Tuesday, 24 July 2012

Rating agency worker: 'I am genuinely frightened'

The global meltdown terrified the City. But many are more worried that no controls have been introduced since 2008

• This monologue is part of a series in which people in the financial sector speak about their working lives
Lehman Brothers fascia goes on sale at Christie's
'I was on holiday in the runup to the collapse of Lehman Brothers, when the crisis exploded. It was terrifying, absolutely terrifying.' Photograph: Linda Nylind for the Guardian
We are meeting in the heart of the City after the banking blog called on rating agency employees to talk about their experiences. The man I am meeting is British, in his early 40s, a fast talker and very friendly, the sort of person to apologise profusely when arriving four minutes late. He orders an orange juice.
The Joris Luyendijk banking blog
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"Every time I read about a new financial product, I think: 'Uh-oh.' Every new product is described in those same warm, fuzzy phrases: how great they are and how safe. Well, that's how credit default swaps and asset-backed securities were explained when banks were introducing these.
"I still get so angry when I think about it. Taking a job at a rating agency seemed a perfect match: drawing a good salary while providing a service of genuine value for society. We need ratings to work out how safe a company or an investment bond is, what the risk of default might be. If you can't trust it, you shouldn't do business with it – it's that simple.
"The reality was very different. What's making me even angrier is that we don't seem to have learned from the crisis. It's back to business as usual. I am no longer with a rating agency, and when I ask former colleagues what lessons they've taken away from the 2008 debacle, they give me a blank stare and say: 'That wasn't us, that was Moody's and Standard & Poor's.' But we just lucked out: our methods were similar.
"Moody's and S&P are the two major credit rating agencies in the world. Between them, they control 80% of the market and they are large, rich and powerful. Then there's Fitch, desperately trying to get the training wheels off and grow. Finally, there are specialised smaller agencies, one of which I was working for.
I was there when the great collapse of 2008 happened, giving me a ringside view. My agency was incredibly lucky never to have expanded into areas we didn't understand. Our head office was very conservative. This saved us.
"I was on holiday in the runup to the collapse of Lehman Brothers, when the crisis exploded. I remember opening up the paper every day and going: 'Oh my god.' It was terrifying, absolutely terrifying. We came so close to a global meltdown. There I was on my BlackBerry following events. Confusion, embarrassment, incredulity … I went through the whole gamut of human emotions. At some point my wife threatened to throw my BlackBerry in the lake if I didn't stop reading on my phone. I couldn't stop.
Now here we are four years later, and the most incredible thing has happened – we've learned nothing from the whole thing. Everybody pretends it's all OK. Sometimes I feel finance has reacted to the crisis the way a motorist might respond to a near-accident. There is the adrenaline surge directly after the lucky escape, followed by the huge shock when you realise what could have happened. But then, as the journey continues and the scene recedes in the rearview mirror, you tell yourself: maybe it wasn't that bad. The memory of your panic fades, and you even begin to misremember what happened. Was it really that bad?
"If you had told people at the height of the crisis that four years later we'd have had no fundamental changes, nobody would have believed you. Such was the panic and fear. But there we are. We went from 'We nearly died from this' to 'We survived this'.
"Have you read Gillian Tett's Fool's Gold about the crisis? It was exactly like that. You had bankers who did not understand their own complex financial products but thought that they did, and then raters who took their word for it. And nothing has fundamentally changed.
"As most people understand by now, lots of sub-prime mortgages were bundled by banks into financial products and sold on to investors. These believed they bought a very safe thing because the products had been rated triple A, which meant that there was only a 1% or so chance of a default.
"When the crisis hit, it hit hard, reality kicked in and the rating agencies suddenly downgraded triple A products to junk status in a matter of days. I won't call it fraud; I will call it a 'desperate revision of history'.
"Overall, it was more incompetence than outright fraud. If the sub-prime mess had been a huge conspiracy, it would have been very, very difficult to keep that a secret all these years. Too many people were involved. As far as the rating agencies were concerned, it was incompetence brought on by short-termist, bottom-line thinking by senior management who just wanted to make money. That meant rating as much as possible, as often as possible.
"The big change in rating agencies started around 10 years ago. Before that time Moody's was seen as boring, quiet, nerdish. Analysts there were seen as researchers, studious types. Then new management came in and they threw this out of the window. They pushed a culture that was driven by a desire to just keep rating. And they hired people that reflected their thinking.
"Imagine you are a rating agency and you see this new product coming in. You realise: if we rate it, we can keep on rating products like it, as this is the beginning of a continuing stream. And a huge stream it was: thousands and thousands of products offered for rating – and each for a fee.
"But, at the same time, rating agencies senior management have become so focused on the bottom line. There's constant cost-cutting. Demanding more from fewer and fewer people. Obviously, the quality of a rating declines when there's less time to study a company and its business plan. In my time at the company, there'd be no paid overtime, no time off after you worked through the weekend, let alone a word of thanks.
"Ultimately the work suffers, more so when there are endless internal restructurings. Two heads of department in my agency had their department organised out of existence overnight. A little while later, one was resurrected when top management realised what it had done. Higher management often doesn't properly understand what's going on in its own organisation. They are constantly redrawing the map, to the point where it feels like the map has become more important than the journey.
"When asked about the crisis, rating agencies use the defence that the bankers who designed those complex financial products did not understand them themselves. So how can rating agencies be blamed for not understanding them either**?
"But you shouldn't just rely on the information given to you by the people whose product or company you are rating. Imagine a doctor who bases his diagnosis only on what patients themselves are telling him. If they are lying to him, the doctor is lost. If they are lying to themselves, ditto. Or imagine you went to rate the UK and all you do is ask George Osborne how things are with the country.
"With every new financial product, raters should be asking: have the products been tested properly? Are they modelled for all possible conditions, so boom as well as bust times? Do we even know what it does in every phase of the economic cycle? Do we know how the product is likely to evolve over time, how will it behave when it develops into a bubble? The thing is, you cannot ask these questions if you are permanently understaffed and under-experienced.
"Young analysts are much cheaper than experienced ones. And giving people a thorough training again costs money and takes a long time. If you're young, you will assume that what you've seen until now in your life is 'normal', when it might not be. More than that, young people lack not only experience in business but also in life*. When interviewing management, you need to be able to read people, to have developed alarm bells for when they might be lying to you – or worse, lying to themselves.
"This problem exists on both sides of the divide. Many of the most dangerous financial products are designed by the same kind of fresh-faced, straight-out-of-university boys and girls. They have never seen a market panic. They are too young to know the true face of the market; they don't see how products can be misused. What they do see, and tell their bosses, is how their product can make money.
"Finance is continuously evolving, so you have highly niche financial areas that fewer and fewer understand. This all but guarantees misunderstandings. Rating agencies have mostly generalists and very few niche specialists. Often you get someone specialised in product A to rate product B, even though they are 20% different. This is where misunderstandings are quite likely to arise, when a specialist mistakenly believes that his expertise is applicable to adjacent niches.
"I am genuinely frightened. What are the ratings agencies missing at the moment? What are the companies that they're rating developing? What's the next miracle financial product and how badly is it being misunderstood?
Also read

Is India the Worst place for Women?

Why is India so bad for women?

Of all the rich G20 nations, India has been labelled the worst place to be a woman. But how is this possible in a country that prides itself on being the world's largest democracy?
Video of a woman being molested in Guwahati, India
Video of a woman being attacked in Guwahati, Assam, has sparked outrage in India.
In an ashram perched high on a hill above the noisy city of Guwahati in north-east Indiais a small exhibit commemorating the life of India's most famous son. Alongside an uncomfortable-looking divan where Mahatma Gandhi once slept is a display reminding visitors of something the man himself said in 1921: "Of all the evils for which man has made himself responsible, none is so degrading, so shocking or so brutal as his abuse of the better half of humanity; the female sex (not the weaker sex)."
One evening two weeks ago, just a few miles downhill, a young student left a bar and was set upon by a gang of at least 18 men. They dragged her into the road by her hair, tried to rip off her clothes and smiled at the cameras that filmed it all. It was around 9.30pm on one of Guwahati's busiest streets – a chaotic three-lane thoroughfare soundtracked by constantly beeping horns and chugging tuk-tuks. But for at least 20 minutes, no one called the police. They easily could have. Many of those present had phones: they were using them to film the scene as the men yanked up the girl's vest and tugged at her bra and groped her breasts as she begged for help from passing cars. We know this because a cameraman from the local TV channel was there too, capturing the attack for his viewers' enjoyment. The woman was abused for 45 minutes before the police arrived.
Within half an hour, clips were broadcast on Assam's NewsLive channel. Watching across town, Sheetal Sharma and Bitopi Dutta were horrified. "I was fuming like anything. There was this horrible, brutal assault being shown on screen – and the most disturbing thing was, the blame was being put on the woman, who, the report emphasised, was drunk," says Sharma, a 29-year-old feminist activist from the North-East Network, a women's rights organisation in Guwahati. "The way it was filmed, the camera was panning up and down her body, focusing on her breasts, her thighs," says Dutta, her 22-year-old colleague.
When the police eventually turned up, they took away the woman, who is 20 or 21 (oddly, Guwahati police claimed not to know exactly). While NewsLive re-played pixellated footage of her attack throughout the night, she was questioned and given a medical examination. No attempt was made to arrest the men whose faces could clearly be seen laughing and jeering on camera. Soon afterwards, the editor-in-chief of NewsLive (who has since resigned) remarked on Twitter that "prostitutes form a major chunk of girls who visit bars and night clubs".
It was only a few days later, when the clip had gone viral and had been picked up by the national channels in Delhi, that the police were shamed into action. By then, Guwahati residents had taken matters into their own hands, producing an enormous banner that they strung up alongside one of the city's arterial roads featuring screen grabs of the main suspects. Six days after the attack, the chief minister of Assam, the state where Guwahati is located, ordered the police to arrest a dozen key suspects. He met the victim and promised her 50,000 rupees (£580) compensation.
The damage was already irreversible. Most Indians know full well how tough life as a woman can be in the world's biggest democracy, even 46 years after Indira Gandhi made history as the country's first female prime minister in 1966. But here, caught on camera, was proof. And in Assam – a state long romanticised as the most female-friendly corner of the country, largely thanks to the matrilineal Khasi tribe in Meghalaya. The nation was outraged.
"We have a woman president, we've had a woman prime minister. Yet in 2012, one of the greatest tragedies in our country is that women are on their own when it comes to their own safety," said a female newsreader on NDTV. She went on to outline another incident in India last week: a group of village elders in Baghpat, Uttar Pradesh, central India, who banned women from carrying mobile phones, choosing their own husbands or leaving the house unaccompanied or with their heads uncovered. "The story is the same," said the news anchor. "No respect for women. No respect for our culture. And as far as the law is concerned: who cares?"
There is currently no special law in India against sexual assault or harassment, and only vaginal penetration by a penis counts as rape. Those who molested the woman in Guwahati would be booked for "insulting or outraging the modesty of a woman" or "intruding upon her privacy". The maximum punishment is a year's imprisonment, or a fine, or both.
As a columnist in the national Hindustan Times said of the attack: "This is a story of a dangerous decline in Indians and India itself, of not just failing morality but disintegrating public governance when it comes to women." Samar Halarnkar added: "Men abuse women in every society, but few males do it with as much impunity, violence and regularity as the Indian male."
Halarnkar then offered as proof a survey that caused indignation in India last month: a poll of 370 gender specialists around the world that voted India the worst place to be a woman out of all the G20 countries. It stung – especially as Saudi Arabia was at the second-worst. But the experts were resolute in their choice. "In India, women and girls continue to be sold as chattels, married off as young as 10, burned alive as a result of dowry-related disputes and young girls exploited and abused as domestic slave labour," said Gulshun Rehman, health programme development adviser at Save the Children UK, who was one of those polled.
Women on a bus in Chennai, India Women travelling on a bus in Chennai, southern India. Photograph: Gustafsson/Rex Features

Look at some statistics and suddenly the survey isn't so surprising. Sure, India might not be the worst place to be a woman on the planet – its rape record isn't nearly as bad as the Democratic Republic of the Congo, for instance, where more than 400,000 women are raped each year, and female genital mutilation is not widespread, as it is in Somali. But 45% of Indian girls are married before the age of 18, according to the International Centre for Research on Women (2010); 56,000 maternal deaths were recorded in 2010 (UN Population Fund) and research from Unicef in 2012 found that 52% of adolescent girls (and 57% of adolescent boys) think it is justifiable for a man to beat his wife. Plus crimes against women are on the increase: according to the National Crime Records Bureau in India, there was a 7.1% hike in recorded crimes against women between 2010 and 2011 (when there were 228,650 in total). The biggest leap was in cases under the "dowry prohibition act" (up 27.7%), of kidnapping and abduction (up 19.4% year on year) and rape (up 9.2%).
A preference for sons and fear of having to pay a dowry has resulted in 12 million girls being aborted over the past three decades, according to a 2011 study by the Lancet.
A glance at the Indian media reveals the range of abuse suffered by the nation's women on a daily basis. Today it was reported that a woman had been stripped and had her head shaved by villagers near Udaipur as punishment for an extramarital affair. Villagers stoned the police when they came to the rescue. In Uttar Pradesh, a woman alleged she was gang raped at a police station – she claimed she was set on by officers after being lured to the Kushinagar station with the promise of a job.
Last Wednesday, a man in Indore was arrested for keeping his wife's genitals locked. Sohanlal Chouhan, 38, "drilled holes" on her body and, before he went to work each day, would insert a small lock, tucking the keys under his socks. Earlier this month, children were discovered near Bhopal playing with a female foetus they had mistaken for a doll in a bin. In the southern state of Karnataka, a dentist was arrested after his wife accused him of forcing her to drink his urine because she refused to meet dowry demands.
In June, a father beheaded his 20-year-old daughter with a sword in a village in Rajasthan, western India, parading her bleeding head around as a warning to other young women who might fall in love with a lower-caste boy.
This July, the state government in Delhi was summoned to the national high court afterfailing to amend an outdated law that exempts women (and turban-wearing Sikh men) from wearing helmets on motorcycles – an exemption campaigners argue is indicative of the lack of respect for female life.
But the story that outraged most women in India last week was an interview given to the Indian Express by Mamta Sharma, chairwoman of the National Commission of Women (NCW), a government body tasked with protecting and promoting the interests of Indian women. Asked by the reporter if there should be a dress code for women "to ensure their safety", Sharma allegedly replied: "After 64 years of freedom, it is not right to give blanket directions ... and say don't wear this or don't wear that. Be comfortable, but at the same time, be careful about how you dress ... Aping the west blindly is eroding our culture and causing such crimes to happen."
She added: "Westernisation has afflicted our cities the worst. There are no values left. In places like Delhi there is no culture of giving up seats for women. It is unfortunate that while the west is learning from our culture, we are giving ourselves up completely to western ways."
Her remarks caused a storm. As Sagarika Ghose put it in the online magazine First Post: "It's not just about blindly aping the west, Ms Sharma. It's also about the vacuum in the law, lack of security at leisure spots, lack of gender justice, lack of fear of the law, police and judicial apathy and the complete lack of awareness that men and women have the right to enjoy exactly the same kind of leisure activities."
The Guardian asked Sharma for an interview to clarify her remarks but our requests were ignored.
Maini Mahanta, the editor of the Assamese women's magazine Nandini ("Daughter"), believes the NCW chair's remarks are indicative of what she calls the "Taliban-plus" mentality that is creeping into Indian society. "In this part of the world, it's worse than the Taliban," she insists in her Guwahati office. "At least the Taliban are open about what they like and dislike. Here, society is so hypocritical. We worship female goddesses and yet fail to protect women from these crimes and then blame them too."
Women in Bawana, Delhi Indian women, such as these three in Bawana, on the outskirts of Delhi, frequently come under pressure to abort female foetuses. Photograph: Gethin Chamberlain

Mahanta explains how traditions still cast women as helpless victims rather than free-thinking individuals in control of their own destiny. Brothers still tie Raksha bandhan or "safety ties" around their sisters' wrists as a symbol of their duty to protect them, she says. She complains, too, about the Manu Sanghita, an ancient Indian book that she claims preaches: "When a girl is young, she is guided by her father; when she is older, she is guided by her husband; when she is very old, she is guided by her son." She despairs of the cult of the "good girl, who is taught to walk slowly 'like an elephant' and not laugh too loud".
Sheetal Sharma and Bitopi Dutta, the young feminists from the North East Network, complain that modern women are divided into "bad" and "good" according to what they wear, whether they go out after dark and whether they drink alcohol. "We are seeing a rise of moral policing, which blames those women who are not seen as being 'good'," says Sharma. "So if they are abused in a pub, for example, it's OK – they have to learn their lesson," adds Dutta, 22, who grumbles that young women such as herself cannot now hold hands with a boyfriend in a Guwahati park, let alone kiss, without getting into trouble with the moral police, if not the real police.
Many women agree the response from the Guwahati authorities shows they are blind to the root cause: a society that does not truly respect women. Instead, a knee-jerk reaction was taken to force all bars and off-licences to shut by 9.30pm. Club Mint, the bar outside which the young woman was molested, had its licence revoked. Parents were urged to keep a close eye on their daughters.
Zabeen Ahmed, the 50-year-old librarian at Cotton College in Guwahati, tells how she was out for an evening walk not long ago when she was stopped by the police. "They asked me what I was doing out at that at that time – it was 10.30pm or so – and they asked me where my husband was."
The fact that India has a female president – Pratibha Patil – and Sonia Gandhi in control of the ruling Congress party means very little, insists Monisha Behal, "chairperson" of the North East Network. "In the UK, you have had Margaret Thatcher – if you are being harassed by a hoodlum in the street there, do ask: 'How can this be when we have had a woman prime minister?'" she says.
Every Indian woman the Guardian spoke to for this article agreed that harassment was part of their everyday lives. Mahanta revealed that she always carries chilli powder in her handbag if she ever has to take public transport and needed to throw it in the face of anyone with wandering hands. Deepika Patar, 24, a journalist at the Seven Sisters newspaper in Assam, says city buses were notorious for gropers. "If women are standing up because there are no seats, men often press up against them, or touch their breasts or bottom," she explains.
In June, an anonymous Delhi woman wrote a powerful blog post detailing what happened when she dared not to travel in the "ladies carriage" of Delhi's modern metro. After asking a man not to stand too close to her, things turned nasty. Another man intervened and told the first to back off, but soon the two were having a bloody fight in the train carriage. Rather than break up the brawl, the other passengers turned on the woman, shouting: "This is all your fault. You started this fight. This is all because you came into this coach!" and "You women always do this. You started this fight!" and "Why are you even here? Go to the women's coach."
Speaking under condition of anonymity, the 35-year-old blogger says she had experienced sexual harassment "tonnes of times". "I hate to use the word, but I'm afraid it has become 'normal'," she says. "Like if you're in a lift, men will press up against you or grab you or make a comment about your appearance. It's because of this that I stopped travelling by buses and started travelling by auto rickshaws, and eventually got a car myself – to avoid this ordeal. When the metro was launched I loved it – it's an improvement in public transport, very well maintained, you feel safe. Then this happened and I was blamed."
By Thursday last week, the Guwahati molestation case had become even murkier. Police had arrested and charged 12 men with "outraging the public decency of a woman", and on Friday they charged journalist Gaurav Jyoti Neog of NewsLive with instigating the attack he filmed. Neog denies orchestrating the attack or taking any part in it, apart from filming it "so that the perpetrators can be nabbed". But police have forced him to give a voice sample, which has been sent to a forensic laboratory for analysis, to compare with the footage. The verdict is out on that case, but one thing is clear: 91 years after Gandhi urged Indian men to treat their women with respect, the lesson has yet to be learned.

Sunday, 22 July 2012

Circumcision is an affront to decent human behaviour

We rightly decry female genital mutilation. Why, then, are so many happy to condone the male equivalent?
Jonathan Romain
Rabbi Jonathan Romain. Photograph: Martin Argles for the Guardian
Checking the official website, I can find no denial to date that would cast doubt on the claim, by rabbi Dr Jonathan Romain, that the Queen chose to have HRH the Prince of Wales and his brothers, Andrew and Edward, circumcised. But perhaps that is to be expected: the rabbi said their circumcisions were common knowledge. In Charles's case, he told the BBC's Today audience, the "snip" was performed by a Jewish expert, or mohel, who later had the honour of reconfiguring the speaker's own private parts.
The hope, presumably, was that – particularly in this jubilee year – loyal listeners would accept that anything that is good enough for royal British knobs, particularly that belonging to the Duchy Originals magnate, cannot also amount, as a German regional court has decided, to "grievous bodily harm". While I wish the rabbi all the best, there seems no obvious reason why the royal family's traditional aversion to foreskins should prove any more influential than its passion for polo, corgis and homeopathic remedies. Particularly when, as the rabbi will know, secular circumcision has been declining in Britain, even among its principal enthusiasts in the upper classes, in the decades since doctors ceased to extol its allegedly "hygienic" effects, much cherished by Victorians. It was not only that they hoped to control lustfulness and avert a staggering variety of illnesses, the operation would further cleanse and tidy up a zone one supporter depicted, in 1890, as a "harbour for filth".
Admittedly, for a risible Victorian health obsession, male circumcision has done supremely well. While diagnoses of the vapours and melancholy have all but vanished, ditto the more recent fashions for tonsillitis and MPD, the official protection of non-therapeutic circumcision for cultural reasons has, in turn, licensed its religious supporters to advertise the ritual as a helpful and rational advance in disease control.
Rabbi Romain would not, I think, have risked some preposterous hints about "health reasons", as if divinely ordained amputation had an equally sound basis in current epidemiology, if the BMA did not still endorse the parental right to excise healthy bits of a male baby. Official guidance to British doctors has long been clear that "evidence concerning the health benefits from non-therapeutic circumcision is insufficient for this alone to be a justification". But parents, the BMA believes, should be entitled in this case "to make choices about how best to promote their children's interests".
In contrast, the controversial judgment by a regional German court, following a case in which a Muslim boy suffered a botched procedure, concluded that the "fundamental right of the child to bodily integrity outweighed the fundamental rights of the parents". The boy could decide for himself, later, if he wanted to be circumcised.
Circumcision enthusiasts from usually contradictory faiths united to denounce a ruling that Germany's Central Council of Muslims described as a "blatant and inadmissible interference" in parents' rights. A German rabbi called it "perhaps the most serious attack on Jewish life in Europe since the Holocaust".
The German parliament has, perhaps understandably, voted to overturn Cologne's judgment and to protect the non-therapeutic – ie, pointless circumcision of male newborns – thus upholding, simultaneously, the wise choices of the British royal family, the Muslim tradition of khitan and the enduring authority of God's covenant with Abraham, as set out in Genesis: "He that is born in thy house, and he that is bought with thy money, must needs be circumcised: and my covenant shall be in your flesh for an everlasting covenant. And the uncircumcised man child whose flesh of his foreskin is not circumcised, that soul shall be cut off from his people; he hath broken my covenant."
Unlike Romain's playful "snip" and the BMA's preferred "intervention", Genesis makes it clear with its no-nonsense "flesh" and "foreskin" that British circumcisers enjoy an unusual, anomalous freedom where children's bodies are concerned. Even smacking parents are restrained if their obedience to the Old Testament exhortation "he who withholds his rod hates his son" leaves more than transient redness. Properly, male circumcision should be categorised with a host of ritual crimes against children, including facial scarring and forced marriage, force-feeding and tooth extraction, which are usually summarised as harmful traditional practices and suppressed, whatever the religious or cultural arguments.
Parental rights have not, opponents of male circumcision often point out, been allowed to trump those of young girls in the case of its related barbarity – female genital mutilation – which is officially banned and denounced, even in its least-devastating manifestations, as an inexcusable assault on a child's physical integrity. Neither the prevalence of FGM nor the argument that prohibition will only force it underground has dissuaded the World Health Organisation from unequivocal condemnation. "FGM," it says, "is recognised internationally as a violation of the human rights of girls and women."
The extent of this cutting, which "has no health benefits", involves removal of "healthy and normal female genital tissue" and is associated with ideas about "unclean" sexual parts, is immaterial. "It is nearly always carried out on minors and is a violation of the rights of children. The practice also violates a person's rights to health, security and physical integrity, the right to be free from torture and cruel, inhuman or degrading treatment, and the right to life when the procedure results in death."
And the genital mutilation of a boy? The WHO has a separate, notably upbeat fact sheet about that. "Male circumcision is one of the oldest and most common surgical procedures worldwide," it notes, respectfully, "and is undertaken for many reasons: religious, cultural, social and medical." Here, it finds, the removal of healthy, normal genital tissue and violation of a child's rights and physical integrity for reasons often associated with sexual cleanliness can be a positive boon, now that circumcision may – or may not, given risk compensation – help contain HIV. For neonates, the WHO commends the Mogen clamp method and a local anaesthetic, adding that "a pacifier soaked in sucrose solution has been found to be effective in reducing fussiness in infants".
It can't only be because the Queen is a fan of trimming the sexual organs of non-consenting male minors that this practice, with its well-documented risks of infection and disfigurement, is still, in a culture of improving child protection, allowed to pass as unexceptional, even civilised behaviour. Some critics of circumcision speculate that the extraordinary contrast in the protection now extended, in theory at least, to the bodies of young girls and boys, relates to conventional expectations about female vulnerability and male endurance of pain.
Whether Genesis, the law or local culture explains the difference in approach, the original German judgment was right – children need protecting from it. Either the mutilation of children is wrong or, as many resentful supporters of FGM would argue, it is every parent's fundamental right to redesign their child's genitals.

The American election is really a battle for the future of capitalism

Mitt Romney embodies a system dominated by financial engineering that uses companies as casino chips
barack obama on stage
US President Barack Obama's version of capitalism is the way forward for Britain too. Photograph: Jewel Samad/AFP/Getty Images
'Look, if you've been successful, you did not get there on your own. When we succeed, we succeed because of our individual initiative but also because we do things together." So said President Obama, campaigning in Roanoke Virginia, last week. He went on: "If you were successful, somebody along the line gave you some help".
He listed great teachers, government research, roads and bridges and the whole fabric of the American system as various ways in which "somebody along the line" would have contributed to your success. This was the essence of the social liberalism of the great British thinker Leonard Hobhouse, but now championed by an American president. Hobhouse passionately argued that capitalist wealth was co-created by the interaction of society, social capital and the entrepreneur. Government investment, financed properly by taxation, was the precondition for a successful capitalism.
Fox News, self-appointed 21st-century American custodian of free-enterprise capitalism, rather as Pravda guarded communism, was on to the issue like a flash. In my New York hotel, I watched an overheated Fox commentator begin railing about socialism and before long Republican presidential candidate Mitt Romney took up Fox News' cue as is mandatory for any Republican politician. The speech really "reveals what he [Mr Obama] thinks about our country, about free enterprise, about individual initiative, about America," he declared. "Did you build your business? If you did, raise your hand." Hands, pre-arranged, shot up. "Take that, Mr President," he finished.
The slowest and most faltering economic recovery since the Second World War was already triggering anxious questions about how to regain American economic dynamism, but Romney's presidential candidacy has crystallised a fundamental debate about capitalism that will spill over into Britain. It is a potential turning point in both countries. For Romney, whose fortune was made at Bain Capital, the private equity company he co-founded, owned and ran, embodies all the ills (or strengths, if you are so-minded) of a capitalism dominated by financial engineering, with companies as casino chips. It proved Romney's downfall when challenging Ted Kennedy in the race for the Senate in Massachusetts in 1994. The Democrats are determined to make it his downfall a second time round. Bain Capital was, and is, a quintessential product of the 25-year boom in credit and asset prices that began in the early 1980s. Mr Romney spotted the opportunity. He would raise money from private investors, saying the aim was to deploy Bain's consultancy techniques on pre-established companies carefully bought for their turn-round potential. This, coupled with significant leverage, would guarantee sky-high financial returns, not least for Romney.
The public understands that if you finance buying a house with a bank providing 90% of the asking price, and the house doubles in value, then your own 10% stake multiples elevenfold. Romney would apply the same logic not to the wealth-generating activity of starting innovative companies but to buying existing companies. Banks were only too keen to lend vast sums of money for such schemes, as they did right up to the financial crash in 2008. The companies' own profits would service Bain's debt.
Bain Capital would make the company more valuable – taking production offshore to low-cost countries, selling off redundant land, slashing research and investment budgets. And the general rise in property prices would help matters still more. When the companies' profits had risen, they would then be floated on the stock market for a much higher price and, hey presto, everybody got very rich.
Private equity has always been controversial. A few mature and poorly managed companies have benefited from the private equity treatment, but it became a huge industry dedicated to deal-making, extravagant leverage and self-enrichment, leaving a trail of disasters in its wake. In Britain, EMI has been emasculated by Guy Hands'sprivate equity fund and now looks likely to be swallowed up by Universal. American journalist Josh Kosman in The Buyout of America writes that many of the companies in the biggest PE deals in the 1990s fared worse than had the taken-over companies stayed independent. He identifies five companies – Stage Store, American Pad and Paper, GS Industries, Dade Behring and Details, all of which paid lavish dividends and fees to Bain before filing for bankruptcy.
For private equity is not at core about creating value through innovation and investment. That would need private equity owners to take another risk (the results from innovation are uncertain) on top of the leverage risk, hardly the point of the deal. Instead, the overriding requirement is to fatten up the company so it can be resold on the public markets to deliver great capital profits, just as Obama says.
Bain Capital is part of the problem, not the solution. The private equity recipe has ripped the heart out of innovative US while leaving its banks encumbered by massive non-performing debts. The business model is now broken and the US has to start to ask questions about whether the Bain type of allegedly individualist capitalism really delivers growth and jobs. As the answer is: no, what does?
Obama has begun the counter-argument. Innovation is necessarily about taking risks and unless there are mechanisms to share them between the private and public sectors, the risks and innovation are necessarily not undertaken. "The internet didn't get invented on its own," Obama argued. "Government research created the internet so that all the companies could make money off the internet."
He could have gone much further. The same is true of industries ranging from aerospace to pharmaceuticals. The whole ecosystem in which innovation is housed – patents, copyright, finance, universities, research, knowledge transfer, ownership rules, regulation to ensure common standards – is co-created between the public and the private. Innovative entrepreneurs and companies are in a continuous trial-and-error relationship with their customers, suppliers and outsiders, not isolated in an individualistic silo.
The Fox News charge that this is socialism is bewildering and dangerous nonsense. Anglo-American capitalism, mired in debt, low investment and out-innovated by its competitors in Asia and Germany, is at a crossroads. What is clearer than ever is that the conservatives' response is dumb. If Obama and the Democrats can beat them in the US it will have global ramifications – a chance to recognise what really makes good capitalism work. At last, it is game on.

Why you should begin well

Vikram Kapur in The Hindu

In life as in literature, there is nothing like making a great first impression.It is hard to overstress the importance of beginnings. I once heard the Booker Prize-winning Nigerian writer Ben Okri
say that if the first sentence of a book does not grab him, he is liable to close the book then and there. A bit extreme, perhaps, but it does illustrate how crucial beginnings are.

There are all kinds of first sentences — atmospheric, interrogative, informational, reflective, action-packed… One thing, however, all of them have in common is that they set the tone for the book that follows. This month let us look at some first sentences to see how they help forge an effective beginning.

Haruki Murakami’s novel Sputnik Sweetheart begins: “In the spring of her twenty-second year, Sumire fell in love for the first time in her life.” Over the course of this short sentence, Murakami introduces us to his main character and tells us that she is a young woman of 22. He also lets us know that this is going to be a novel about first love. While most of the sentence is literal, the use of the word “spring” lends it a deeper meaning. Instead of “spring”, Murakami could have said “April” which would have been a more accurate reflection of exactly when Sumire fell in love for the first time. However, he chose to use the more metaphoric “spring”. The season of spring, in many cultures, symbolizes passion. The use of the word here sets the tone for the extreme passion that Sumire goes on to feel for the object of her affection.

Beginning in the middle

On the other hand, instead of beginning with a statement, you can begin right in the midst of action. Take a look at this first sentence from Robert Ludlum’s The Bourne Identity: “The trawler plunged into the angry swells of the dark furious sea like an awkward animal trying desperately to break out of an impenetrable swamp.” A sentence like that instantly summons images of darkness, frenetic action, and the trawler being tossed about haplessly in the midst of it all. It isn’t surprising that Ludlum wrote thrillers. You would hardly expect a story of first love to ensue after reading such a beginning. 

Then there is this first sentence from the iconic Colombian writer Gabriel Garcia Marquez’s One Hundred Years of Solitude: “Many years later, as he faced the firing squad, Colonel Aureliano Buendia was to remember that distant afternoon when his father took him to discover ice.” The most interesting thing here is how Garcia Marquez instantly places the reader in two time frames. He is going to tell us about what happened on that afternoon. At the same time, however, he is inserting the burning question — how did Aureliano Buendia come to face a firing squad? — in the reader’s mind. Furthermore, Aureliano Buendia is being taken to “discover” ice. By using the word “discover”, Garcia Marquez captures the sense of wonder someone feels at seeing ice for the first time. Since the discovery was made many years ago when Aureliano Buendia was a boy, the whole effect of it on him would be magical.

From a completely different sensibility comes this first sentence from the prolific British Asian writer Hanif Kureishi’s novel Intimacy: “It is the saddest night, for I am leaving and not coming back.” Unlike Garcia Marquez’s two time frames, Kureishi is firmly entrenched in one time frame — the night before the parting. The despondent tone of the sentence instantly communicates the mental state of the narrator. He is suffused with regret and guilt, and is clearly talking about leaving loved ones. The tone suggests a failed marriage, and reading on, one is not surprised to learn that the narrator has decided to leave his wife and children the next morning for a younger woman.

Finally, here is the first sentence of Salman Rushdie’s Midnight’s Children: “I was born in the city of Bombay…once upon a time.” The sentence is, at once, a play on words, cleverly inverting the old way of beginning a story: “Once upon a time…” It also places the novel in Bombay and, consequently, in India. Finally, it tells us that the novel is going to take the form of a fictional autobiography. Only in this case it is an autobiography that tells us about the life of a person, as well as a country.

These are just five examples of beginnings. There are several more, and it would be worth your while to study them. Think of the beginning of a novel like a serve in tennis. It is, perhaps, the only time where you have the reader’s undivided attention. Hence, everything is in your hands. You can hit an ace, which will allow you to win over the reader. Or you can lose it all by hitting a fault.


In the last week of February, I was writer-in-residence at Pondicherry Central University. There, during one of the lectures, a student asked: How should a writer live? Should a writer be a hermit? Or live out in the world?
As far as I am concerned, a writer must live out in the world. It is only when you engage in the world that you gather its sights, sounds and smells; that you get to experience its various paradoxes. Experience, as the great Latin American writer Roberto Bolano reminds us, is the seed from which great writing sprouts. A hermit can only write from memory, or what he or she can glean from books. The only current experience that he or she has to share is that of being a hermit, which most of the world does not care about. True, you have to retreat into your cave from time to time to be able to write. But a cave is not the place to live.
Riveting conversation
After coming home from Puducherry, I attended a discussion between the novelist and short story writer Bulbul Sharma and V.K. Karthika, Editor-in-chief of HarperCollins India, at the Alliance Francaise in New Delhi. It was a telling reminder of how enjoyable a literary conversation can be when the moderator and writer are in concert. At the Jaipur Literature Festival, the two often seemed to be on different planes. More often than not, that occurred because the moderator had not bothered to acquaint himself with the writer's body of work, and was clearly winging it. Thankfully, there was no chance of that happening here. Karthika is Bulbul Sharma's editor, and, therefore, knows her fiction intimately.
Bulbul's fiction illustrates the value of writing what you know. Bulbul, who is currently 60, got married at 19. In her stories, she deals chiefly with women in families. These are ordinary women, drawn mostly from her generation, who live caged lives within the confines of a traditional Indian family. Many of them only get to see the outside world after they are widowed. One of the stories from her collection My Sainted Aunts is about a character going abroad for the first time at the age of 70.
Listening to Bulbul read from her work, I was reminded of how compelling simplicity can be in fiction. Bubul's characters are ordinary people. Her prose is pared back rather than purple. Her stories deal with the small defeats and victories of people living a run-of-the-mill existence. They instantly evoke the iconic Hindi writer Premchand, who Bulbul mentioned as an influence. To me they are also reminiscent of Jane Austen in the way they hone in on women in family situations. They exemplify how resonant simplicity can be even in an age where writers are known more for their bag of tricks than what they write.
Two weeks after Bulbul's event, I wandered into the amphitheatre of the India Habitat Centre where Penguin India was holding its Spring Fever festival. That night Rahul Bhattacharya, who won The Hindu Literary Prize last year, and acclaimed fiction writer Anjum Hasan were in conversation with the critic Sunil Sethi. Regrettably, I could not stay for the entire discussion. But I did hear Rahul Bhattacharya read from his first book Pundits From Pakistan which has been re-issued by Penguin.
Characters come alive
Pundits From Pakistan is a cricket book dealing with the Indian team's historic tour of Pakistan in 2004. The passage the author read from dealt with an instance in the first Test match where Rahul Dravid, filling in for an injured Saurav Ganguly as captain, declared with Sachin Tendulkar close to a double hundred. While describing the reaction to that momentous declaration, the author effectively mimicked the voices of Tendulkar, V.V.S. Laxman, Imran Khan, Ian Chappell, and other well-known cricket personalities. He was using ventriloquism in a bid to enhance the audience's enjoyment of his performance. In the same way, a writer can employ his or her ability as a ventriloquist to bring various characters to life in a book. Many of the great writers are superb ventriloquists. Salman Rushdie gets into the skin of his characters in that manner. So does J.D. Salinger. The best ventriloquists in literature, though, are the playwrights for whom writing dialogue is their chief stock-in-trade. Most prose writers use dialogue in its most basic form, which is to move the story forward. They lack the ear to do anything more with it. Playwrights, on the other hand, utilise it as a key ingredient for building character, as well as negotiating between status shifts. As one of my old professors told me: If you want to learn how to write good dialogue, then read a good playwright.

Euro exit and depreciation would bring economic gains

In an exclusive extract from his updated book, Roger Bootle explains why allowing a country such as Greece to leave the euro is not as hard as critics think.

Greece's conservative leader of New Democracy party, Antonis Samaras delivers a speech to his party members at the Zappeio conference hall in Athens
Austerity has provoked protests in Greece Photo: AP
'Many of the issues bedevilling the world economy have coalesced into a new and extremely serious problem – the crisis of the euro. This threatens to shake the world to its foundations.
How it pans out will be the critical determinant of whether the world manages to stage a reasonable economic recovery or plays out an extended rerun of the Great Depression.
The eurozone’s predicament is both financial and economic. The financial element centres on debt. Several countries have public debt burdens that are unsustainable. In some cases, private debt is also overwhelming. Meanwhile, this excessive debt in the public and/or private sectors, which can barely be serviced never mind repaid, threatens the stability of the banking system, which owns large amounts of it.
The economic problem concerns cost and prices. Monetary union was supposed to bring convergence between member countries with regard to costs, prices and, indeed, just about everything else. In fact, after the monetary union was formed, in the now troubled peripheral countries of the eurozone – Portugal, Italy, Ireland, Greece and Spain – costs and prices continued to rise rapidly relative to other members of the union. This caused a loss of competitiveness vis-à-vis the German-led core of between 20pc and 40pc, resulting in large current account deficits (i.e. an excess of imports over exports) and the build-up of substantial net international indebtedness.
To return to prosperity, these countries clearly need a depreciation of what economists call the real exchange rate; that is, the level of their prices and costs compared to other countries’, as translated through the exchange rate ruling between their currencies. Clearly, the financial and economic aspects of the crisis are closely intertwined.

For countries afflicted by the twin problems of excessive debt and uncompetitiveness, leaving the euro and letting their new currency fall potentially offers not just a feasible but even an attractive way out. If successful, it would help support an economic recovery through increased net exports, while not increasing the burden of debt as a share of GDP through domestic deflation.
Indeed, the higher inflation unleashed by devaluation would reduce real interest rates and thereby tend to boost spending. Moreover, outside the euro there would be some scope to operate a policy of quantitative easing. This might also help to boost domestic demand. If the troubled peripheral eurozone economies were able successfully to deploy this adjustment mechanism, then they would not only improve their own GDP outlook, but also help to allay concerns about the long-term sustainability of their debt situation and, thus, bolster the long-term stability of the “core” countries, too.
From a purely economic standpoint, the optimal reconfiguration of the eurozone would probably be the retention of a core northern eurozone centred on Germany, in which it seems clear that Austria, the Netherlands, and Luxembourg could remain. Finland and Belgium could also fit in tolerably well.
Perhaps the most intriguing issue is the potential position of France. It has been Germany’s close economic ally and partner, but France’s recent economic and fiscal performance has in some ways more closely resembled that of the peripheral economies. It has a current account deficit as opposed to Germany’s surplus and its primary budget deficit is close to that of Greece. It also has strong banking and financial links to Greece and the other peripheral economies.
Given these points, there would be a strong economic case for France to stay out of a northern euro. Indeed, there would be attractions for it in joining – and indeed leading – a southern euro, if one existed, or, more informally, a grouping of former euro members. A French-led bloc of former euro members would split the eurozone into two roughly equal parts, with the southern bloc slightly larger. Yet this would amount to a complete overturning of post-war French economic and political strategy. I suspect the French establishment would choose to stick with Germany without even thinking about it. If so, France could end up paying a heavy price.
The question is, could a break- up of the euro be achieved? There does not appear to be any insurmountable legal barrier to a country leaving the euro and remaining within the EU, even without the prior agreement of other member states.
A bigger issue is the legal status of any new currency and its impact on contracts specified in euros. While this threatens to be a legal nightmare, there is a way forward. In what follows, to keep matters simple, I assume that Greece is the first to leave, and that its new currency is called the drachma. But when I refer to Greece this should be taken as shorthand for any, or all, of the peripheral countries.
The principle of “Lex Monetae” states that everything that governs the currency of a country can legally be determined by the national government concerned. Major legal problems arise, however, because the euro is both the national currency of Greece, for now at least, and the common international currency of the EU as a whole. Hence, there may be uncertainty whether any reference to the euro in a contract should be interpreted as the national currency of Greece at the time payment is due, and hence the new drachma, or the common international currency of the EU as a whole, in which case it would remain the euro.
As it happens, most sovereign debt is issued under local laws. In this case, an exiting government could simply redenominate its debt into the new currency at the official conversion rate, applying Lex Monetae.
At the point of departure, the Greek government would need to declare a conversion rate from euros into drachmas. What should it be? I suggest the new currency should be introduced at parity with the euro. Where an item used to sell at €1.35, it would now simply sell at 1.35 drachmas. This would promote acceptance and understanding throughout the economy.
In the run-up to exit, controls would be required to prevent capital flight and a banking collapse in Greece – this is not some hypothetical problem. Greece and Ireland are already seeing huge contractions in their money supply as a result of deposit withdrawals. Accordingly – and in particular, from the announcement of the redenomination until banks were able to distinguish between euro and drachma withdrawals – banks and cash machines would need to be shut down.
Because euro exit and depreciation would bring considerable economic gains, which would both reduce deficits (and therefore the rate of growth of debt) and increase GDP, the scale of any implicit and explicit default following a euro exit is likely to be smaller than if the country had stayed in the euro.
After leaving the eurozone, it is inevitable, and necessary, that the new currency fall sharply to restore the competitiveness that has been lost over the past decade or more. Greece and Portugal require a depreciation of their real exchange rate of about 40pc, Italy and Spain about 30pc and Ireland about 15pc.
It is likely that the exchange rate depreciation would raise the price level by about 15pc in Portugal, 13pc in Greece, and 10pc in Italy, Spain, and Ireland.
Assuming that this adjustment takes place over a two-year period, the effect would be to raise the annual inflation rate by about 7pc per year in Greece, about 6pc in Portugal, and 5pc in Italy, Spain, and Ireland. The historical experience from Argentina in 2002 and Iceland in 2008 is that inflation is then likely to fall back sharply. Of course it needs to, if any real depreciation is to be secured from the large nominal depreciations.
A key determinant of the degree of impact of a eurozone exit on those countries remaining within the currency union would be the extent of “contagion effects”. These might result from the direct adverse economic and financial effects of an exit, but also from the increased perception that other countries might leave the euro. Accordingly, decisive measures to limit such effects would be vital.
The first and most immediate would probably be substantial measures to support the banks of the remaining members, to prevent bank runs in the potentially exiting countries. This would probably involve large injections of liquidity by the ECB. There would also need to be a substantial increase in the firepower of the bail-out funds, probably supplemented by additional support from international organisations such as the IMF.
It seems likely that the remainder of the eurozone would need to take much more decisive steps toward some form of economic and political union. This might involve the implementation of commonly issued eurozone-wide bonds – “eurobonds” – which would effectively allow the troubled peripheral economies to borrow at something close to the eurozone’s average interest rate. However, more direct forms of fiscal transfers from the core economies to the periphery might also be needed.
Suppose that Greece made a success of its euro exit, with growth surging and unemployment falling. It would then surely be impossible for politicians in the peripheral countries to argue that there was no alternative to never-ending austerity within the euro. Parties advocating euro exit would gain in popularity and the market would react by pushing up peripheral countries’ bond yields. At that point, contagion from Greece’s exit could well prompt the departure of other countries.
If any country leaves the euro there are bound to be winners and losers. For Greece, devaluation and default would produce two sorts of loser: those whose capital is reduced by redenomination or default, and those whose real incomes are reduced by the higher inflation unleashed by the devaluation. The most important beneficiaries of all would be currently unemployed Greek workers. Their gains consist of the prospect of future income, in contrast to a presumed near-zero income if the present path continues.
The break-up of the euro would be an event of such political and economic import that everyone, including financial markets, should be awed by it. And the immediate results could be truly awful, involving banking collapses and heaven knows what. However, I suspect that both businesses and the authorities are much better prepared for the euro’s demise than they were for the Lehmans crisis. Indeed, future historians may come to regard the latter as a lucky break, because it alerted people to the dangers of financial instability and encouraged them to put in place arrangements to deal with the really big crisis that was yet to come.
Moreover, the resolution of the euro crisis promises relief from some of our acute economic pressures. I have highlighted the contrast between deficit and surplus countries. The attitude of the latter seems to have been: “Thank goodness the leak isn’t in our part of the boat.” Yet getting out of the current depression will require the surplus countries to spend more.
The euro has enabled Germany to continue its oversaving, in a way that could never have happened with the deutschmark, which would have risen strongly on the exchanges and thereby counteracted the effects of Germany’s slow growth of costs. The demise of the euro would release us from this straitjacket. The peripheral countries – whose economies are collectively slightly larger than Germany’s – would be able to grow again, and in Germany and the other northern core countries the pressure would be on to boost domestic demand to offset loss of demand caused by lower net exports. In short, the demise of the euro is part of the solution.
The crisis happened as a result of the phenomenal arrogance and incompetence of the European political elites. It is more a failure of government than of markets. However, the mechanism that brought the system to its nemesis was fully in line with the market defects that I analyse in my book. What undermined Spain and Ireland was a purely speculative boom centred on real estate that came straight out of the textbook of financial bubbles; bubbles that modern markets, central banks, regulators, and economists confidently believed no longer existed.
It is the expression of the belief that sheer political will can overcome market forces – and the living proof that it cannot.
So the euro crisis is really another expression of the forces that brought us so close to financial and economic disaster in 2008-09. It is the second shoe to drop. Having played a major role in getting us into this mess, once exchange rates are unshackled and are allowed to do their work, markets can also play a major role in getting us out of it.”