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Wednesday 8 February 2012

My Weltanschhaung - 8/2/2012

I watched Prime Minister's questions and noticed that everytime David Cameron felt uncomfortable, he used David Miliband to beat Ed Miliband with. I wondered what that had to do with Ed's questions on the NHS.

I have come to the conclusion that reform or not the NHS will get progressively worse year upon year.

I was surprised at the all party unity in the UK on invading Syria and the hatred towards the Russian and Chinese veto at the UN. Who said imperialism was dead?

I look forward to Argentina raising the Falklands issue at the UN. Will the UK use its veto then?

On of my students opined that a small shareholder could influence decision making in a big corporation, and hence he was a believer in corporate democracy as against political democracy.


I watched two BBC programmes on the ancient African kingdoms of Ashante and Zulu. Very Good.

Tuesday 7 February 2012

Why we need more banker bashing

Banks are the biggest scroungers of public money – solutions will not simply materialise if we don't keep up the pressure
Banker in the City
Bank-bashing is in its third year and has become even more vociferous. Photograph: Martin Godwin
 
I have a confession to make: I wanted to be a banker once. While arming myself with a degree in economics, I dreamed of working at an investment bank arranging mergers and acquisitions. The growing size of M&A activity got us budding economists excited and I wanted a part of the action. But the dotcom boom of the late 90s lured me in instead and I missed out on the opportunity to ruin the world's economy. In a sign of the times, when I asked a university mate recently where he worked now, he replied: "Goldm- *cough* -acks" rather haphazardly. It seems not many want to be associated with the "great vampire squid" any more.

Banker bashing has now entered its third year and become even more vociferous, spreading to bonus bashing thanks to Network Rail. Last week columnists at the Times and Financial Times wailed that all this a) was hurting UK's economic prospects and b) would have limited traction with the public. The second excuse is easy to dismiss: actually there is plenty of public appetite for banker bashing to continue. They want more and they don't think it damages our economic prospects. But is it right to continue this, ask critics? Who will think of the [privately educated] children? Let me offer several reasons to continue banker bashing.

First, banking reform has been pitifully weak. If the crash were to happen again tomorrow, the government would have to bail them out again. They remain leveraged up to their eyeballs; remain "too big to fail" and too inter-connected to each other so most can't be allowed to go bust. Without public anger there is no impetus to push banking reforms further, which the Conservatives are stridently resisting and Labour is still reluctant to push too far.

Secondly, the banker bashing begs a wider question – if finance has become the life-blood of modern economies, why can't we exercise more control over such a vital industry? Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don't even have to make clever investments to make huge profits.
At the height of the crash, US banks were simply given $13bn overnight. No repayment needed. We don't know what happened, because the details are kept secret. The entire industry is underwritten by guarantees from central banks. If threatened with systematic failure, which is becoming increasingly common, governments have no option but to bail them out. The financial system rules over our lives too, through our credit history. Everything could be choked off at a whim, through administrative error or for political reasons, and we wouldn't have democratic recourse. Organisations such as WikiLeaks were simply frozen out of the global financial system at the click of a button. Banks get special preferences like no other industry, and yet we don't even ask why these publicly subsidised yacht owners have so much control over our lives. Why not?

Far from being the pinnacle of free market capitalism, banking is full of sorry executives who keep asking for more handouts to protect their deliberately bloated businesses. The solutions won't materialise if we go back to how things were. Public anger has grown because it is starting to dawn on middle England that while the rest of us are paying for the crisis, the people who caused the crash want to go back to 2007. Even the Daily Mail is starting to reflect this impatience. This recession is already longer than the 1930s and the stagnation will continue for maybe a decade. For from being over, the nightmare for the Goodwins and Hesters is just getting started. And quite rightly too.

My Weltanschhaung - 7 Feb 2012

- Am I glad that England lost 3-0 to Pakistan at cricket. You can blame Ajmal's action, you can blame the DRS but you still are unable to score enough runs. The cry of World number 1 is not so shrill now and I can remove my ear plugs.

- I am not really sure the NHS bill is privatisation by the back door or is it the vested interests of doctors, managers and nurses crying foul. Unfortunately, only time will tell and by then it maybe too late.

- India refuses to take UK aid, the UK wants India to continue to take its aid. Am I the only person wondering where all this decades long aid has gone and who benefitted from it?

- Its a pity that Sarah Palin will not win the Republican nomination.

-  The US, UK and France are upset that they did not receive a carte blanche to invade Syria. Afetr Libya, they were deluded to think the Russians would cooperate.

- Who will benefit from a war with Iran?



Sunday 5 February 2012

An Ode to India's Batting Triumvirate







Show me a hero, wrote novelist F. Scott Fitzgerald, and I will write you a tragedy. Sporting heroes come pre-loaded with the tragedy gene. A Muhammad Ali who goes one fight too far, a Kapil Dev who is carried around till he breaks a record, a Michael Schumacher who returns to the scenes of his triumphs but as an also-ran—sport is cruel. The sportsman’s dilemma is simply stated: should he retire when the performances sag or give it one last shot so he can go out on a high? At either end of the performance scale, the temptation is to carry on—either to prove yourself worthy, or to establish there is life in the old dog yet.

Australia’s Ricky Ponting was on the verge of being dropped when he made a century and then a double against India, and must be wondering now how far he ought to push. His inspiration to continue playing, Sachin Tendulkar and Rahul Dravid, are probably wondering too. They have had phases before when nothing went right, but it was business as usual soon enough.

Last year, Dravid made more runs than anybody else in world cricket; the previous year, that record belonged to Tendulkar. Great sportsmen hate to go gentle into that good night; they, like fans on their behalf, rage against the dying of the light. For over a decade-and-a-half, these two, V.V.S. Laxman and the oldest of the group, Sourav Ganguly, gave India their best batting line-up, their greatest victories and their top ranking in world cricket.

Tendulkar made his debut in the same year as the Berlin Wall fell; Nelson Mandela was still in jail, and Mike Tyson was the world heavyweight champion. Now pieces of the Berlin Wall decorate homes of tourists who have visited the site, Mandela has graduated from being a president to a concept, and no one knows who the heavyweight champion is. But Tendulkar plays on, a boyish eminence grise in a country whose average age is nearly the number of years he has been an international cricketer.

Pundits have been calling for the heads of the champions, but what is startling is the reaction of the average fan. That no effigies were burnt and no players’ houses stoned after the Australia tour suggests a level of indifference that is painful to behold.

Clearly, we are in the mourning period; in sport, mourning sometimes precedes the end. But mourning can also be a period of celebration. These cricketers have meant something special to a nation shaking free the coils of mediocrity in so many fields and emerging self-confident and ready to take on the world on its own terms.

At 18, V.V.S. Laxman decided to give himself four years to make it as a cricketer; plan B was a career in medicine, the profession of his parents and many relatives. At 22, Rahul Dravid told a friend, “I do not want to be just another Test cricketer; I want to be bracketed with Sunil Gavaskar and G.R. Vishwanath.” Sachin Tendulkar was 17 when he responded to the standard query on the distractions of big money thus: “I will never forget that it is my success on the field that is the cause of the riches off it.”

 How distant the 1990s seem now. A new India was dawning. A feted finance minister breathed life into the vision of a prime minister whose version of glasnost and perestroika was filed under the less romantic label of “market reforms”. Politicians tend to make poor poster boys of their own reforms. Happily, Tendulkar presented himself as the candidate.

It all seems ordained now, but that is only time imposing order and meaning to events. Tendulkar had everything—he was a Test cricketer at 16, and by 19 had made centuries in both England and Australia. He was so obviously mama’s boy—the manager on his first tour of England, Bishan Bedi, spoke of how all the older women wanted to mother him and the younger ones seduce him—and patently non-controversial. And he had the best straight drive in the business; and in the early days a fierce way of handling the short-pitched delivery that reduced those fielding on the leg side boundary to mere ball boys and collectors of the cricket ball from the crowd.

Received wisdom is that India’s climb to the top of the rankings began with that epic Calcutta Test against Steve Waugh’s Australians, who had won their previous 16 Tests in a row. Laxman’s 281 and the 376-run partnership with Dravid ensured India won the match after following on.

The more likely candidate for the turnaround is the Headingley Test of 2002. India won the toss on a seaming track made-to-order for the England bowlers. Nine times out of ten, they would have, as a defensive measure, fielded first on winning the toss. But this was a new India and new captain Ganguly decided to bat. India played two spinners and didn’t pick opener S.S. Das who had made 250 against Essex in their previous match, preferring Sanjay Bangar for his medium pace bowling and adhesive batting.

It worked. India made over 600, with centuries from Tendulkar, Dravid and Ganguly, and won by an innings. It was reward for boldness, imagination and supreme self-confidence.

For a decade and more, that middle order (now strengthened by the arrival at the top of Virender Sehwag) planted the Indian flag on grounds all over the world—at Leeds and Adelaide, Multan and Harare, Kingston, Johannesburg, Nottingham, Perth, Galle and Colombo.

Individual records came as byproducts of team efforts. Tendulkar’s driving on either side of the wicket was sheer joy. As a 16-year-old, he attacked the leg spinner Abdul Qadir, hitting him for 27 runs in an over. It wasn’t an official international, but it brought together the batsman’s impetuosity and creativity in one nice packet. He was actually beaten in flight once, but trusted his instinct and his forearms to hit high into the crowd.

Where were you when Tendulkar made his Test debut? In India, opposition parties were coming together under the banner of the National Front and projecting V.P. Singh as the “clean” alternative to prime minister Rajiv Gandhi. V.P. Singh took charge while the Indian team was in Pakistan, and Tendulkar was taking his first steps towards cricketing immortality. Those not yet born when Tendulkar made his debut are well over the voting age now.
It is a difficult idea to get your head around—the idea that one individual has been a part of our national consciousness for so long. For those who see everything in black and white, it is easy to ask for the heads of our cricketers; the ingratitude of fans is a running theme in sport. But Tendulkar, Dravid and Laxman have an influence well beyond runs made and victories achieved.
For one, it is entirely possible that Indian cricket itself might have taken a long time to recover from the match-fixing allegations a decade ago. Skipper Mohammed Azharuddin confessed to having manipulated results and without the obvious integrity of men like Dravid and Laxman, and those who have retired like Ganguly, Anil Kumble, Javagal Srinath and Venkatesh Prasad, the game might have been destroyed.

Significantly, these batsmen brought to the game an Indianness, the inherited technique and uniqueness of a nation that is sometimes reduced to the cliche, ‘oriental magic’. You can bowl to Laxman anywhere you want, and he will use his wrists to send it between fielders on either side of the wicket. There is no apparent effort, only the most elegant of bat swings, visually all curves and gentle arcs. Laxman’s bat makes no angles to the wind.

Dravid, the man who chose to “walk” when on 95 on his debut at Lord’s, formed a wonderful relationship with Laxman. They have taken over 300 catches between them at slips, and they relax, as Dravid explained, “by talking about our families, the plumbers and carpenters when we were building houses and so on”. When you saw a serious look on the ever smiling face of vvs at slip, it was probably because he had just realised that plumbers in Hyderabad charged more than those in Bangalore. It didn’t matter. What mattered was the camaraderie, and the fact that nearly every catch was taken.

These three players have played 118 Tests with each other. For Tendulkar and Dravid, make that 146. That’s nearly two years in number of days, and if you add the one-day matches, the travel, practice days and camps to that, that’s more days spent in each other’s company than many couples stay married.

Dravid has scored more runs for India than Tendulkar in the same period, a statistic that is not widely known or appreciated. One of the great sights in recent years has been his authoritative square cut or the pull that brooked no response, played while his helmet dripped honest sweat over a long innings. Year after year, we believed when he was batting that god was in his heaven and all was right with the world.

In their growing years, players make huge sacrifices, leading an almost monastic life, the focus on the game and nothing else. By the late 30s, when other professionals—the accountants and managers who do not cause a nation to stand up and demand their resignation—are looking to settle down, the life of a sportsman is over. Your brief career is done, but you have a lot of life left. How do you cope if you are not into the media or coaching or the cauldron of politics known as cricket administration? Especially since cricket is all you know. At 30, Tendulkar was asked what his favourite book was, and he answered with child-like charm, “I haven’t started reading yet.”

The players may not fully understand their future yet; but ironically, we do not fully understand their present (or past) either. The Owl of Minerva, wrote Hegel, “spreads its wings only with the falling of dusk”. We understand a historical condition just as it passes away. In the next couple of years, as we come to a greater understanding of what Tendulkar and company meant to us, let us not regret anything crass in the manner their twilight years were handled. Indianness and integrity have been important aspects of the cricket of the threesome. Indian cricket needs to handle such stalwarts with dignity and maturity.

There is a sense that an Indian team will change from being an old-fashioned one (in terms of behaviour, “old-fashioned” is a compliment) into a modern, unimaginative one where joy, sorrow, exasperation, irritation, ecstasy, sense of achievement, aggression, love and all emotions are expressed with a four-letter word or its many Indian versions involving close relatives. Virat Kohli is a superb batsman and a future India captain, but his response on getting to a century in Adelaide was juvenile. The Kohlis and others like him need to learn from the earlier generation about self-respect and respecting the game itself.

Not that the older lot have been pussycats, rolling over to be tickled. Initially, Dravid’s shyness was mistaken for weakness, but not after he responded to an Allan Donald taunt in the course of his first century in South Africa. The Bangalore boy told the fastest bowler in the world to assume an impossible anatomical posture, not in those words exactly, but in a crisp, short phrase.

The message went home not only to that bowler but to all bowlers around the world. No one tried riling either Dravid or the other two again.

Indian cricket may be at the crossroads; the retirement of the great players will see the end of a civilisation as we know it. But the Tendulkars, Dravids and Laxmans—seen by many as part of the problem now—can easily be part of the solution. India’s next series outside the subcontinent is in Zimbabwe in July 2013. Then come the series in SA and New Zealand. Time enough to rebuild.
Not so long ago, we used to canonise our heroes. The modern method is to spit at them. Our great players deserve better.


(Suresh Menon is editor, Wisden India Almanack, and author of Bishan: The Portrait of a Cricketer.)

Saturday 4 February 2012

A modern-day knight made to suffer a medieval punishment

The United States Constitution is one of the few really great documents ever compiled by politicians. It is crisp and short and clear, and it is on the side of the citizen rather than the state. I keep it by my desk.

Just after the news that Fred Goodwin was to be stripped of his knighthood, I happened to be riffling through it, and my eye fell on this sentence from Section 9: “No Bill of Attainder or ex post facto Law shall be passed”. A Bill of Attainder was a device of the powerful in pre-modern England. If the King and his government decided that they did not like someone, they would get him “attainted” (which means “stained”) by Parliament. The Bill would punish him for some supposed offence without giving him the chance to be heard in court. It stripped him (and sometimes his descendants) of his lands and titles. It was a political device.

An ex post facto law, of course, is a law that enables someone to be punished for an offence which, when committed, was not an offence. It is therefore blatantly unjust, and also, often, political.
Poor Fred Goodwin must wish he were an American citizen (although, since the US Constitution also states that “No title of nobility shall be granted by the United States”, he would not have got a knighthood there in the first place). He has been, in effect, attainted. And he has been subject to ex post facto judgment. What he was doing with the Royal Bank of Scotland when he was knighted in 2004 was considered fine and dandy by the then British government. Now he is being punished, because the wind has changed.

Indeed, Mr Goodwin is being even more unfairly treated than those rebel earls who were attainted under the Tudors. At least they had a chance for their case to be debated in Parliament. Mr Goodwin’s good name was stained for ever by the Honours Forfeiture Committee, stuffed with senior civil servants (almost all of them knights or dames, needless to say). He had no right to be consulted, represented by lawyers, or considered by Parliament.

The committee is repeatedly described by politicians as “independent”, but since it is governmental, it cannot be so. In reality, it acted only because of pressure from the Prime Minister. It waived its own strict rules about the criteria according to which honours are withdrawn, and replaced them with much vaguer ones. Under the chairmanship of the new head of the Civil Service, Sir Bob Kerslake, supported by the new Cabinet Secretary, Sir Jeremy Heywood – neither of whom, presumably, has any experience of this sort of thing – it decided that RBS played “an important role in the financial crisis of 2008-2009”, and therefore Sir Fred should revert to just plain Fred.

If that is the criterion, The Right Honourable Gordon Brown MP should not lose just his seat, his place in the Privy Council and whatever commemorative gold fountain pens he may have received for making boring speeches in Davos. Attainting is too good for him. Since we are reverting to medieval punishments, a bit of good old hanging, drawing and quartering would seem appropriate.
One must, I admit, be realistic. Governments often find themselves in tight corners, and the overhang of bankers’ pay, bonuses and gongs into the era of recession is one such for the Coalition. It is part of the role of senior civil servants inconspicuously to help their masters out of such corners. It is the job of the cabinet secretary, in particular, to be like Jeeves with Bertie Wooster. He must help his boss divert the indignant aunt of public opinion with the necessary fibs, flattery and brainy schemes.
So yesterday I asked Lord Armstrong, cabinet secretary under Mrs Thatcher, and the man who recommended that the traitor Anthony Blunt be stripped of his knighthood, what he thought. Picking his words with mandarin care, Lord Armstrong told me that, if he had been asked to consider Sir Fred, “I should have said that this goes beyond the criteria.” The Government would be within its rights to change the criteria, he went on, and the committee could help it do so. But this should happen before any individual case, and with the agreement of the Palace, to avoid embarrassing the Queen. Otherwise, the problem is publicly dumped on civil servants, whose committee then becomes – my phrase, not Lord Armstrong’s – a kangaroo court. Then I asked the same question of his successor, Lord Butler of Brockwell, and his answer was virtually identical.

Since honours are not jobs, and are conferred by the gracious pleasure of the Sovereign rather than any contractual process, it may be that Mr Goodwin has no legal redress. Besides, he may prefer to remain quiet. But if I were him, armed with his still considerable private collection of good old British banknotes and with no more reputation left to lose, I would try to go to law. I would seek judicial review of the process by which I had been attainted. I would invite Sir Bob Kerslake to tell the court what 10 Downing Street had said to him before the whole process got under way. And if the judges found that the committee had behaved improperly, I would then apply to the Honours Forfeiture Committee to have Sir Bob and his colleagues stripped of their knighthoods.

Maybe none of this matters. Maybe Fred Goodwin is such a disgraceful fellow that we are all entitled to kick him around as we please. But I cannot help thinking that the provision against attainder is in the US Constitution for a good reason. It is to stop whoever happens to be in power at any one time from taking it out on whomever he dislikes who isn’t. The fact that the victim may be unmeritorious is not the point. The point is that the rule of law is what distinguishes us from the beasts. Fred Goodwin got knighted because of crony capitalism. It does not make things better if he is un-knighted by crony anti-capitalism.

But let us look ahead, and think, as David Cameron has done throughout, politically. By shaming Mr Goodwin and creating the pressure that made Stephen Hester give up his bonus, the Prime Minister has placed himself on the side of pubic opinion. He has made it easier for him to attack bonuses in future. He has blunted a Labour attack which had tried to make him seem incapable of responding to public outrage. So far as it goes, all this will help him.

But one of the odd things about being populist is that it generally does not make you popular. It is often the way that the mob, seeing leaders who try to ape it, grows disgusted. The most successful politics is the unpopular action which is then proved right, not the popular action which later looks a bit tawdry.

The other question is one for what The Times, when it appealed to them, used to call “top people”. If, after all this, you are a chief executive wondering whether to locate your big company in Britain, will you feel welcome? If you are a businesswoman asked to rescue a government enterprise, a civil servant wondering whether to try to become a permanent secretary or leave for the private sector, or a scientist called on to run a quango, will you think, “Well, I may get less money, but I shall command respect, have the loyalty of ministers and be knighted if I do the job well”?

I think we know the answer.

Who to blame for the Great Recession?

In 2000 it was the $164bn (£103bn) AOL takeover of Time Warner in America. In 2007 it was the-then Sir Fred Goodwin's £49bn acquisition of ABN Amro that signalled that the markets had peaked and were about to crumble.

Every financial crisis has its totemic moment; a decision that even at the time seems to defy logic and in retrospect is seen as an act of gross stupidity. Yet it takes more than one individual banker, no matter how powerful, to make a crisis and when the historians come to chronicle the Great Recession of 2008-09 the list of guilty men and women will include more than one former knight of the realm.
Here, then, is a (far from exhaustive) list of those who might be considered most culpable – who caused, exacerbated or failed to prevent the worst downturn in the global economy since the 1930s.

Alan Greenspan

Laughably given an honorary knighthood in 2002 for his "contribution to global economic stability", Greenspan's responsibility for the crash cannot be underestimated.

A fanatical believer in the self-righting qualities of financial markets, he was the bubble king who allowed the dotcom boom of the late 1990s to get out of hand and then, when plummeting share prices pushed the economy into recession, started the whole process off again, this time in the housing market.

As chairman of the Federal Reserve, he cut interest rates and left them at rock-bottom levels for two years.

Cheap borrowing costs encouraged Americans to load up on debt to buy homes, even when they had no savings, no income and no job prospects.

These so-called sub-prime borrowers were the cannon fodder for the biggest boom-bust in US history. The housing collapse brought the global economy to its knees.

Sir Mervyn King

Britain was mini-me to the US in the days of grand illusion before the crash, having its debt-fuelled party where growth was concentrated in the speculative sectors of housing and finance.

King became Bank of England governor in 2003, and while he has subsequently been one of the most pro-active central bankers with a refreshingly robust approach to the banks, the case against him is that he failed to "lean against the wind" during the economic upswing, leaving interest rates too low, and then waited too long when the economy was nosediving into its most severe postwar recession before cutting bank rate.

Under the government's tripartite system of regulation, the Old Lady was supposed to ensure developments in the City did not pose a systemic risk to the economy. It failed in that task.

Gordon Brown

We have abolished Tory boom and bust, Brown said repeatedly in his 10 years as chancellor of the exchequer. He hadn't.

His last big speech before becoming prime minister, made at the Mansion House in June 2007 just as the financial crisis was about to break, praised the bankers for their remarkable achievements and predicted "the beginning of a new golden age for the City of London". It wasn't.

Brown presided over the loss of a million manufacturing jobs and an ever-widening trade deficit while cosying up to the City. He used to quip that there were two types of chancellors: those who failed and those who got out in time. He got that one right.

Bill Clinton

One Democratic president, Franklin Roosevelt, put a cage round Wall Street after its excesses in the 20s led to the Wall Street crash and the Great Depression. Another Democrat, Bill Clinton, gave Wall Street the cage keys.

After a fierce lobbying campaign, Clinton agreed to repeal the Glass-Steagall Act, which ensured a complete separation between investment and retail banks. The move heralded the coming of superbanks, huge behemoths that took in retail deposits and used them to take highly-leveraged punts in the markets.

To make matters worse, Clinton beefed up Jimmy Carter's 1977 Community Reinvestment Act to force lenders to take a more relaxed approach to disadvantaged borrowers. Liberalised banks plus millions of new sub-prime customers equalled one big problem.

Eugene Fama

The economics profession failed to cover itself in glory in the run-up to 2007. Not only did economists fail to spot that financial institutions were loading themselves up with vast quantities of toxic sub-prime debt, most of them thought it was theoretically impossible for a crisis to happen.
In large part, responsibility for that lies with Fama, a Chicago University economics professor who in the 70s came up with the efficient markets hypothesis (EMH), which stated that financial markets price assets at their true worth based on all the publicly available information, encouraging the belief that the best thing to do was to pile in when prices were rising. Bubble-think, in other words.

Ronald Reagan and Margaret Thatcher

Just as many trends in modern popular music can be traced back to the Beatles, so politics was shaped by the activities of Reagan and Thatcher, the Lennon and McCartney of deregulation, market forces and trickle-down economics.

The changes pushed through in the US and the UK in the 80s removed constraints on bankers, made finance more important at the expense of manufacturing and reduced union power, making it harder for employees to secure as big a share of the national economic cake as they had in previous decades.
The flipside of rising corporate profits and higher rewards for the top 1% of earners was stagnating wages for ordinary Americans and Britons, and a higher propensity to get into debt.

Hank Paulson

The US treasury secretary in 2008, Paulson was the Sir Anthony Eden of the financial crisis. He had all the necessary credentials a Republican president would consider necessary for the job – chief executive of Goldman Sachs with an MBA from Harvard. He was considered the brightest and best of his generation. Like Eden over Suez, he was faced with a monumental challenge. And he blew it.
Paulson's big mistake was to put Freddie Mac and Fannie Mae into conservatorship, wiping out the stakes of those who had invested $20bn in the two government-backed mortgage lenders over the previous 12 months.

Unsurprisingly, there was no great rush among private investors to rescue Lehman Brothers when it ran into trouble the following week, and when the US treasury allowed the investment bank to go bust every financial institution in the world was seen as at risk.

Fred the Shred destroyed a bank; Paulson triggered the biggest economic downturn since the Great Depression.

Kathleen Corbet

No rogues' gallery of the crisis would be complete without a representative of the credit rating agencies. These were the bodies that took fees from the banks while giving the top AAA rating to collateralised debt obligations, the hugely complex financial instruments that bundled together the toxic sub-prime mortgages with the sound home loans.

Corbet was CEO of Standard & Poor's, the biggest of the rating agencies, and she left her post in a "long-planned" move in August 2007 just as the financial markets were shutting down.

The justification for the top-notch ratings was that the poor-quality loans would be lost in the mix, but when the crisis broke the reality was more like a food scare, in which supermarkets know there are a few dodgy ready-made meals on their shelves but must bin the lot as they are not sure which ones they are.

Phil Gramm

"Some people look at sub-prime lending and see evil," said this senator in a debate on Capitol Hill in 2001. "I look at sub-prime lending and I see the American dream in action."

Gramm, who thinks Wall Street a "holy place", was the main cheerleader in Congress for financial deregulation, putting pressure on the Clinton administration to ease restrictions – not that it needed much persuading.

The fact that he had been the biggest recipient of campaign fund donations from commercial banks and in the top five for donations from Wall Street from 1989 to 2002 was, of course, entirely coincidental.

The bankers

Was it Fred Goodwin at RBS or Adam Applegarth at Northern Rock – the first UK high street bank to suffer a full-scale run on its branches since the 1860s? Was it Dick Fuld, the man in charge at Lehman Brothers when it went belly-up? Jimmy Cayne, who spent the first month of the crisis playing bridge rather than running Bear Stearns?

Or Stan O'Neal, whose attempts to rid Merrill Lynch of its fuddy-duddy image saddled the bank with $8bn of bad debts?

How about Andy Hornby, the whizzkid running HBOS? Or perhaps the man chosen by Gordon Brown to be HBOS's white knight – Sir Victor Blank, chairman of Lloyds?

Choose any one from a very long list.

Friday 3 February 2012

The case for the legalisation of drugs


Sir Richard Branson is a fascinating figure. His politics are surprisingly convoluted for a billionaire businessman; at times he has resembled a Thatcherite neo-classical and at others he has been a Labour-supporting proponent of humanitarian issues and environmentalism. Last week the Virgin Group boss addressed the home affairs select committee on another issue he has championed down the years, calling on the government to implement a liberalisation of drugs policy. Interestingly, what he had to say made a lot of sense.

Branson began, naturally, with cannabis. He insisted that the decriminalisation, regulation and taxation of the drug libertarians have traditionally seen as a start-point for reform would reap widespread rewards for society as a whole. Responsibility for drugs policy should shift from the Home Office to the Department of Health, he argued, quite compellingly enquiring of his inquisitors whether, upon finding out that their own son or daughter had a drug problem, would they rather seek medical help or be having to deal with the police? Tellingly, they offered no answer. In Portugal, where even heroin addicts are hospitalised rather than arrested, drug use has fallen by 50% as a result of legalisation. Each year some 75,000 young Britons have their futures ruined by receiving criminal records for minor drugs offences. Treating drug users as patients rather than criminals would be an important first step to a more effective drugs policy.

Following decriminalisation, Branson admitted that regulation would inevitably be required. I have previously argued that carefully regulating the legal sale of drugs would do more than anything else to save lives. Last November two young men died after taking a fatally potent form of ecstasy (MDMA) at a London music venue. Due to the covert nature of acquiring drugs they had no way of knowing what they were buying; drug dealers are not thoughtful enough to label their products with an ingredients sticker. At present drug users are clueless about whether they are actually taking what they think they are, the extent to which it has been cut with other noxious substances, or even if they have been given a new and untested form of drug. It doesn’t take a rocket scientist to work out why people are dying. Legalisation and regulation would require sellers – licensed by the state – to only offer a genuine product with clear guidelines for safe usage. It may have saved the lives of the two young men last November, and would save countless more in the future.

If the practical case for a more liberal drugs policy is fairly straightforward, the economic argument is somewhat more complex. Branson convincingly articulated the basics last week. Home Office figures show that £535 million of taxpayers’ money is spent each year on the enforcement of laws relating to the possession or supplying of drugs. Conversely, only 3% of total expenditure on drugs is through health service use, and just 1% on social care. A staggering 20% of all police time is devoted to arresting drug users and sellers. The balance between policing and treatment clearly seems skewed, but in this age of austerity these figures are especially unforgivable. At a time when the Coalition is controversially cutting welfare, why do we accept huge spending on a law and order policy that has failed to reduce the prevalence of drugs in society? As Branson succinctly puts it, the money saved through decriminalisation and taxation would surely be better spent elsewhere: ‘it’s win-win all round’.

Now on to the more technical side of things. While the supply-side economist Milton Friedman is of course celebrated for his writings on neo-liberalism, his less well-known contribution to the debate on drugs was also quite brilliant. Friedman argued that the danger of arrest has incentivised drug producers to grow more potent forms of their products. The creation of crack cocaine and stronger forms of cannabis (and evidently MDMA as shown above) is, he claims, the direct result of criminalisation encouraging producers to strive for a more attractive risk-reward ratio. Moreover, drug prohibition directly causes poverty and violent crime. Supply is suppressed by interdiction and prosecution therefore prices rise. Users are forced by their addictions to pay the going rate, then turn to crime to fund their habit as they are plunged into poverty. Finally, and perversely, the government effectively provides protection for major drug cartels. Producing and selling drugs is a risky and expensive business so only serious organised crime gangs can afford to stay in the game. All the money goes to the top. It is, as Friedman notes, ‘a monopolist’s dream’.

The deleterious and unforeseen economic consequences of criminalisation are, one you get your head round them, pretty persuasive. There is, however, one last point worth considering: the moral perspective. You may hate the idea of drugs, most people do. Yet what right does the state have to tell someone what they can and cannot do in the privacy of their own home? John Stuart Mill, the great liberal philosopher, famously declared that ‘the only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant’. The act of taking drugs is an entirely personal choice that affects no one but the individual himself. Can the state therefore justify impinging upon his personal liberty? Mill would say no. This is a question that deserves serious thought.

Sir Richard Branson is a maverick. A week ago most people would have been against a liberalisation of drugs policy. After listening to what Branson had to say many will have changed their minds.