Wednesday, 26 January 2011

The war on moral hazard begins at home

By John Kay in the FT

Published: January 25 2011 20:41 | Last updated: January 25 2011 20:41

Northern Rock was a narrow bank, with only retail customers, and Northern Rock failed; Lehman Brothers was a pure investment bank, but Lehman too failed. The issues in financial reform are to do with the behaviour of businesses, not the structure of their industry.
Wrong. The point of structural reform of the banking system is not to prevent banks from failing. Regulators have neither the technical competence nor political authority to achieve that objective. Nor, even if they had such competence and authority, would the outcome be desirable. The degree of supervision and control would undermine management responsibility. Regulators would need to be able to block Royal Bank of Scotland's takeover of ABN Amro, halt Northern Rock's expansion, and fire Dick Fuld and his associates from Lehman – and that just for starters. The banking system that would emerge would be like nationalisation, only not as fast-moving.

The purpose of structural reform is to allow financial institutions to fail without imposing large costs on taxpayers, retail customers and the global economy. The moral hazard problem is more subtle than sometimes suggested. Banks do not think: "We can afford to take big risks because the government will help if things go wrong." The downside of failure for senior executives and boards is large even if it is not as large as it should be.
But senior executives and boards can reasonably think: "We can afford to run large counterparty exposures because the government will help if things go wrong." Experience has shown that they will generally be right to think that. The transfer of wholesale market counterparty risk from the market to the taxpayer is the central issue. It distorts competition, allows excessive risk-taking and imposes wholly unacceptable burdens on the public. The most powerful mechanism for controlling risk-taking is prudential supervision, not by regulators, but by the market itself.

These are the issues that Sir John Vickers, the head of the UK's independent banking commission, highlighted in his speech last Saturday. Universal banks argue, correctly, that separation of their retail and wholesale activities would raise funding costs. The numbers cited – several billion a year for each large universal bank – are probably exaggerated but the impact is large. These figures measure the value to the financial system of the reduction in counterparty risk that financial conglomerates enjoy from access to a large retail deposit base and the expectation of government support. They indicate the scale of the subsidy that depositors and taxpayers provide to wholesale trading.

It is sometimes tempting to think that guarantees that are not called upon do not cost anything, although this mistake is not one that banks themselves make. Guarantees, implicit or explicit, mostly do not cost anything. But when they do cost something, what they cost is usually a lot. The implicit guarantors of Fannie Mae and AIG – US taxpayers – have discovered that. Irish – and German – taxpayers are beginning to learn the same lesson.

It is not possible for one country, even the US, to impose restructuring of the global financial system on its own, and not sensible to try. A business such as HSBC or Standard Chartered, which operates globally, can migrate if its lead regulator imposes burdensome requirements. But the mobility of capital, and even headquarters, does not prevent unilateral action to protect domestic depositors and national taxpayers. The first object is achieved by insisting that domestic depositors' funds are ring-fenced, the second by insisting that government does not underwrite the wholesale market obligations of banks located within its borders.

That might lead banks to shop around in search of accommodating jurisdictions willing to underwrite their global activities. Such banks would be the corporate equivalent of the benefit scrounger posing as asylum seeker, and are likely to receive the welcome that such migrants receive as individuals.

Thursday, 20 January 2011

The Guy in the Glass

 by Dale Wimbrow, (c) 1934

When you get what you want in your struggle for pelf,
And the world makes you King for a day,
Then go to the mirror and look at yourself,
And see what that guy has to say.
For it isn't your Father, or Mother, or Wife,
Who judgement upon you must pass.
The feller whose verdict counts most in your life
Is the guy staring back from the glass.
He's the feller to please, never mind all the rest,
For he's with you clear up to the end,
And you've passed your most dangerous, difficult test
If the guy in the glass is your friend.
You may be like Jack Horner and "chisel" a plum,
And think you're a wonderful guy,
But the man in the glass says you're only a bum
If you can't look him straight in the eye.
You can fool the whole world down the pathway of years,
And get pats on the back as you pass,
But your final reward will be heartaches and tears
If you've cheated the guy in the glass.

Monday, 17 January 2011

An undercover mission that involves sleeping with as many nubile green women as possible? Sign me up, says Nigel Farndale.


Mark Kennedy got one of the better undercover assignments

Mark Kennedy slept with a number of environmental protesters while undercover 
Was Mark Kennedy, the undercover policeman, told that part of his mission, should he choose to accept it, might include sleeping with as many nubile environmental protesters as possible? A tempting job spec, one might suppose. But how would that delicate subject be broached?
"Ah, come in, young Kennedy. Sit down, sit down. You are familiar, I presume, with the word 'infiltration'?"
Sorry, that came out all Stephen Fry – that sublimely unconvincing portrayal of a policeman in Gosford Park. I'm sure policemen don't talk like that, not even the ones pretending not to be policemen. Indeed, you can imagine how long Stephen Fry would last as an undercover policeman before the villains rumbled him, fired up their blowtorches and got medieval on his ass.
Can I say ass? It's a film reference, as you know. And "bottom" doesn't sound right. Neither does "buttocks". And now I'm talking about Stephen Fry's buttocks on the comment pages of The Sunday Telegraph and I'm not sure how to move on from it, or them.
It wasn't even the topic I was planning to write about. That would be the other undercover story, the one about the three actors who were paid by a local authority in north Wales to pretend to be drunk, as part of a police sting. Over nine nights they visited 49 pubs in order to find out which publicans, if any, would say: "Don't you think you've had enough, Sir?"
Now, on first hearing, this might sound nearly as good an assignment as being allowed to sleep with climate change protesters. But there would have been little scope for Stanislavskian method acting – preparing for the role with a cheeky half-bottle of crème de menthe before opening time, say – because the actors would have to report to their handlers at closing time. "Was I served in there? I'm sorry, ossifer, I have absolutely no recollection. But do you know what? Do. You. Know. What? I bloody love you."
So it seems the actors did indeed act drunk rather than actually get drunk; and apparently, only one publican out of 49 fell for their act. This despite a variety of "tactics", according to a report on the operation, which included "telling person serving them they were drunk", "slurred speech", "being dressed in dishevelled and stained clothing" and "falling over".
Herein may lie the problem. As Charlie Chaplin argued, the best way to act drunk is to imagine yourself a drunk man trying to act sober. It's an astute observation because there is a certain dignity about a drunken man: he feels his way with all the concentration and balance of a tightrope walker. He doesn't fall over, he corrects — the course correction of a 747 encountering mild turbulence.
As for the slurring, consider cinema's greatest drunk: Richard E Grant in Withnail and I. As he is allergic to alcohol, he was sober throughout – apart from one night when the director poured booze down his throat, just so he knew what it felt like. But what is remarkable about his performance is that he never slurs, though you are sure afterwards that he was doing so all the time. In the famous scene in Penrith Tea Rooms, he brings even more depth to the role by playing Withnail as a naturally rude man trying to be polite as he drunkenly requests "cake and fine wine".
This was where I suspect the actors in Wales went wrong: the bar staff had seen far too many genuine drunks trying hard not to slur their words to be taken in by sober, slurring, stumbling impostors.

Thursday, 13 January 2011

After the Chinese Mother, another instance of Americans spooked by the Chinese

 Nation of 'wusses' gets wake-up call
By Benjamin A Shobert

In the midst of a particularly cold, unusually blustery winter blizzard, Governor Ed Rendell (Democrat-Pennsylvania) decided to make a particularly interesting, unusually candid comment on local radio.

Obviously frustrated at the National Football League's decision to cancel a Philadelphia Eagles game due to weather, Rendell suggested this was part of America becoming a "nation of wusses". The reaction to this momentary lapse of honesty on the part of a modern politician was immediate and appeared to be the sort one remembers from sibling "you just crossed my side of the bedroom" fights, full of symbolism and short on substance.

Rendell's comments resonated with the American public in part because Rendell's stream of consciousness ably connected a canceled national football game to a shortage of national fortitude, and to why those pesky Chinese are beating the US at a game it invented - national economics.

One need not rely on inference to make the connection as the governor made the job fairly easy: "My biggest beef is that this is part of what's happened in this country. I think we've become wussies. The Chinese are kicking our butt in everything. If this was in China do you think the Chinese would have called off the game? People would have been marching down to the stadium, they would have walked and they would have been doing calculus on the way down."

While Rendell might pay a price come next election for this sort of atypical truth telling from a national political figure, his comments expressed in raw form what many Americans are beginning to wonder themselves: Are we in economic trouble partially because we've gone soft?

Asked more directly, the governor's assertion suggests that our economic doldrums are less because of other countries' comparative advantages through lower labor costs and rather because our global competitors work harder for longer, anticipate more setbacks and absorb more sacrifice than we are willing to accept in the US. Calling Americans "wusses" may be playground talk, but it has struck a nerve.

On more occasions that most of us would like to admit, Americans have sheepishly exited the bathroom having stood one moment too long at the faucet, waiting and wondering at why the water has not been triggered by the sensor only to realize that it is an "old-fashioned" manual sink, or sporting a bruised nose (and ego to match) at having walked into what one assumed was an automatically opening door.

True enough then Rendell: American living standards are hardly Spartan, and for most of the people, what constitutes struggle and sacrifice would be unrecognizable as such to Depression-era grandparents. It has only now begun to dawn on America and its leaders that the role of sacrifice, specifically the sort required to renew society, is poorly understood and even more poorly embraced.

This realization isn't where we started. In the 1990s, Americans believed economic gains from the country's innovation engine would outstrip economic losses, so much so that we comfortably unleashed a great good on the world - the wonders of free and unfettered trade - with little expectation that the swap might not be quite that simple.

But for most of the 1990s, the costs of this transaction went overlooked as cheap credit made Americans feel their standard of living was increasing when, in fact, they were barely treading water. Now overwhelmed by the consequences of this exchange, we are acutely aware that we spent too much of the 1990s focused on using that credit for consumption instead of investment. And, to Rendell's point, money spent on consumption rarely hardens the soul or stiffens the spine.

This is perhaps why his hasty comment, said tongue-in-cheek but remarkable for its clarity, interjected itself so quickly into America's consciousness. Americans are beginning to come to grips with the idea that maybe our current struggle is more our own fault than we were willing to admit in the aftermath of 2008.

The villains of Beijing and Wall Street will always provide convenient fodder for those who want to be distracted, but Rendell's comments force an admittedly unpopular gaze inwards. His comments harbor a deeper truth, an acknowledgement that American politics - more than any canceled football game - reflect a national wussiness, a marked inability and unwillingness to make the difficult choices necessary to maintain a fiscally responsible government, capable of executing meaningful economic-development initiatives through bipartisan leadership.

Rendell's criticism of American culture isn't necessarily unique to the US. Voices within Japan have been asking similar questions since Japan's economic climax over two decades ago, wondering aloud if the country's struggles are due in part to a generation that does not understand the sort of work ethic and single-minded focus on achievement that staying on top demands. And, frankly, within America's own story, this sort of criticism isn't unique either: in the midst of the Roaring Twenties, themes of decadence and decay are woven throughout the American novels of William Faulkner, Francis Scott Fitzgerald and Ernest Hemingway.

Perhaps becoming a nation of wusses is an inevitable, if regrettable, stage for countries that experience unparalleled success. Already, the lauded Chinese are seeing a different sense of shared sacrifice reveal itself within its youth, marked by the current generation's fixation on material possessions above a sense of community or social sacrifice.

Some China-watchers believe the slightly more heavy hand of President Hu Jintao's regime is the result of these very fears among old-timers within the Communist Party. It may well be that regardless of which country this transition presents itself in, the stage marks a very real inflection point where society must choose between descending into a further morass of materialism, or calling once again for the sort of dedication and striving that marked earlier success.

For Americans, Rendell's comments may be a necessary wake-up call, the sort of gut check that harkens back to an era where coaches could yell at their players, daring to risk emotional damage through their heavy-handed use of negative reinforcement, but always with an eye towards improving the players' - and the team's - performance.

The reality, which may strike some as harsh, is that as bad as today's economy feels, and as real the pain many Americans feel today, those who came through the Great Depression had it much worse.

Our ideas of what pain and sacrifice mean today are nowhere near the sorts of deprivation and scrap for survival that our grandparents knew. We may not be a nation of wusses, but we do need a reminder that to keep what we have is going to take a lot more dedication, effort, and hard choices from our elected leaders than the false promises of the 1990s held out.

Benjamin A Shobert is the managing director of Teleos Inc (, a consulting firm dedicated to helping Asian businesses bring innovative technologies into the North American market.

Wednesday, 12 January 2011

Porn stars to take part in Cambridge University Union debate


The historic Cambridge University Union has shocked students by inviting adult film stars to take part in an organised debate.

Anna Arrowsmith, who is the UK's first female adult movie director and once stood as a Liberal Democrat MP candidate
Anna Arrowsmith, who is the UK's first female adult movie director and once stood as a Liberal Democrat MP candidate Photo: PA
The Cambridge Union Society, which was founded in 1815, is famed for inviting international politicians and academics to its regular debating sessions.
But the union has raised eyebrows by organising a debate where students will be entertained by guest speakers including three adult film stars.
First on the bill is stripper and pornographic film actor Johnny Anglais, who was suspended from his teaching job after his work as a porn star was revealed.
He will be joined by Anna Arrowsmith, who is the UK's first female adult movie director and once stood as a Liberal Democrat MP candidate.
US porn actress-turned-chaplain Shelley Lubben will also join the debate and discuss the question: ''This house believes that pornography does a good public service.''

Incoming union president Lauren Davidson told Cambridge student newspaper The Tab that she believes pornography is a ''hot topic'' in modern society.
She said: ''The issue of pornography is prevalent in today's society; it's easily accessible online for people of any age, and seems to be increasingly covered in the news and on TV programmes.
''At the Union this term we've got the traditional debates on politics, foreign policy and the media, but I thought it was important to look at the bigger picture and debate a wider range of hot topics.
''Sexuality is something that everyone is very aware of and I want to create a proper discussion around it.
''But I am not making the debate controversial for the sake of it. I hope it will be both academic and lively.''
The groundbreaking debate will be held on February 17 in the Cambridge Union Society's historic debating chamber on Bridge street.
Anglais, real name Benedict Garrett, was suspended from his teaching post in Illford, Essex, in July last year after he was revealed as a porn star.
Ms Arrowsmith, 38, stood as a Liberal Democrat candidate in Kent in the last general election.
She said: ''I'm glad they are taking the topic seriously now. This issue is important for feminism, culture and censorship.
''I do well at these debates as when people really think about this issue they realise that porn is not the root of all our social problems.''
But Shelley Lubben, who appeared in 30 adult films and worked as a prostitute before becoming a born-again Christian, will argue against pornography.
She said: ''Porn is not glamorous. It destroys lives and is an industry of human trafficking and rampant sexually transmitted diseases that is destroying our nations and families of the world.
''Porn is a huge lie and I intend to expose it.''
US writer and self-proclaimed "Sexademic" Jessi Fischer, child psychologist Richard Woolfson and feminist sociologist Dr Gail Dines will also appear at the debate.
Since it was founded the society has played host to top politicians and celebrities including Sir Winston Churchill.
Guest speakers appearing at other debates this term will include Ashes-winning captain Mike Brearley and actor Sir Ian McKellen.

Tiger Mother's book makes case for ultra-strict Chinese parenting


Battle Hymn of the Tiger Mother by Amy Chua set to stir controversy with critique of liberal western childrearing

    Author Amy Chua
    'The solution to substandard performance is always to excoriate, punish and shame the child' ... Amy Chua. Photograph: Lorenzo Ciniglio/Polaris Less than a fortnight into the new year and already one of the most controversial books of 2011 has emerged. Battle Hymn of the Tiger Mother – an autobiographical study of the failings of western parenting by Yale law professor Amy Chua – has just been published in the US to a mixed chorus of plaudits and outrage.
    Chua – who is married to novelist Jed Rubenfeld, author of The Interpretation of Murder – relates in the book how she approached the rearing of her own two daughters, Sophia and Lulu, with the strictness of the Chinese child-rearing model she inherited from her own parents.
    The Tiger, Chua explains, is "the living symbol of strength and power", inspiring fear and respect. And as a "Tiger mother" herself, she assumed the absolute right to dictate her children's activities and demand rigorous academic standards of them at all times, ridiculing them if necessary to spur them on to greater efforts.
    Her children were never allowed to attend a sleepover, have a playdate, watch TV or choose their own extracurricular activities. They were also expected to be top in every subject (except gym and drama) and never get anything other than A-grades – because, Chua explains, Chinese parents believe it is their responsibility to ensure their children's academic achievement above everything else.
    Chua argues that western parents. with their emphasis on nurturing their children's self-esteem and allowing free expression, have set their children up to accept mediocrity. "Western parents are concerned about their children's psyches. Chinese parents aren't. They assume strength, not fragility, and as a result they behave very differently," she says. If their child doesn't achieve perfect exam results, the Chinese parent assumes it's because he or she didn't work hard enough. "That's why the solution to substandard performance is always to excoriate, punish and shame the child," Chua says. And it is crucial for a mother to have the "fortitude" to override her children's preferences, because to enjoy anything you have to be good at it, to be good at it you have to work, and children on their own never wish to work, she adds.
    (Nor is it just solely in the arena of schoolwork that a healthy disregard for your child's feelings is recommended. Where a western mother would tremble, a Chinese mother, Chua says, would not hesitate to say to her child: "Hey fatty – lose some weight.")
    The author admits her views are controversial even with her own husband, and unsurprisingly, her book has provoked an outcry. An extract published in the Wall Street Journal under the title "Why Chinese Mothers are Superior" has attracted 3,500 comments, ranging from the horrified ("As a parent of two kids myself, I had an overwhelming, visceral response to this article. Her style borders on abusive"; "this woman's parenting style is reminiscent of Joan Crawford in 'Mommy Dearest'") to the laudatory ("Her style of parenting creates structure, discipline and work ethics. As long as you don't stop loving and supporting your kids, there is nothing wrong with having high expectations for them").
    Chua's book may have started the ball rolling, but it won't be the only controversial title of early 2011. The anonymously-written O: A Presidential Novel, said to be written with insider knowledge of the White House and promising to be a new Primary Colors, is out in the US later this month. Meanwhile Donald Rumsfeld's memoir, Known and Unknown, comes out in February, with James Frey's new novel, The Final Testament of the Holy Bible, featuring a bisexual Christ returning to live in 21st-century New York, out in the spring.
    In June, Michael Brooks will present an exposé of fraud, suppressed evidence and unethical PR games in the "highly competitive and ruthless" world of science in the book Free Radicals: The Secret Anarchy of Science. Later in the year the regularly provocative Chuck Palahniuk will describe an 11-year-old girl's existence in hell in the novel Damned, which he himself described as "The Shawshank Redemption having a baby with The Lovely Bones, raised by Judy Blume".

Friday, 7 January 2011