Thursday, October 22, 2009

Don't separate the Banks

The Gov'nor of the Bank of England called for Retail Banks to be separated from Investment Banks. George Osborne said he agrees with much of the speech. Brown and Darling have politely disagreed. I don't know enough to make an informed opinion, but in general I think Darling has called it right on most of the big questions on the Credit Crunch. Darling wants Banks to draw up Living Wills instead and so does this guy, Alister Heath:

'ALLISTER HEATH
WHEN the Governor of the Bank of England – and if the Tories are elected, the next chief financial regulator – calls for investment banks to be separated from retail banks, everybody should sit up and listen carefully. King seems deadly serious, and George Osborne said last night that he agreed with much of the speech. While that doesn’t commit the Tories to introducing a UK version of the Glass-Steagall Act, the US law that separated investment banking (such as proprietary trading) from retail and commercial banking, it certainly reopens a nasty can of worms.

On balance, however, King is wrong. There is no real evidence that any fewer UK banks would have gone bust had this separation been in place. It was not proprietary trading that brought down HBOS, it was bad lending to commercial property. Northern Rock, Bradford and Bingley and the Dunfermline did not own investment banks. RBS was brought to its knees as a result of a multitude of bad lending decisions, the over-priced takeover of ABN Amro and vast holdings of dodgy “assets”; its collapse was not caused by a giant investment banking bet gone wrong. In the US, it is likely that Citigroup would have required a bailout even had it not owned an investment bank. Generally, the same is true of all of virtually all the recipients of Tarp funds.

The very distinction between “casino” and “utility” banking, while theoretically meaningful, is nonsensical in practice. The most dangerous banking activities are lending against property, a utility function; the financial system was destroyed by undercapitalised banks holding property-based assets such as CDOs which subsequently collapsed in value together with the housing market. That had nothing to do with proprietary trading, which is less systemically risky than old-fashioned lending.

In fact, Glass-Steagall has been shown to be worse than useless by academics including Eugene White of Rutgers, Randall Kroszner and Raghuram Rajan of Chicago, and Carlos Ramirez and Alex Tabarrok of George Mason. Unified banking is safer and less prone to collapse than artificially segmented institutions.

I strongly recommend to readers who think that King is right to read a powerful tome by George J Benston of the University of Georgia. It is a bit of a mouthful, but The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered demonstrates that commercial banks involved in security markets did not fail in large numbers or cause the 1930s crisis. Tabarrock, meanwhile, argues that Glass-Steagall was the product of an attempt by the Rockefellers to raise the costs of their rivals, the House of Morgan.

There must be no more bailouts. Banks of all kinds that become insolvent should be allowed to go bust in a controlled, gentle manner that doesn’t endanger the economy or take decades to unravel (depositors could still be insured, but that is a separate question). We need new resolution procedures and living wills; meanwhile, banks need to hold much greater amounts of liquid capital and central bankers mustn’t stoke any more bubbles with excessively low interest rates. But we shouldn’t force universal banks such as HSBC, Barclays or JP Morgan to break themselves up. Doing so may even make the system more, rather than less, prone to failure.'


link here

Oliver Kamm knocks some sense into Gary Younge

Oliver Kamm swats some nonsense from Gary Younge (also, in passing, Kamm dismisses as equal drivel Islamic conspiracy theories indulged in by Phillips, Steyn and Pipes, all of whose articles feature regularly on this site).

""Jack Straw started it all"

In The Guardian Gary Younge blames Jack Straw for the BNP. How so?

"New Labour's race-baiting rhetoric gave the state's imprimatur to the notion that Britain's racial problems were not caused by racism but the existence of non-white, non-Christian and non-British people."

What race-baiting rhetoric would that be?

"Three years ago this month Jack Straw argued his case for urging Muslim women who attend his MP's surgery to remove their niqab."

Where do you start with this risible piece of demagoguery? I'm pro-immigration; the claims of such figures as Geert Wilders about a Muslim takeover of Europe, or "Eurabia", are unadulterated alarmism and inflammatory nonsense. But the notion that Straw's request (not "urging") to Muslim women is the soft end of "race-baiting" is no less ignorant. To request, or even (as I would) to insist, that religious symbols play no part in public life is a constitutional principle, not a racist act."


Link here

Tuesday, October 20, 2009

Oliver Kamm - 'Ostalgie'

Oliver Kamm is an infuriating but must-read writer. An unrepentant Blairite, ex investment banker and very pro EU. There's lots I disagree with, but he's smart and argues his case very rigorously.

Here he is taking a swipe at the Daily Mail. Extraordinarily and counterintuitively the Daily Mail carries an article looking back with nostalgia at life in Communist Hungary.

"If the Mail titles ever ceased publication, I should be sorry on more grounds than merely the loss of press diversity. I find it useful that a single stable should encompass so many things I deride or despise: economically illiterate anti-Europeanism; social authoritarianism; mean-spirited, sneering hostility to homosexuals; crank conspiracy theories; support for Intelligent Design; utterly bogus, unfounded scaremongering about evidence-based medical science; and so many others.

But this is a new one on me. The Mail on Sunday carries an extraordinary article entitled "Oppressive and grey? No, growing up under Nazism was the happiest time of my life" by Susanne Clark. According to Mrs Clark, a state that is typically portrayed in western media as an unrelenting tyranny was more of a rural idyll - all in all, "rather a fun place to live". She says:

"Some of my earliest memories of living at home are of the animals my parents kept on their smallholding. Rearing animals was something most people did, as well as growing vegetables. Outside Berlin and the big towns, we were a nation of Tom and Barbara Goods.

"My parents had about 50 chickens, pigs, rabbits, ducks, pigeons and geese. We kept the animals not just to feed our family but also to sell meat to our friends. We used the goose feathers to make pillows and duvets."


Mrs Clark is especially interesting in her account of membership of the Hitler Youth:

"Many in the West believed it was a crude attempt to indoctrinate the young with Nazi ideology, but being a German Maiden taught us valuable life skills such as building friendships and the importance of working for the benefit of the community. 'Together for each other' was our slogan, and that was how we were encouraged to think.

"As a German Maiden, if you performed well in your studies, communal work and school competitions, you were rewarded with a trip to a summer camp. I went every year because I took part in almost all the school activities: competitions, gymnastics, athletics, choir, shooting, literature and library work.

"On our last night at the Bund Deutscher Mädel camp we sang songs around the bonfire, such as the Hitler Youth anthem, the Fahnenlied, and other traditional songs. Our feelings were always mixed: sad at the prospect of leaving, but happy at the thought of seeing our families again. Today, even those who do not consider themselves Nazis look back at their days in the Hitler Youth with great affection."

You think I'm making this up? Well, I've changed one or two words. The author's name is Zsuzsanna, not Susanne, Clark. And instead of Nazi Germany she is writing of Communist Hungary. She was a member not of the Hitler Youth but of the Young Pioneers, where she sang about squirrels rather than banners. Excepting the reference to Berlin, everything else is as she has written it.

But my analogy is fair. The totalitarian oppression of Eastern Europe after WWII was a difference of tempo, not of type, from Nazi Germany. Mrs Clark has what I suppose we should gratefully take as the fearless free spirit to acknowledge that "Communism in Hungary had its downside", but "despite this, I believe that, taken as a whole, the positives outweighed the negatives". So let's look at some of the negatives.

The regime of János Kádár in Hungary came to be seen in the West as more liberal than the other Soviet satellite states. This was true (and even then only partially so) only in economics, not in politics. The regime was founded in terror. After the crushing of the Hungarian Uprising in 1956, Kádár was installed as party chief not by the people but by the Soviet Union. He immediately became known as Hungary's Quisling.

Kádár pledged not to arrest the deposed leader Imre Nagy, who had taken refuge in the Yugoslav embassy. Tragically, Nagy believed him. Nagy decided not to seek asylum but emerged, and of course was promptly arrested. Nagy and his comrades were imprisoned in Romania for 18 months, before being sent back to Hungary in June 1958. They were given a secret trial. The inevitable verdict was guilty; the inevitable sentence was death. Nagy was buried in an unmarked grave. Many of his compatriots shared a similar fate. The regime's own figures put the number of political executions at 2,000. The true figure was many times this. Thousands were incarcerated or exiled, or simply removed from public life. Scores of thousands were deported to the Soviet Union and disappeared. Kádár broke Hungary's political life. Hungary became a state without politics.

I heard about some of this at the same time as, I guess, Mrs Clark was undergoing her healthy outdoor pursuits with the Pioneers. The Kádár terror provoked an exodus to the West. For no reason I ever understood, many Hungarians settled in Leicester, where I grew up. I got to know one of these freedom fighters, Péter Mandoki. After settling in Leicester, he had met and married a local girl. Their daughter, Anna, became and has remained ever since one of my dearest friends. After the collapse of Communism, Anna learned Hungarian, travelled to the country to meet her lost family, and eventually settled in Budapest in 1991 where she worked as an accountant. I used to go to stay with her there or we'd meet in Prague. Even with my partial knowledge and limited experience of the culture, the sense of nations emerging from a stunted, tyrannised past was palpable.

A few years ago, Anna, now having emigrated to Melbourne, sought out the equivalents of her father: Hungarian émigrés who had fled to Australia after the 1956 uprising. She interviewed them for a book that she later published. There is a passage in which one of her interviewees describes the games of a young boy of that time, playing with his toy soldiers. The soldiers in best condition are (if you can imagine it) UN forces, and those in the ugliest condition are Soviet troops. "Itt vannak ENSZek!" cries the boy: "The UN troops are here!"

But of course the UN troops were not there. They never came. Those who hoped in vain for the UN's arrival, however, can now find in the Mail on Sunday the gratuitous insult from Mrs Clark that theirs are "the perspectives of wealthy emigrés or anti-communist dissidents with an axe to grind". It seems redundant, so I hope it will not appear ungracious, to add that Mrs Clark, who has been hawking her experiences in the Young Pioneers for some years, is an awesomely silly woman to whom history has never happened."

Tuesday, October 13, 2009

Guardian gagged from reporting parliament

Scary stuff. The colleague who brought this to my attention thinks, via Guido Fawkes' blog, that it may pertain to Trafigura.

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Guardian gagged from reporting parliament
Guardian
12 October 2009

The Guardian has been prevented from reporting parliamentary proceedings on legal grounds which appear to call into question privileges guaranteeing free speech established under the 1688 Bill of Rights.

Today's published Commons order papers contain a question to be answered by a minister later this week. The Guardian is prevented from identifying the MP who has asked the question, what the question is, which minister might answer it, or where the question is to be found.

The Guardian is also forbidden from telling its readers why the paper is prevented – for the first time in memory – from reporting parliament. Legal obstacles, which cannot be identified, involve proceedings, which cannot be mentioned, on behalf of a client who must remain secret.

The only fact the Guardian can report is that the case involves the London solicitors Carter-Ruck, who specialise in suing the media for clients, who include individuals or global corporations.

The Guardian has vowed urgently to go to court to overturn the gag on its reporting. The editor, Alan Rusbridger, said: "The media laws in this country increasingly place newspapers in a Kafkaesque world in which we cannot tell the public anything about information which is being suppressed, nor the proceedings which suppress it. It is doubly menacing when those restraints include the reporting of parliament itself."

The media lawyer Geoffrey Robertson QC said Lord Denning ruled in the 1970s that "whatever comments are made in parliament" can be reported in newspapers without fear of contempt.

He said: "Four rebel MPs asked questions giving the identity of 'Colonel B', granted anonymity by a judge on grounds of 'national security'. The DPP threatened the press might be prosecuted for contempt, but most published."

The right to report parliament was the subject of many struggles in the 18th century, with the MP and journalist John Wilkes fighting every authority – up to the king – over the right to keep the public informed. After Wilkes's battle, wrote the historian Robert Hargreaves, "it gradually became accepted that the public had a constitutional right to know what their elected representatives were up to".