentals.
So we’d better get used to falling prices – and let’s hope our governments learn to accept them as well.
Governments love capitalism. As long as asset prices are rising, that is.
When prices are rising, governments will do anything to keep them up there. You want free money? We’ll keep interest rates low. You want light-touch regulation? We’ll give you off-balance sheet finance.
The deal between banks and governments in the past decade or so has been simple. “You lot keep the voters happy and feeling rich,” says the government. “And we’ll give you a nice cosy, risk-free world to play in.” Of course, capitalism without risk, is not capitalism at all. What we’ve had is sugar-daddy socialism, with the financial industry frolicking freely, safe in the knowledge that there’s always a bail-out around the corner.
But you can’t buck the market forever. And even though there have been plenty of bail-outs, prices just keep on falling. Yet governments don’t seem to learn…
Chaos in emerging markets
Yesterday I pointed out how Hank Paulson’s U-turn on the Tarp highlighted the dangers of government interference in the markets (to read about this click here: The pound has nowhere to go but down) . But you can get a much clearer idea of how the state can make a bad situation worse by looking at the havoc in emerging markets.
Like Western investors, investors in emerging markets came to believe that asset prices could only ever go up. And so when they fall, they start looking around for someone to blame.
That’s why Kuwait’s stock market (which has fallen by more than 40% since late June) was shut down yesterday. According to The Telegraph, an investor had filed a claim “over the heavy losses he had suffered on the exchange.” So the court stopped it from trading until Monday, finding that “the bourse management failed to take any measures to boost a flagging market.”
I imagine that the management didn’t realise that this was part of their remit, any more than the owner of a fruit and veg stall’s pitch would expect to have to keep the price of apples high.
The dangers of too much government intervention
But the plight of Russia probably demonstrates best the dangers of too much government intervention. The Russian Micex market has been the worst performing in the second half of this year so far, reports The Telegraph. Stocks have fallen by 75% since May.
A key problem for Russia is that it is massively dependent on oil. Its 2009 budget only balances if oil is trading at an average $95 a barrel. I can’t see that happening. So its markets, and the rouble, have come under pressure with falling oil prices. And of course, as an emerging market, it has taken a hit as investors pull their money out and repatriate it to the “safe haven” of the US.
But the state’s attempts to prevent the crisis with brute force, have only made things worse. The central bank has already had to spend $120bn of its reserves on defending the rouble, which analysts reckon is now 30% over-valued. This is just a waste of money. When a country, particularly a politically risky country like Russia, starts defending its currency, it’s a sure sign to the market that said currency is over-valued. No central bank in the world has enough reserves to defend against a forex market set on helping a currency to find its “real” worth.
Let's hope our governments learn to accept falling prices
The state is also making the stock market plunge worse than it has to be. They keep shutting the market because it keeps falling so hard. But a big part of the reason that it keeps falling so hard is because every time they open it, investors think “Quick! Let’s sell before they shut it again!”
If you limit the trading that can be done, you increase the liquidity risk. Anyone who is scared they might need cash at short notice, isn’t going to be happy to hold stocks that can only be easily traded as and when the government says it’s OK to do so.
All these measures rattle investor confidence further, and make it even harder to price genuine risk. At some point, most assets of any real value at all will reach a price at which fundamentals suggest they are worth buying. But if you have to worry about the government’s random reactions to such falls as well, it becomes impossible to make any kind of judgement based on these fundamentals.
So we’d better get used to falling prices – and let’s hope our governments learn to accept them as well.
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