Bitcoin is tricky to combat – good!

Bitcoin – what is it? Think of it as a video game. It has rules but, unlike video games, Bitcoin is “distributed”. This means that the rules cannot be changed without every participant of Bitcoin agreeing. This means that the rules won’t change – ever. If there are better rules then a new Bitcoin will develop.

The rules say that Bitcoins can be exchanged, can be created and have a limit – they cannot exceed 21 million. They can be created by “hard work”, called “mining”. Basically anyone who has the funds can invest in computer hardware to create Bitcoins. The more that are created, the more difficult it is to create new Bitcoins. The return on investment, i.e. the return on investing time and money in “mining” Bitcoins, is high at the beginning and lower towards the end (on the basis of today’s technology).

What is great about Bitcoins is that they can be exchanged without banks, Governments and regulators. It is akin to barter and brings power to the people not to the institutions.

Note that should you buy Bitcoins then changing them back to “country currencies” is under attack by Governments. This is Bitcoins vulnerability but also it’s strength – if Bitcoin takes off, why would you ever want to exchange it for another currency!


Greece in Chapter 11

The only way to bring a country or corporation back from the dead is to halt all payments to creditors – the Greek Government is spending only slightly more than it earns (3% of GDP) if interest and loan repayments are ignored and with military spending at over 3% (double the NATO average) this is easy to address.

Continue reading “Greece in Chapter 11”

Why tax the masses?

The simple answer is because the Government can!

Since the beginning of time, taxing income or spending has been easy. Taxing wealth or corporations is tricky, the two are linked, both have vast resources that they bring to bear behind their lobbying and both pay huge amounts to tax accountants to reduce their tax bills and hide their wealth.

Continue reading “Why tax the masses?”

Rise up O men of Greece!

I will not rest in my pleas to the Greek people to refuse categorically the pernicious austerity measures being implemented by their Government. Do not allow them to destroy generations of Greeks to save the bankers.

Some figures:

Greece joined the EU in 1981 and has spent at least $250 billion in defence spending since then. There debt is around $450bn. Remember that the German and French armament industry have done very well out of this as have their bankers who have lent Greece the money to gorge itself on missiles and such like. Greece is number 23 in the defence spending league!

I urge you to default on this debt! Say no to your Government now and make the Governments and bankers of the EU, the UK and the US face up to the consequences of their greed. Let’s cleanse ourselves and them in the process!

Well-dressed lemmings driving fast cars just go over the cliff faster and looking better!

Markets have started to work out that debt can’t drive consumerism forever. The developed world is over-indebted, disparities between developed and developing countries and between rich and poor within those countries are more extreme than ever. When the poor have more debt than they can handle and the rich rely upon the masses to drive the economy then there is a problem!

Continue reading “Well-dressed lemmings driving fast cars just go over the cliff faster and looking better!”

Mervyn King is surprised that people are not angrier! Oh joy, it is nice when someone agrees with me!

See this article in the Guardian


Angry at the banks? Of course we are!

Mervyn King misreads the public mood on the bankers. He should look at our Robin Hood campaign

    • Bank of England Governor Mervyn King gestures after speaking during the TUC in Manchester Mervyn King, the governor of the Bank of England, says he is ‘surprised that the degree of public anger has not been greater than it has’. Photograph: Darren Staples/Reuters

      When you’ve been going on about something for a while, it is always satisfying to discover that other people agree with you. I have been arguing for the last year that the banks, hedge funds and other titans of the City of London whose gambling got us into this trouble should pay to clean up the mess they caused.

      Now, no less a figure than Mervyn King, governor of the Bank of England, has laid the blame for cuts in public services and welfare squarely at the door of the City. “The price of the financial crisis is being borne by people who did absolutely nothing to cause it.”

      The evidence supporting him is overwhelming. The International Monetary Fund has warned that British government debt will be 40% higher as a result of the financial crisis. That’s equivalent to a total of £28,000 for every taxpayer in the country.

      But King’s subsequent comment that he was “surprised that the degree of public anger has not been greater than it has” suggests that either he had a very high expectation, or that he has misread the public mood.

      I’m an ambassador for the Robin Hood Tax campaign, which calls for a tiny tax of just 0.05% on every casino-style financial transaction in order to help poor people, reverse public service cuts at home and abroad, and tackle climate change. In this role I’ve seen how people’s sense of fairness has been stretched to the limits by the continued spectacle of huge pay increases and bonuses in big companies while ordinary people suffer. Every time people turn on the television news they are bombarded with stories of job losses, disabled children forced into care, public sector cuts or young people left without a future. Meanwhile one of the country’s leading bankers claims “the time for remorse and apologies needs to be over“. If there has been any remorse it has escaped my notice. Of course people are angry!

      Project Merlin, George Osborne’s agreement with the banks last month, was widely ridiculed because people are too angry to accept a backroom deal that does not address the fundamental issue of fairness. Our campaign is supported by Lord Turner, chairman of the Financial Services Authority, along with 250,000 Facebook users and 113 organisations from Oxfam to the Salvation Army. When, last week, I challenged bank chief executives Stephen Hester, Bob Diamond and the others, to visit people at home and abroad hit by the economic crisis, I was inundated with messages of support.

      More dramatically, Barclays – which recently announced a £6bn profit and a 20% increase in pay and bonuses – found 40 of its branches occupied by protesters on the day it was revealed that it pays just £100m in tax.

      Polls show this anger is felt by supporters of all political parties. A ComRes survey, carried out in January before the UK bonus season, found that 80% of people, including 76% of Conservative voters, want additional taxes on bankers’ bonuses. Polls regularly show majority support for a Robin Hood tax – it could be the most popular tax in history.

      Mervyn King is right, though, that this anger has not yet forced politicians to make banks pay their fair share. Perhaps this is unsurprising: many MPs have spent years seeing the excessive profits and bonuses of the City as a sign of economic health. But this does not mean it will not happen. French president Nicolas Sarkozy and German chancellor Angela Merkel have both responded to public anger by promising to go ahead with transaction taxes.

      Perhaps the biggest barrier to the UK following suit is the fear, endorsed by many commentators, that a higher tax burden would encourage banks to up sticks and leave. But this doesn’t bear scrutiny. According to the Bank of England, the banks benefit from our taxes and the subsidy afforded them by the government to the tune of £100bn every year. They also benefit from the City’s excellent infrastructure. The idea that they are about to give this up to move to Dubai or the Cayman Islands is incredible, especially when you realise we already have a 0.5% tax on share transactions.

      If the public see through banks’ scare tactics, their anger and their desire for justice really will force politicians to act.


Continue reading “Mervyn King is surprised that people are not angrier! Oh joy, it is nice when someone agrees with me!”

Quantitative Easing – why?

The Government buys its own bonds from banks with money that it creates. Bond prices go up, interest rates go down and banks keep buying bonds of which there is a good supply since Governments are so indebted. The money supply goes up, there is no impact on economic activity except via two mechanisms – interest rates being low reduces borrowing costs for those on variable rates and the exchange rate weakens boosting exports. The latter is the undeclared objective – it is called “beggar thy neighbour”. It doesn’t work. When will journalists stop pandering and call a spade a spade?

The bail-out was predicated on a hoax

Finally someone from the mainstream, Dan Baker – has been published stating what many of us knew to be a reality – the banking system was not in crisis, the bankers were!

There is a very strong case for splitting up the casino-type activities of the banks from the commercial activities. The case rests on two key points:

  • Customers deposits are guaranteed by the Government and provide banks with a huge source of capital with which to go and borrow and play at the tables of the casino
  • The core activities of banking that is essential to the economy – managing money and lending to consumers and businesses

There  is only one argument against that I give any credibility

  • If we hamper our banks in that way then a sector that accounts for 15% of tax revenues and 10% of GDP will disappear

Over the last 30 years there has been such a brain drain into financial activities that add no value at all to the society that I would have no fear for its future if the financial sector shrank considerably. I long for the day that an engineering graduate or a maths graduate actually have a wider choice of potential careers. one thing is for sure, they would have more of chance of adding value to society if many of the casino-like activities of the financial sector disappeared.

Finally admission that adding money does nothing to reduce debt

UK, last 20 years. Bankers freed from regulation shower politicians with money and jobs after politics. Politicians continue to deregulate the financial markets. The financial markets run wild and start heaping debt on to debt of ever more spurious pedigree. No one is worried because everyone is making money.

Suddenly the whole thing explodes. The bankers are now in a position to ask for favours under threat of devastating the economy. 1 trillion of favours. The Bank of England reduces rates and starts pumping in money to keep up the bond prices. Woe betide us if they ever fell.

Finally, only in the last few days have articles appeared that state that Governments are helpless and that with no more to  borrow they can do nothing if the developed economies slip into recession again. Where are the bankers now? The bankers are on their boats mate!

More on splitting up the banks

Myners was quoted in the Telegraph on 23rd January 2010 as saying “The argument is that hedge funds, private equity and proprietary trading are a source of risk – that is not our general view. In the UK, the three activities were not responsible for RBS, HBOS or Northern Rock, who, on the whole, failed in the rather classic way of making bad loans.”

This is either stupid or disingenuous. Banks made bad loans because an investment bank would then, for a large commission, underwrite (using their prop desks) the repackaging of these loans to others – hedge funds, other banks etc.. Banks therefore could make any loan and flip it keeping the fee and moving on to the next borrower.

How hedge funds and prop trading didn’t contribute to this I do not know.

I can certainly excuse Private Equity from the equation – these guys are mostly borrowers and are in any case unrelated to the banks.

One very interesting and tricky issue is how can splitting up the banks by itself offer a solution to the securitisation of these loans? The answer, and Myners is right here perhaps (although he hasn’t given this as the reason), it doesn’t. Stopping banks from making mad loans and flipping them is best curbed by either capital requirements or outlawing the activity by forcing banks to hold a significant portion of all loans that they make.

Another ruse from Obama

Obama is a big disappointment. Never has someone offered such hope and disappointed more. As a master of politics he is becoming rather transparent. Two examples, first a call for a world without nuclear weapons for which he won the Nobel peace Prize (while continuing two wars perpetrated by the Bush regime). Second a call for a total freeze on all settlement growth in Palestinian occupied territories including what is termed as “natural growth”. Both these statements were clearly ridiculous.

Most recently we have “break up the banks!” It won’t happen. If I had the cash I would be long in banking shares and would have been for at least 6 months. Politicians don’t depend upon people’s votes but on the support of business and in particular the bankers. What is wonderful about this statement is that the breaking up the banks if not easy – there is a huge grey area between taking deposits and simple lending and the more exotic activities such as securitisation. This gives Obama a lot of room to negotiate with the inevitable opposition yet still come out with a win or at least what can, in time for the next election be termed one.

In my view banks that take deposits should not be able to carry out any activities apart from lending to individuals and businesses. I would exclude proprietary trading of course and any equity investments. In addition I would exclude any commission-based activities such as underwriting, broking and M&A. The later are best practiced by independent operations with no conflict of interest as it most often described (what I would describe as “unfair advantage or even insider trading”).

Who is going to support that? The people yes but politicians….? You just be joking. Viva la revolucion!

Pensee unique

Anyone who questions the way the banks were saved is asked by the incredulous interviewer whether it was better to let the banking system fail. Well, the only response to this question is clearly no. This does not mean that there wasn’t a better way.

Did you know that on 15% of RBS’s balance sheet relates to UK commercial and consumer lending?

I recently pointed this out to the opposition Treasury spokesmen and have sent a note to the Economist. My email asked the simple question, if we want to ensure that UK commercial and consumer banking is saved then why not focus on the 15% that this represents not bail out the 85% that it doesn’t?

Corporate law and Government powers would have enabled the Government to let all banks that couldn’t survive go into administration. Of course this wouldn’t have been done without giving depositors 100% loss protection. Once in administration the Government would have nationalised the UK commercial and consumer banking operations and let the administrator and subsequently the liquidator sort out the rest.

This would have cost a fraction of the supposed £200bn that the IMF suggests that the bail-out will cost the Government. Why has this not been discussed? I can make a few guesses.

Quantitative easing – easy solutions won’t work!

Sorry to say but this one won’t work either. If the Government is a net purchaser of Government bonds (what they sell less what they buy is negative) then they are indeed increasing the cash available for purchasing other assets. Let us assume that the £75bn of Government purchases over the next few months does indeed result in a net inflow, what will happen to this cash? Will it indeed result in greater lending to consumers and corporates?

The problem is that there are too many ways that this cash can be employed without lending to consumers and corporates increasing. Government bonds are liquid – selling them is quick and easy. If the problem facing banks was that they needed to realise cash from liquid investments and couldn’t then this form of quantitative easing would solve the issue. Unfortunately the issue for banks is the extent of their non-liquid investments, so called level 2 and level 3 assets. Level 1 assets can always be sold and turned into cash.

Should the Government put the banks into liquidation?

For those who don’t agree or haven’t grasped my arguments for letting the banks go I want to have another try!

Let’s take RBS as an example. The bank has a £2.2 trillion balance sheet. A very small fraction of that relates to UK retail and corporate lending – circa £350bn.

My question is simple, in order to protect the core banking activity  – i.e. managing deposits, allowing payment and withdrawal of cash and lending to consumers and corporates, why shore-up £2.2 trillion when this activity only relates to 15% of this amount? Read on……… Continue reading “Should the Government put the banks into liquidation?”

Be a bear until the summer

One of the most amusing investment strategies that I hear today is to buy incrementally. The logic is that you won’t be able to call the bottom so invest gradually and you will at least average down if the market falls further and be in the market when the bounce happens. This investment strategy assumes firstly that the market is within 10% to 20% of its bottom and that when the bottom comes there will be a bounce of at least 20% that anyone not in the market will miss.

Anyone following this strategy should be take into account the following:

Continue reading “Be a bear until the summer”

Bankers still think they are due bonuses for their creativity and for making markets efficient!

On Radio 4 last night we had the pleasure of hearing from Chris Nicholson – . Chris is an equity analyst focusing on telecoms and media. His view is that banks should pay bonuses to encourage continued creativity and to ensure market efficiency. This is an extraordinary claim in light of recent events, here’s why.

Efficient markets are important. How efficient they have to be is open to debate. Banks have been spending a fortune on IT and on motivating staff over the last couple of decades and the result has been that the best can win more. The result has not been a better allocation of capital as Chris suggests.

Creativity is important. Motivating people to so creative that they package up junk mortgages and resell tranches as triple A rated securities to pension funds is certainly creative. unfortunately this has also been the cause of the demise of the finanical sector.

Chris also mentions the allocation of capital to risky enterprises. Well, Chris, you are very out of touch. There are almost no venture capital firms or VCTs investing in anything approaching early-stage and this has been the case for many years. 3i, the stalwart of early-stage investment did so well out of its leveraged late-stage deals (notably Go) that it leveraged its balance sheet and focused almost exclusively on leveraged deals!

Explain to me Chris how the creativity and efficiency of the markets has helped finance entrepreneurs in the UK over the last 20 years?

I have managed three companies over the last 10 years and in my last company I had to cut costs – we were losing money and I was brought in to turn-around the business. I refocused the business, changed the product offering and let 60% of the people go.One thing that I know is that if the leadership articulate the issues and the vision for resolving them then freezing salaries is not nearly as painful to the business as those insiders think.

High street banks must focus on their main tasks, UK consumer and corporate banking and if they won’t do it then find someone that will!

I told you so! There is only one path to solving this mess.

Partial bank privatisation did nothing for confidence as we now see. Banks holed below the waterline stuggling along are no use to anyone. I have consistently called for the Government to let the banks go and then step in a save the bits necessary to the economy notably retail banking and UK commercial lending. Any liabilities of these banks that are not specifically related to these activities can be dealt with by the liquidator.

I would warn against a nationalisation of the banks prior to them going into administration:

1) It is an illusion that you can somehow smooth and manage the downturn by lending to companies whose business has collapsed. Doing so will lead to ever increasing bad loans and will be much more expensive than dealing with the unemployment through massive re-skilling efforts.

2) It is immoral to push banks to lend to consumers that aleady have on average a huge level of indebtedness, little or negative equity in their homes and abysmally low levels of savings. Don’t offer the diabetic more sweeties!

3) Banks have balance sheets are at least 10 times the size that they need to be to deliver on their key tasks – managing deposits and lending to consumers and corporates. A Government should not take on these bloated balance sheets.

My suggestion is that the Government should clearly state that these banks will receive no more support. That if they cannot survive then the Government will let them go and pick up the core from the liquidators. This will precipitate a collapse in the banks and a wholesale nationalisation of the parts of the banks that are worth saving.

Only in this way can the Government avoid taking on liabilities that will haunt it for years to come and in the medium-term risk national bankruptcy. If the banks are nationalised and these toxic balance sheets are taken on then the UK will be forced within 6 months into the Euro and/or run to the IMF for support.

The problem when things are going bad is that noone believes how bad they are until they are catastrophic.  Because of this in extremis actions are always taken too late. Take them now! Things really are catastrophic.

For information RBS’s balance sheet is around £2 trillion. Only 15% relates to UK corporate and consumer lending.