Monday, September 5, 2011

Vickers: 8 reasons why the banks' arguments are wrong

It’s only a week to go before Sir John Vickers publishes the ICB’s final report on bank reform and the debate is heating up spectacularly. The banking lobby has gone into spin overdrive and is pumping out arguments against change in various newspapers, on the BBA blog and behind closed doors to government officials, including David Cameron it seems.  At the same time, a few brave City figures like David Pitt-Wilson are putting the other side of the argument.

An unfortunate side-effect of this activity has been to anchor the public debate firmly around the ICB's remedy of ringfencing, which was already a compromise on the original proposal of structural separation. This shift is partly a result of George Osbourne's  Mansion House speech in June (see earlier post) and partly a result of recent bank lobbying. Like it or not, it means we are now discussing whether to compromise on a compromise. 

Luckily, the arguments against separation and against ringfencing are nearly identical and can be rebutted just as easily. In the article below, replace "inside or outside the ringfence" with "utility or casino bank" and the arguments work just as same.

If the anti-ringfence arguments are sufficiently discredited when the ICB launches its report on Monday it will be much easier to move the debate back to separation, although the politics still look pretty challenging.

It is surprising that any politician would want to resist a set of relatively mild bank reforms after the biggest financial crisis for 80 years and a deep recession. The fact that David Cameron is having reform jitters shows just how good the industry is at talking people round in private. Whether it can do so in public and avoid either ringfencing or separation will depend on the quality of its arguments, so let's see how many of them stand up.
Here are eight arguments against bank reform culled from the weekend press and eight rebuttals.

Friday, September 2, 2011

Ringfencing as a laboratory experiment

The banks are predicting doom if ringfencing comes, saying their inability to lend will stifle growth and it will all be the government’s fault. The government’s reaction in the short-term, I hope, will be to call their bluff and do it anyway. Let’s see – it’s only ten days to go before the ICB publishes its final report.

But what happens a bit further down the track?

According to Martin Wolf’s latest piece, the UK may already be locked into its longest depression for a century. He says a structural decline in output could condemn us to low growth and low productivity for years.

What do you think the banks will say in 2013 if, as Wolf predicts, the economy is sick as a dog?

Tuesday, August 16, 2011

Riot reading

Handy guide to the week's riot writing: eight explanations and eight excellent riot commentaries from the press/blogs. What am I missing?

Thursday, August 11, 2011

Werner-nomics (or how to turn debt into jobs)

After my last post on stimulating growth, inspired by the riots, I stumbled across an article on the q-finance website by Richard Werner, the rebel economist from Southampton University. As a layman’s introduction to his ideas on credit and economic growth, it was pretty thought provoking. 

Werner is a heterodox (as in, not orthodox) economist whose theories on credit creation and money are proving a major challenge to mainstream economics. He invented the term “quantitative easing” while working on the Japanese banking crisis in the 1990s and his book “New Paradigm in Macroeconomics” has been hailed as a classic in the making. Despite his dubious choice of words, he recently become a Qualified Member of Finance Watch and seems to be working hard to live up to his 2003 Davos billing as a “Global Leader for Tomorrow”.

Here is a summary of the article and a few thoughts about what it could mean for growth:

Monday, August 8, 2011

Growth pains

Violence among unemployed north Londoners, panic in the financial markets, teetering public debt – the UK is really missing economic growth. It seems we need a hit of good economic news quickly, before things turn even uglier. 

But before grabbing the economic morphine of QE and tax cuts, shouldn't we check if they will actually improve the way we use our resources, rather than merely expanding credit and inflating asset values?

Monday, July 11, 2011

What’s missing from Cameron’s public services white paper

Private equity firm Blackstone escaped most of the blame for Southern Cross’s demise on Monday (see previous post How Blackstone made its £600m from Southern Cross) but the techniques it used to make its windfall raise serious questions about whether private equity firms are appropriate owners for public service providers.  

The questions are relevant now because David Cameron has just published his White Paper on public service reforms, detailing plans to open nearly all public services to the private sector – schools, hospitals, rehabilitation, childcare, council services, visa application centres etc - with virtually no safeguards against financial engineering or against brave new social enterprises being swamped by big business (see Peter Holbrook's post).

The White Paper has some good suggestions, such as allowing social enterprises, charities and employee-led mutuals to compete for services whose provision had grown stale under the state.

But it contains big contradictions, mostly relating to the role of the private sector and highly relevant to private equity. Here are some suggestions for making it safer.

How Blackstone made its £600m from Southern Cross

Five years before Southern Cross failed, private equity firm Blackstone owned the company and its main freeholder for two years in which time it engineered a profit of £600m - pretty impressive given that the UK care home group had annual operating cashflow of only £50m. Blackstone has faced accusations of profiteering and worse ever since.

This post tries to explain how Blackstone made its money and where it really came from.

Tuesday, July 5, 2011

ICB submission

Click "Read more" to see the full text of my submission to the Independent Commission on Banking

Friday, June 17, 2011

Retail ringfence is not good enough, George

George Osborne sounded the death knell for enforced full bank separation this week at the Mansion House dinner, when he gave full – and premature – backing to the ICB’s interim recommendation for retail ringfencing.

It was bad news for taxpayers and the economy, but all is not lost. There are three steps the ICB can still take.

Sunday, May 15, 2011

Will ICB proposals on bank capital keep taxpayers dry?

Problem: The ICB proposals for bank capital are too low and plans for debt bail-ins and resolution plans too weak to protect taxpayers from the next bank crisis.

Solution: Double the capital requirements by earnings retention and paying bonuses in equity, or opt for full structural separation.

Wednesday, April 6, 2011

At half time it’s KONP 1 – Cameron and Lansley 0

The government yesterday said it was in listening mode over health reforms, a significant victory for all the Keep Our NHS Public, Save Our NHS, NHSDirect Action, Health Emergency and other campaigners fighting its health reforms.

But the Health and Social Care Bill is not dead yet and there is plenty more lobbying to do. Thanks to this government pamphlet and Andrew Lansley’s own patchy media performances on Wednesday, there should be some easy wins ahead for the campaign...

Monday, March 21, 2011

Alternatives to the Lansley plan

One of the problems for those of us that oppose Andrew Lansley’s health reforms is that it’s hard not to sound negative. “Kill the Bill!” is not a constructive slogan. "Here's a better one!" might be more effective.

We need an alternative but most people (like me) haven’t a clue where to find one. Apparently, there are pretty good health systems in France, Holland and Switzerland, even the US system has its good parts. A cursory look at these - courtesy of good old wikipedia - throws up a few ideas about what kind of NHS we might ask for instead.

The main finding is that all those systems cost a lot more than the 7.7% of GDP we're used to paying. The chart above shows how cheap the NHS is compared to other systems (click here for more data).

Another is that no one has really cracked the problem of getting the efficiencies of competition without paying for profits and suffering from cherry picking, monopolies and other market failures. In general, the more competitive systems seem to cost more overall, which must be a puzzle for economists.

Here's what a few of the alternatives look like, in ascending order of cost, and some features we might look to adopt from them for ourselves.

Friday, February 25, 2011

UK politics and the AV: time to consider mini-referenda

A likely outcome of the Alternative Vote system, subject of the upcoming May referendum, is that it would push election campaigns further into the centre ground as MPs try to widen their appeal.

This raises the risk of rogue governments adopting policies for which they have little mandate, as with the UK coalition’s post-election lurch to the right, and raises the question whether AV on its own is enough. Perhaps it should be followed by other democratic reforms, such as mini-referenda?

Wednesday, February 23, 2011

Youth unemployment: another misguided case of ‘leave it to the market’

Alice Roosevelt Longworth once joked that “the secret of eternal youth is arrested development”.

That certainly resonates with me but if Teddy Roosevelt’s eldest daughter was right, today’s school leavers should remain young for a very long time. Those hoping to develop into employees face the toughest job market since most of them were born.

The TUC’s February Labour Market Report shows youth unemployment approaching one million. A quarter of these are considered long-term unemployed having been without work for longer than a year, the highest level for seventeen years.

According to the TUC’s blog, one of the first things the government did when coming into power was to cut the Future Jobs Fund introduced by Labour and replace it with nothing. Is this another case of mistaken reliance on markets?

Thursday, February 17, 2011

More NHS materials

Unison, the health workers union, takes apart the government's myth-buster document (see earlier posting For and against NHS reform  - in their own words) in a response called "Rebutting the rebuttals"

Sample letters to write to MPs and GPs, and other Unison docs here

Survey by the Royal College of General Practitioners, which finds that a majority of GPs oppose the marketisation of the NHS and fear the reforms will cause "irreparable and irreversible damage to the NHS."

Follow the legislative progress of the Bill through the committee stages. Only two more committee meetings after today's, scheduled for 1 and 3 March.

Excellent article on Channel 4 website by junior doctor on likely effect of the reforms "NHS surgeon: Lansley reforms are a 'phony revolution'"

Thursday, February 10, 2011

NHS price competition – what the academics think

Here are some links to academic research on the effects of price competition on healthcare. You probably know the conclusions already but here they are spelled out with links to the relevant research papers and the dangerous parts of the draft Bill.

Also, some handy resources for NHS campaigners:

Now for the nitty gritty...

Tuesday, February 1, 2011

Save the NHS, push for limits on private health provision

Here’s an idea to stop the government from gutting the NHS - push for an amendment that limits the percentage of the NHS budget that GPs can farm out to the private sector.

An unexpected champion for this might turn out to be David Miliband, who landed one of the few real blows on the government’s health reform plans in yesterday’s Commons debate.

Monday, January 31, 2011

Caveman economics

Caroline Spelman got duffed up on the Today programme this morning over her plans to sell-off the nation’s forests. “You’re going to have to back down on this, aren't you?”, asked nature-loving interviewer, John Humphrys.

We can only hope he’s right. But whatever happens to our woods, Spelman’s justification for the sell-off highlights a worryingly backwards approach to economics from the government.

Sunday, January 30, 2011

For and against NHS reform - in their own words

UPDATE: New book due out in April "THE PLOT AGAINST THE NHS" by Colin Leys & Stewart Player, promises to expose the creeping privatisation of the NHS. A previous Colin Leys book "Market Driven Politics: Neoliberal Democracy and the Public Interest" (reviewed in detail here) concluded that the marketising of health and public broadcasting was "incompatible with democracy and, in the long run, with civilised life."

The government's disastrous Health and Social Care Bill has its second reading in parliament tomorrow, Monday. There will be a debate and a vote, after which the Bill can proceed to the committee stage and be picked apart clause by clause by MPs on the health committee.

Under "read more" below you will find two documents that set out the cases for and against.

The first is a government Q&A note written to help health ministers defend the Bill against its many critics. In an Orwellian flourish, the questions and answers are referred to as "myths and facts" (my favourites are Myths 4 and 10, so brief, so flimsy).

The second is a briefing note prepared by Unison, the public service trade union, challenging specific clauses in the Bill. If you don't want to read the whole document, a summary of Unison's main arguments is here.

Wednesday, January 19, 2011

Unhealthy NHS reform

The UK coalition government today introduced its Health and Social Care Bill 2010-11 to parliament for first reading. In its short life so far this Bill has, to quote Malcolm Tucker, been about as popular as a turd on a trampoline. The cross party Health Select Committee described it as inefficient, risky and a hand-grenade thrown into the system, and newspapers reported mass public concern including a petition that's gained 10,000 signatories already.

Officially, the Bill will let GPs, with their detailed knowledge of local patient needs, decide how resources are spent instead of primary care trusts. So far so sensible, but something sinister lurks alongside, which the government sweetly calls “liberating the provision of NHS services”.

In translation, this means allowing private companies to replace NHS providers if they can beat them in competition. Care will still be free, but the providers may answer to shareholders not voters.