BBC is run by wealthy people. Wealthy people are always more right wing.

“International capitalism screws up bigtime and a massive crisis ensues;”

*bangs head on desk*

We had a massive crisis as a result of a bubble created by too much cheap money washing around the world economy. Now, who controls the flow of money and interest rates? Not international capitalism, but governments (or more accurately, central banks who answer to governments).

This crisis was as much a failure of government economic policy as it was capitalism.

The banks were *forced* to lend all that money then?

To en extent they were

The £2bn profit is completely irrelevant (the correct figure is £1.6bn, for a start – and that represents a 7% return on equity, which is about what I’d hope for if investing my money into a business venture). That’s attributable to your pension, not to some gazillionaire fatcat.

Also, “the lives of thousands of people in a Scottish town being ruined” is crazy melodrama. Kilmarnock is half an hour from the UK’s fifth-largest urban area, one of its largest industrial and transport hubs, and has good links with it: it’s not as it were a pit village with no chance of another job anywhere nearby…

I blame that evil crypto-Communist, Alan Greenspan.

@sli, no, they weren’t, don’t talk rot.

So there was no pressure on US mortgage lenders to give loans to people who couldn’t afford it?

“pressure on” != “no pressure not to”

They were given targets – read up on it

I said ‘banks’.

@sli:

In the February 2008 House hearing, law professor Michael S. Barr stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made “perhaps one in four” sub-prime loans, and that “the worst and most widespread abuses occurred in the institutions with the least federal oversight”.

.

In conclusion: get back under your rock.

The British Government is fully to blame for the crisis. It was all about the cheap money. The banks have no responsibility whatsoever. It’s all Gordon Brown’s fault.

It was they who forced these poor, innocent banks to purchase US sub-prime debt instruments without understanding anything at all about their true value and risk, they who forced RBS to purchase foreign assets at vastly inflated values, they who forced Northern Rock to have a very shaky business model that failed when credit markets seized up and so on.

If it wasn’t for Brown instructing banks to make these decisions that the employees of the bank knew were bad and potentially catastrophic, we would have had no crisis. If he’d have relaxed his stringent regulations forcing these behaviour on these banks as the Conservatives suggested, we wouldn’t have been in this bother in the first place.

Right?

get back under your rock.

What is it with the people on this site? Somebody makes a point you don’t agree with and instantly the insults begin to fly.

btw, your wiki link states an opinion, other opinions are also stated in the same article.

@14 Nice one. Minor correction: none of the UK bank failures were due to their investments in US subprime (that fell mostly on continental European banks). The only UK bank to get badly burned on US subprime was HSBC, but luckily it had enough non-stupid investments that it didn’t need bailing out anyway.

@3 Mark M:

“International capitalism screws up bigtime and a massive crisis ensues;”
*bangs head on desk*

Come here Mark. This is a good post. Got it?
*Gets Mark M’s head and bangs desk lid repeatedly on it*
Got it now?

@ john b

Michael S Barr was confirmed by the United States Senate May 21, 2009 to serve as the Department of the Treasury’s Assistant Secretary for Financial Institutions. As Assistant Secretary for Financial Institutions, Barr is responsible for developing and coordinating Treasury’s policies on legislative and regulatory issues affecting financial institutions.

By leftie logic, I think that means we can discount pretty much everything he says on this topic. Quite a vested interest, no?

@sli, you’re failing on two counts:

1) I don’t give a stuff about the opinion in my link, I do give a stuff about the *facts* in my link: ie only 25% of subprime loans were made by institutions under CRA regulations, and the companies making the dodgiest loans weren’t CRA-related.

2) there are two sorts of dissenting opinions. There are ones like “it is morally wrong to steal the proceeds of people’s labour with taxation”, which rely on an individual’s weighting of different moral principles; then there are ones like “the earth is flat”, which can only be expressed by people who are ignorant, stupid or lying. “CRA was a significant factor in the credit crisis” falls into the second category.

@Dan, again, his opinions are irrelevant; the facts that he cites are relevant. Unless you’ve got evidence to show that his claimed facts are not in fact true, of course…?

I don’t think I’m failing at all.

Can you point out where I wrote CRA was a significant factor in the credit crisis

I said “to an extent” (the banks were forced to lend). This statement is true.

I’m not here to defend banks or governments, it’s painfully obvious to most people that both parties contributed to this problem.

You should take a nap and calm down.

16 – up to a point. The massive losses suffered by RBS (in particular) were at least partially caused by writing off assets held in financial products (CDOs CDSs etc), whose market value had been wiped out by the fall-out from the sub-prime losses.

As a side-note it is perfectly coherent for people arguing for less regulation, also to argue that the current regulatory system is inadequate. Regulation isn’t something where the more you have the better it is. It is perfectly tenable to argue that under the old ‘Governor’s eyebrows’ system Northern Rock (for example) would have been ‘persuaded’ out of its disastrous business model. It is also arguable that the more complex regulation under FSMA led to a model where, provided the letter of the rules were followed anything went.

@6 John B: “The £2bn profit is completely irrelevant (the correct figure is £1.6bn, for a start – and that represents a 7% return on equity, which is about what I’d hope for if investing my money into a business venture). That’s attributable to your pension, not to some gazillionaire fatcat. Also, “the lives of thousands of people in a Scottish town being ruined” is crazy melodrama.”

Serious question for John B. How many years into the 21st century do you think we could go on pursuing a purist “turbo” capitalist ideology as you set out above, before the system was destroyed by social or environmental collapse or both? Another 10 years? 20? All the way to 2099?

You ooze confidence in the correctness of your ideology, but your religion is insane. I am not a violent person, but I would love to see you try to defend your thinking in any serious intellectual setting or on a soapbox in Kilmarnock Town Centre and watch you getting a good kicking – metaphorical or otherwise. Your views are good only to be brayed in a City wine bar.

@john b

As far as I can tell, none of these figures are relevant: from http://www.businessinsider.com/why-i-changed-my-mind-on-the-community-reinvestment-act-2009-6 (the author has a lot of other interesting articles on the topic).

The Federal Reserve Bank of Minnesota attempted to absolve the CRA by claiming that only a small percentage of subprime loans were related to the act. But this is just academic hooey. In reality, once banks lowered lending standards to attract CRA borrowers, they found that they had to lower lending standards across the board. It simply wasn’t possible or legal (thanks to anti-discrimination laws) to offer the lax standard loans only to the targeted borrowers. In short, if a bank wanted to raise the number of CRA loans, it had to lower standards across the board. The broader subprime market was basically a creation of the CRA.

It seems perfectly plausible to me that forcing lowered lending standards in one part of the market could have direct knock-on effects in other areas, and I am baffled as to how you can be so confident that there was no such impact whatsoever.

@sli, fine, you accept that CRA wasn’t a significant factor in the credit crisis and you were just being pedantic above, we’re all agreed, lovely job.

@strategist, and I’d like you to go to a meeting of Portsmouth mothers to argue against hanging paedophiles (I’m assuming you oppose hanging paedophiles, but insert other ‘not popular among angry mobs’ viewpoints you hold if not). The fact that people get angry and violent about something has no bearing on its rightness or otherwise.

But moving away from ‘does the angry mob approve?’:

1) do you think it’s reasonable for owners of capital to make a (reasonable, non-crazy) return on their capital, or should they simply be forced to hand it over in exchange for nothing? Remember, this is mostly ordinary people’s savings and pensions, not gazillionaires’ bounty.

2) do you think it’s reasonable to expect people whose jobs are redundant to get different ones (with fair redundancy payments and with liveable levels of state support whilst they look)? If not, what do you propose we do with the corsets and horse-carts that the corsetiers and wagonwrights whose industries were saved are continuing to build?

It’s not left or right wing, but simply reflecting the mindset of an organisation that depends on the Govt of the day. Temperamentally, I’d class the BBC as Blairite (thanks to the effects of the Birtist regime), but that doesn’t make it left wing, and also means it won’t have problems with Cameron, except for the fact that the Beeb’s acquiescence with the neo-lib line of both major parties does mean it’s cutting its own throat

24 – The CRA is really only a partial explanation for the wide expansion in ‘sub-prime’ lending. The real driving force behind it was the system of multi-tranched collateralised financial products that apparently minimised the inherent risks in such lending. Once lenders realised that they could, effectively, make risky (and therefore profitable) loans without taking on that risk themselves, the incentives were all there to make them do so.

When the property market in the States collapsed, it was discovered not only that defaults were so widespread as to break into senior and mezzanine tranches of the full CDOs, but also that the secondary market in partially and fully synthetic CDOs had become so enormous that no-one (literally no-one) could be sure just where the losses were. Since no-one knew this, the overall market values of these products collapsed – who knew which of them were worthless?

Then, since a large proportion of banks’ assets were held in precisely these products, the banks discovered that, while their liabilities were real, their assets were suddenly imaginary. It was this asset collapse that made the recapitalisation necessary.

Some of this is bad luck (markets don’t usually suffer 30-35% falls in value), some was bad modelling (spreading risk around doesn’t eliminate it, it just spreads it around), some was bad regulation (capital adequacy in particular), and in the British context some was just plain bad management by the banks (Northern Rock was a collapse waiting to happen). To say that stupid banks (or ‘international capitalism) messed up and then wise and benevolent Government picked up the pieces is more than a touch naive.

@dan, because we’re not talking about the *loans*, we’re talking about the *institutions*. 75% of subprime lending was made by institutions with *no CRA obligations at all*, who set their lending criteria *solely on their own commercial decisions*. And they were the ones who were most reckless in their lending.

(re the chap’s other articles, he’s a professional troll, who also claims that Wall Street is insufficiently powerful in the US, Enron execs were hard-done-by, CEOs are underpaid, and insider trading should be legal. This doesn’t have any direct bearing on the quoted extract, of course.)

@25 JohnB, A system where corporations have all the power and pursue the cult of shareholder value over any and all other considerations is doomed to the worst possible disaster. Your religion is insane. In all seriousness, do you think this is a long term sustainable way for corporations to behave – and if they do, do you really think the system can last out the 21st century?

Before we address this wider matter, let’s be clear first: are you actually defending Diageo’s behaviour in this particular case regarding Johnnie Walker and Kilmarnock?
.
Firstly, do you agree that if they want to put Kilmarnock, Scotland on their whisky label then they should bloody well make it there? Secondly, do you agree they should not be allowed to pay tax on all their profits from scotch in Holland, or nowhere, or whatever scam they pull.

Let us see, but in general your kind of logic leads people into untenable positions.

Well John, I think the problem with Diageo is that it’s a classic example of fuckyounomic capitalism in action.

The company is making a healthy profit, but wants to boost its returns by shutting down a factory in the town that’s made their product for 200 years, thus punting 700 people out of work. You know as well as I do that, of those who do pick up another job relatively quickly, most will get worse jobs with worse pay and less security.

Meanwhile, the company sells off the site for a tasty profit – luxury flats, last time I heard – and opens another plant in an economically screwed area where people will work for worse pay and less security. What we have here is a powerful company (Diageo) taking money from people who work for their wages (employees) and handing it all to people who haven’t done a stroke of work to earn it and are already wealthy anyway (shareholders).

When the local authority and the unions had the temerity to complain about this shitty conduct, Diageo’s offered them the choice of 1) securing several million quid per annum from the public purse as a bribe to keep the plant open or 2) shutting up and fucking off, in case Diageo became displeased and shut more plants.

Now, I don’t know what you think about this – basically, a large transfer of hard cash from hundreds of working class families into the pockets of the wealthy, conducted at gunpoint, repeated around the country constantly for the last thirty years – “capitalism in ‘unfair’ shocker, would be my guess. I don’t think it’s unreasonable for people to lose their minds a little about it.

I personally would have the lot of them thrown in prison and their assets seized to glorify a revolutionary world government/tyranny under my dictatorial command, but we have to be realistic here and settle for saying, well, maybe this neoliberal economics stuff is a bit one-sided and hands a bit too much power to people who are already very wealthy, to use at the expense of those who aren’t. And that sucks.

Jesus, you don’t learn do you John B.

Where did I accept that CRA wasn’t a significant factor in the credit crisis?

I didn’t say it was or wasn’t, you make this up as you go along.

If you read other articles as poorly as you read these posts then I have to wonder what else are you making up.

So there was no pressure on US mortgage lenders to give loans to people who couldn’t afford it?

There is also the small matter that many lenders pushed people who could afford (and qualify for) standard loans into near-usurious sub-prime loans through deceptive marketing practices. See, for example, this.

Flyingrodent @30: I’d call that a much better overall assessment than the original article, and I wrote the original article.

I still think my point about BBC complicity about the inevitability of spending cuts under the guise of ‘clever’ interviewing technque is valid enough, but the way the discussion has veered off is much more entertaining.

@johnb

I don’t think any UK banks avoided being burnt by US sub-prime because of the inter-relationships between them (and the whole cause of credit markets seizing up was the Lehman Bros sub-prime linked collapse, causing them to be unable to fulfil their obligations and also to cause the whole financial system to worry about the exposure of that others in the market had to similar sub-prime based securities).

It’s undeniable that the whole crisis was triggered by US sub-prime debt, and the securities that were built (directly or indirectly) on the revenue streams from these loans. Because every bank had some exposure (and these securities got so complicated it was impossible for the banks themselves – let alone other investors – to know the exposure they had) due to the inter-relatedness of financial markets, this had a powerful affect.

UK-specific factors had some impact, yes (e.g. Northern Rock had a crazy business model susceptible to international credit markets drying up, a lot of poor investments in housing made consumer spending contract sharply after the downturn was triggered) but this was definitely second-order.

I find it very difficult to see how – short of draconian regulation and micro-meddling in the affairs of multi-national banks with bases in the UK – which I’m not sure right-wingers would necessarily agree with – this could have been prevented (e.g. RBS phones up HMT and asks “can we purchase this security from the US. We think it spreads our risk and is sensible”, HMT – “No you can’t. The Government know best. You just don’t know what’s good for you do you?).

Unless any of the right-wingers that lurk here fancy giving me an economic lesson and show me how this can all be pinned on Gordon Brown and show me how Osborne’s examples of what he would have done could have prevented recession (e.g. have bank regulation in the Bank of England instead of in the FSA).

@sli either you’re claiming that CRA was a significant factor in the subprime crisis, in which case you’re an idiot, or you’re claiming that it wasn’t, in which case we’re in agreement, or you’re not claiming anything at all, in which case perhaps you could fuck off and waste someone else’s time?

@sevillista there’s a difference between “we borrow cheap money, the money markets collapse, we’re fucked” and “we buy clever US packaged subprime securities, they’re worth nothing, we’re fucked”. The UK banks massively went for the former, but weren’t substantially burned by the latter. And I absolutely agree with you about regulation.

@FR:

1) isn’t it better to transfer jobs that can be transferred from an area that isn’t economically screwed to one that is? That way, people who were previously shafted now aren’t, whereas the people in the successful area can still get work. That’s why the government keep moving civil service jobs out of London to various deprived bits of the country, in a move that pretty much everyone (except possibly the civil servants in question) thinks is a Good Thing for Society.

2) similarly, if you’ve got a choice of having a factory in a place where people want to live and hence which is worth a fortune as flats, or one in a place where nobody wants to live and is worth nothing as wasteland, surely it’s better for society to turn the first one into flats and open a new one on the second site?

The question is how the gains are shared – and that’s the bit where I agree that Diageo are taking the piss, as they don’t pay their fair share of UK tax to reflect the money that this improved efficiency brings in for their shareholders. But if we-the-people were getting 30p in the pound from Diageo’s efficiency improvements, that’d be a good thing all round.

Unless any of the right-wingers that lurk here fancy giving me an economic lesson and show me how this can all be pinned on Gordon Brown and show me how Osborne’s examples of what he would have done could have prevented recession (e.g. have bank regulation in the Bank of England instead of in the FSA).

That’s basically the ‘Governor’s eyebrows’ theory of regulation. The removal of oversight of the financial sector from the BoE put it in the hands of the FSA, who did not command the same degree of respect from the bankers. There were several occasions in the 1980s and before when a bank (or other financial institution) were called in to give an account of themselves to the Governor and Board of the BoE. The rationale wouldn’t be that they were breaking rules (the City was largely self-regulating) but that something looked a little dodgy. With FSMA, the emphasis shifted towards a more rules-based regulatory system.

The advantage of this is that it provides certainty – you can look up what the rules are and make sure you don’t slip out of them. The disadvantage is that rules-based systems invite gaming. Northern Rock breached no rules in their massively over-leveraged business plan, but there’s a good argument that in the old days they’d have been carpeted by the BoE.

Incidentally, the credit crisis and the recession aren’t synonymous. Canada and Australia each suffered a credit crisis, but neither have suffered a recession remotely like ours. The Tories could argue that they would never have run continued budget deficits throughout the boom years, enabling a fiscal stimulus to be made without endangering the country’s credit. A debatable argument, but an argument nonetheless.

36 – RBS did, through their purchase of ABN Amro. Not only was it a massively over-valued purchase, but much of ABN’s asset base was in financial products that subsequently collapsed.

The Tories could argue that they would never have run continued budget deficits throughout the boom years, enabling a fiscal stimulus to be made without endangering the country’s credit. A debatable argument, but an argument nonetheless.

Barely debatable, given that the UK’s government fiscal position (in terms of national debt as % GDP) in 2008 was better than that of any other major country.

RBS did, through their purchase of ABN Amro. Not only was it a massively over-valued purchase, but much of ABN’s asset base was in financial products that subsequently collapsed.

Definitely overvalued; I’m not sure the asset base point holds – particularly if you restrict the definition to my original point of “financial products derived from US residential property that subsequently collapsed”.

@36 JohnB “I agree that Diageo are taking the piss, as they don’t pay their fair share of UK tax”

We’re getting there with you, JohnB. And good link to The Grauniad’s excellent “Tax Gap” series, which I had forgotten was the source of my memory that Diageo is a tax offender.

Now let’s take on “Diageo’s efficiency improvements”

Do you think that a corporation should have no responsibilities whatsoever to a town & community where it has been based for 200 years, with a brand value worth millions that has been developed on the back of the key words “Kilmarnock, Scotland” on its label? That its only responsibilities – under fiduciary duty, effectively to the active exclusion of all other considerations – should be to its shareholders?

Definitely overvalued; I’m not sure the asset base point holds – particularly if you restrict the definition to my original point of “financial products derived from US residential property that subsequently collapsed”.

ABN’s profits were based on financial derivative products, that when the three buyers tried to realise them, turned out to be effectively worthless. But the reason that they were worthless was the global collapse in the value of CDOs. And the reason for that started with the sub-prime collapse.

The problem with restricting it to “financial products derived from US residential property that subsequently collapsed” is that no-one knew which financial products were derived from US residential property – that was rather the problem with synthetic CDOs.

Barely debatable, given that the UK’s government fiscal position (in terms of national debt as % GDP) in 2008 was better than that of any other major country.

Something in that – though also something in the fact that when looking at sovereign debt it’s as much the direction of travel as the raw numbers that matters. The UK’s budget deficit is pretty much the largest relative to GDP in the G20 now. During the Napoleonic wars the UK National Debt was much larger than France’s – it was France’s much larger deficit that bankrupted it.

Flying Rodent,

I hope you won’t take umbrage if I recommend this book for you:

Filthy Lucre: Economics for People who Hate Capitalism

I don’t think it’s “neoliberal” to think that companies ought to be allowed to closed down factories etc. if they think it will increase profits, within an institutional setting that includes redundancy pay, welfare payments, training provision, and possibly the facility for special support in areas of high long-term unemployment. The process of reallocating capital to increase profits is what explains the increase in real wages over the last few hundred years or so. One day I will write my defense of left-wing capitalism, but today is not the day. Even the glorious revolutionary world government of Flying Rodent would have to tangle with allocation decisions, and once you start thinking about how that’d work … well, that’s the main story. Perhaps the above book might do it for you.

41 – should read ‘France’s much larger cost of financing her deficit’. Sorry about that.

#35
Listen JohnB, I’ve proved twice that you can’t fuckin read, or maybe understand, other peoples posts.

You’ve claimed plenty and proved fuck all.

Do carry on.

@John

isn’t it better to transfer jobs that can be transferred from an area that isn’t economically screwed to one that is?

Maybe if you regard the effects on the non-screwed area (Kilmarnock) as cost-free, which I don’t, given that the last thirty years suggests

a) most of the locals will have to take crappier jobs with less security, while others will spend years on benefits, leading to worse living standards, knock-on drops in profits and/or bankruptcy for local businesses and nasty social problems in the area and that

b) the jobs exported to the screwed area will be crappier with less security than they were in Kilmarnock.

It rather depends whether you view this situation as the market’s immense wisdom allocating its resources to the benefit of all or the more accurate Wealthy people increasing their earnings without any labour on their part by using their economic power to force their countrymen into a race to the bottom. The fact that Diageo responded to the outcry by a) demanding a bribe from the taxpayer and b) threatening the public with further economic fuckery if they resisted, before c) doing whatever the hell it wanted, regardless of public opinion, just reinforces my contention that this is extortion with menaces.

…similarly, if you’ve got a choice of having a factory in a place where people want to live… or one in a place where nobody wants to live and is worth nothing as wasteland, surely it’s better for society to turn the first one into flats and open a new one on the second site?

I’d suggest that it depends very heavily upon what you mean by “society”, it being a word that’s caused some controversy in the past. On the whole, the upshot is – Brilliant for wealthy shareholders; Good for the people getting the new, crappier jobs and Utterly terrible for the people being laid off. Companies pointing their economic guns at governments and demanding money doesn’t say terribly good things about the state of our democracy either.

It occurs to me that this model could be used as a very loose metaphor for neoliberal capitalism itself, as it happens – give it ten years and you can replace people getting new, crappier jobs with Chinese slaves, and then we’ll see how good for “society” these shenanigans really are.

FR – you do realise that most shareholdings are held by institutional shareholders – ie predominantly pension funds? They’re mostly not top-hat wearing, cigar-chomping caricatures.

@strategist I’d be surprised if more than 10% of JW drinkers even recognised the name “Kilmarnock”, and amazed if more than a tiny fraction gave a monkey’s where in Scotland it was made (and it’s a blend, so the terroir aspects you get in an Islay or a Speyside don’t apply).

Indeed, given that it’s a mainstream and not-all-that-great-tasting brand built entirely on marketing, you could probably shift production to Ukraine for only a moderate knock in consumption – Bermuda isn’t best known for its Latin spirit, but that didn’t stop Bacardi fleeing there after the Cuban revolution…

But no, I don’t think companies do or should have a responsibility to their ‘communities’. They should have defined responsibilities to their workers, including fair redundancy pay, and they should have defined responsibilities to the governments that allow them to exist (primarily, paying taxes), and then support local communities beyond that to the extent that it’s in their commercial interests to do so.

(and let’s be fair: even though DGE avoids corporate tax, the amount its customers pay in grog tax every year ought to cover a fairly generous resettlement & retraining package in Kilmarnock…)

Cheers Luis, I may give that a bash. It could explain why large redistributions of wealth from workers to the wealthy are going to raise real wages for all in Scotland, although I’ll note that this model appears to have had the opposite effect in the United States over the last couple of decades.

FR – you do realise that most shareholdings are held by institutional shareholders

I knew they did such things, no idea as to the degree. Does it make a major difference to what I’m saying, do you think?

“predominantly pension funds”

Which leads to the rather odd conclusion that there must be some bloke, somewhere who’s faced with the dilemma either a) keeping his job, or b) having more money in his pension fund.

“It rather depends whether you view this situation as the market’s immense wisdom allocating its resources to the benefit of all or the more accurate Wealthy people increasing their earnings without any labour on their part by using their economic power to force their countrymen into a race to the bottom. ”

FR, if you are right, what would you expect to see in the data? What does your view predict for, say, the long-term trend in the median real wage? Is your view compatible with rising real wages? I know inequality has risen, which I’d tend to blame on banking having gone apeshit and on globalization (increasing scale of operation) but you are telling a story where the process of reallocation perpetually enriches shareholders in companies like distillers, retailers, etc., who presumably accumulate more wealth in an ever-increasing spiral. What data would we look at to test that idea? What does your world view predict, say, for the capital share in income?

[my tuppence: There is always a trade-off between the gains from reallocation (which are dispersed) and the pain from reallocation (which is concentrated). It's a perfectly sensible left-wing policy to try and interfere with the market to try and manage the process a bit, and ease the pain of redundancies. But it's tricky. For example, increasing the cost of making redundancies does slow the rate of factory closures etc. but it also slows the rate of new factory openings, and slow the rate of exit out of unemployment]

and let’s be fair: even though DGE avoids corporate tax, the amount its customers pay in grog tax every year ought to cover a fairly generous resettlement & retraining package in Kilmarnock

The vast majority of their product is exported, so taxes paid at the consumer end don’t benefit the UK much.

@TimJ

“The removal of oversight of the financial sector from the BoE put it in the hands of the FSA, who did not command the same degree of respect from the bankers”

I don’t buy the whole “respect” argument – after all, if the rules and regulations are in place, it doesn’t matter whether or not a financial regulation division is located under the umbrella of the Bank of England or under the umbrella of a specialised financial regulation organisation. So long as communication is good – and I’m sure you know being in the same organisation does not mean that communication between two different divisions will be great.

It’s a diversion from people who realise that it is very difficult to pin this on the government without claiming that new regulations are required to stop banks being blinded by the short-term returns and their perceptions of their own brilliant judgements and capacity to hedge risk into ignoring the failures of their own models (and not, for example, checking what exactly was in the complex financial instruments they used and what would happen if the income streams they were backed with dried up).

What action under existing regulations (and – in Conservative eyes – existing over-regulation) could have been taken to prevent the rubbish investments that polluted the UK financial system?

38. john b. Cable warned of the dangers of personal, corporate and national debt in 2003 and was ridiculed by Brown.O’Grady and McRae of the Indy have both written several articles how payning back our debt will be difficult.

@Dunc, can’t face the sums right now, but they have about 30% of the UK whisky market, 30% of the UK vodka market, and 30% of the UK gin market. Total spirits tax revenue is over £2bn and those three categories represent more than half the total spirits market, so we’re talking an absolute minimum of £300m p.a. in booze tax.

I don’t buy the whole “respect” argument – after all, if the rules and regulations are in place, it doesn’t matter whether or not a financial regulation division is located under the umbrella of the Bank of England or under the umbrella of a specialised financial regulation organisation.

The argument is that it was the move to a rules and regulations based system that put stability at risk. When it was done by nods and winks and the judgement of respected BoE officials, the scope for ‘within the letter of law’ dodgy practices was reduced.

Personally I don’t really buy that argument – the reasons for the credit crisis were based in banks being blinded by their own cleverness as much as anything else, but it is a respectable argument.

(and not, for example, checking what exactly was in the complex financial instruments they used and what would happen if the income streams they were backed with dried up).

This was, literally, impossible for many instruments. And in any event it would be beyond the competence of the banks. Which is why they relied upon the credit rating agencies, whose raison d’etre it was. Which in turn failed to predict the collapse in the markets owing to an over-reliance on economic modelling…

@47 JohnB

“it’s a blend, so the terroir aspects you get in an Islay or a Speyside don’t apply…you could probably shift production to Ukraine for only a moderate knock in consumption”

“it’s a mainstream and not-all-that-great-tasting brand built entirely on marketing”

This is all true – which is my point. The brand thieves its value from Scotland, the place, In this case, specifically, Kilmarnock the place, home of the original Johnnie Walker and of the Johnnie Walker brand for 200 years. Upon this the edifice was built.

In your unregulated capitalism would you allow a whisky made in the Ukraine to put Scotland on the label?

,

John: so corporate tax evasion is OK, as long as other people pay other taxes relating to their products and / or services? For example, B&Q can avoid their corporate taxes, as long as their customers pay VAT on their purchases?

@strategist: who said I wanted an unregulated capitalist world? Obviously “made in” labels should be forced to be accurate. However, I don’t see a problem with producing a whisky in Ukraine that’s called Macbeth’s and features mountains and pipers in its adverts…

@dunc: no, it isn’t, and I didn’t say it was, hence why I said that DGE was taking the piss.

@ Luis FR, if you are right, what would you expect to see in the data? What does your view predict for, say, the long-term trend in the median real wage? Is your view compatible with rising real wages?

I’d expect to see stagnation at best, more likely decline – that’s what the Americans have seen from this kind of aggressive cannibalisation for increased profits. The NYT was reporting on this the other day…

http://economix.blogs.nytimes.com/2009/09/10/a-decade-with-no-income-gain/?hp

Further, it’s really important to be clear what’s going to happen at ground zero when we’re talking about this. I’d expect to see in Kilmarnock (and Port Dundas, Glasgow, where 200 are going to be laid off too) large increases in people on unemployment benefit as the knock-on effect of 700 people being laid off hits local businesses, causing even more redundancies. I’d expect the population to drop slightly and to see a noticeable increase in social problems like alcoholism, drug abuse and domestic violence, the full effects of which won’t be fully felt for around twenty years, when the generation brought up in these worsened circumstances reach maturity. We’ve got a lot of precedent to draw on for this kind of thing.

It’ll all be good in Fife, but I’m betting you pounds to peanuts that the workforce at the new plant in Leven will see Sweet Fanny Adams of Diageo’s increased profits.

And @Tim – let’s assume that Diageo’s major shareholders are pensions funds rather than private individuals. Is it any more healthy for working people to secure their pensions by immiserating large numbers of people than it is for fat cats to do likewise to boost their portfolios? Either way, we’re still talking about one group of people essentially eating another for personal profit, which strikes me as a self-destructive and unsustainable business model.

Plus, there’s the small problem of the ill effects all of this has on our democracy. If unaccountable actors like Diageo can make extortionate demands on government – remember, they already bilked the taxpayer for a couple of million about a decade ago, and were pretty blunt in demanding more cash to keep the Killie plant open – surely that says that such companies are above democratic restraint.

Basically, TINA and the British populace have to suck down the whims of business, however unreasonable. Isn’t that the kind of thing that used to result in royalty being dragged to the guillotine? I mean, if that’s the way it is, then that’s the way it is – I just wish that Thatcher, Major, or Blair had written Fuck you – your arse belongs to Diageo and their pals in their election manifestos rather than sugar-coating it with a load of rah-rah horseshit about opportunity and freedom.

When it was done by nods and winks and the judgement of respected BoE officials, the scope for ‘within the letter of law’ dodgy practices was reduced.

But doesn’t this rely on assuming that none of the officials in charge of regulation before the move to the FSA went to the new organisation.

Or that these officials were so tainted by working for a specialist financial regulator (rather than part of a larger beast) that the bankers didn’t want to nod and wink at them any more.

Rather unlikely! More likely they were under a lot of pressure to adopt “light-touch” regulation and starved of resources to enforce existing regulation due to pressure from Labour (in response to lobbying from the City and political pressure from the opposition), and that existing regulation – even if implemented properly – was not sufficient.

And there’s also the point that bankers – even with their massive mulit-million pound pay-packets for apparently being really clever – did not understand what they were doing (e.g. failed to appreciate that Americans can just walk away from houses once negative equity sets in with no bankruptcy sanction in addition to repossession – whereas in the UK people have strong incentives to pay their mortgage and stick with an asset worth less than the loan in housing market downturns), got their sums badly wrong in the valuation models they used, or just followed the group-think, the skewed financial incentives they set up and the flawed instructions they received from senior management (e.g. in Lehmann) to just ignore the risk elephant in the room.

“This was, literally, impossible for many instruments”

I’d disagree.

With research, it was surely possible for bankers to understand the risk of an instrument backed by income from loans made to people without jobs who had no way of paying them back in the context of a housing bubble and strong incentives for people to walk away from housing assets once they fall in value. The point is they were too lazy to do this research, or just ignored the risk. If they didn’t understand, why on earth did they purchase them.

And what have they put in place to stop this happening again? Maybe a lot more regulation is needed to give them a helping hand and save them (and us) from themselves.

With research, it was surely possible for bankers to understand the risk of an instrument backed by income from loans made to people without jobs who had no way of paying them back in the context of a housing bubble and strong incentives for people to walk away from housing assets once they fall in value. The point is they were too lazy to do this research, or just ignored the risk. If they didn’t understand, why on earth did they purchase them.

Very possibly, but then it wasn’t generally the CDOs based on a basket of sub-prime mortgages that were the problem. It was CDOs based on a basket of CDOs, each based on baskets of CDOs, some of which may have been partially based on sub-prime mortgages. Fully synthetic CDOs are staggeringly hard to unravel – indeed technically impossible given that you can’t isolate individual mortgages within them (if you bundle 100 mortgages into a CDO, which is then bundled along with 99 other CDOs into a synthetic CDO, which is then sold to 100 investors, who holds each mortgage? The first bank? The second? The bondholders? And if it’s the bondholders, which one? US courts recently refused to allow a foreclosure on the basis that it was impossible to identify who held the mortgage).

What happened was that these instruments were sent off to ratings agencies to work out how likely it was that each would default. It really wasn’t a job you could do in house.

But doesn’t this rely on assuming that none of the officials in charge of regulation before the move to the FSA went to the new organisation.

Not really. It implies that a more arbitrary judgement based system was replaced by a clear and legislated rules-based system.

By the way, everyone, if you’re tempted to consumer boycott these motherfuckers, you’ve got a big job on.

From Wikipedia http://en.wikipedia.org/wiki/Diageo

Diageo is the holding company for some of the most recognizable alcohol brands, including:

Scotch whisky: Johnnie Walker, Cardhu, Justerini & Brooks (J&B), Bell’s, Black & White, Caol Ila, Vat 69, Oban, Talisker, Lagavulin, Glen Ord, Glenkinchie, Dalwhinnie, Cragganmore
Irish whiskey: Bushmills
Tennessee whiskey: George Dickel
Canadian whisky: Crown Royal, Seagram’s, Black Velvet

…and that’s just the whiskies. Here’s the rest, including the flagship Guinness:

Beer: Guinness, Tusker, Smithwick’s, Red Stripe, Harp Lager, Kilkenny, Kaliber (non alcoholic)
Baijiu: Shui Jing Fang
Vodka: Smirnoff (Smirnov in Russia), Cîroc, Silent Sam, Popov, Ketel One
Gin: Gordon’s, Tanqueray, Gilbey’s, Booth’s
Rum: Captain Morgan, Bundaberg, Pampero, Myers’
Bourbon: Bulleit
Tequila: Don Julio, José Cuervo
Schnapps: Black Haus, Goldschläger, Rumple Minze
Mixed drinks: Archers, Pimm’s, TGI Friday’s
Liqueur: Baileys, Sheridans, Yukon Jack, Godiva’s
Wines: Sterling Vineyards, Piat d’Or, Barton & Guestier, Beaulieu Vineyard, Blossom Hill, Canoe Ridge Vineyard, Acacia, Chalone, Provenance, and Rosenblum.

But it’s worth it. Seek out the small, independent craft distilleries and breweries. Then there’s a bit more in your glass than just the product.

FR,

Yes, I agree that stagnant median real incomes over the last decade should make gung-ho capitalists rethink some of their ideas. But I think the data ought to make you rethink your ideas too. What Diageo is doing wasn’t invented in 1990. “aggressive cannibalization for increased profits” has been with us for centuries, over decades where real incomes have risen dramatically, and when the capital share of income has not risen. I see no reason to believe that behaviour along the lines of that by Diageo has increased so much in the last decade, compared to the last century, that it could explain the data. Some things that have happened in the last decade include the rise of China and India.

Yes, I agree it’s important to be clear what’s going to happen at ground zero. See my comments in #50 about concentrated pain.

the workforce at the new plant in Leven will see Sweet Fanny Adams of Diageo’s increased profits your almost certainly right there – the wages will be determined by conditions in the local labour market.

62. Tim j. Good point about regulations . There is asaying ” Rules are for guidance of the wise and the obeyance of fools”. In practically any dangerous job where there is someone in charge – ship, plane, soldiers etc, etc, the best leaders use their judgement. Judgement is about awareness based upon experience such that one knows when to break the rules to survive. To do that with confidence one has to know the rules, when to apply them and when to break. Once when I spoke with a former bomber pilot from WW2 who had flown from the beginning he said one had to learn to fly by the seat of one’s pants. What happened if a pilot did not learn that intuitive skill I asked. Well the pane crashed replied the pilot.

A good Governor of the BofE knows the city inside out and has an intuitive awareness when things are going wrong combined with the abililty to make the correct decision, under pressure for which they are trusted and estemmed by the World . Pilots like L Cheshire VC have this gift of intuitive awareness. When Wilson said Britain was bankrupt, the Worlds markets panicked and the pound crashed. It was the Governor of the BofE( Lord Richards ?) who ‘phoned all central bankers of the major nations and other institutions who promised on his word of honour, that Britain was not bankrupt, which saved a massive run on the pound. It was only because the Governor’ of the Bof E was held in such high esteem for his technical ability and integrity which saved the day.

The problem would be that any Governor of the Bof E wo was held in such high esteem would probably be hated and bitterly resented by G Brown, a greatly over rated Chancellor .

@47 JohnB: “no, I don’t think companies do or should have a responsibility to their ‘communities’”

Here’s where JohnB’s social model for the British economy ends up:

From http://liammacuaid.wordpress.com/:
“On July 27th a Chinese steel executive was beaten to death by workers angered at the threat to their jobs by privatisation. The riot, in north east China, involved up to 30,000 workers of the Tonghua Iron and Steel works. The owner, Jilin province, wants to sell it to privately held Jianlong Group. An interim manager, Chen Guojun, sent in by Jianlong, infuriated employees by his high-handed manner and threats to lay off most of the staff. Human rights groups report that retired steel workers are paid only Rmb200 a month while Mr Chen was being paid Rmb3million annually. Thousands of irate workers surrounded Mr Chen in his office and beat him unconscious. They then battled riot police for several hours, preventing medical help reaching Mr Chen, who later died. Jianlong Group is owned by Zhang Zhixiang, China’s tenth richest capitalist with a fortune of $2.9billion.”

#Yes, that makes perfect sense to a journalist from the notoriously ‘leftwing’ BBC.#

I bet the outrageously Trotskyist Guardian would have a thing or two to say about this….however, glad to see “the UK’s most popular left-of-centre politics blog” has picked up on it anyway. Unfortunately for me, if the BBC, Guardian and liberal Conspiracy are in any remote sense left or even left-liberal, then I’m so far off in the leftish hinterland that I must be away with the little red fairies. This probably explains why when I read this kinda shit, I’m drawn to the conclusion that I’m looking at a bunch of nicely off, vaguely well meaning people striking poses and giving themselves radical sounding political labels cos their partner won’t let them put up a Che Guevarra poster or wear a jacket full of gauche little badges.

Not wanting to hang people and being able to recite the Idiot’s Guide to Identity Politics verbatim does NOT mean you’re left of centre…never mind left wing. Why the fuckin hell would it? This is a supposedly left-wing site, yet it seems it’s one on which the most likely response to any mention of class is its instant derision as a fundamentally divisive tactic serving only to obscure the real issues AND gets the poster branded as an anachronistic political illiterate.

And yet here YOU assessing the BBC’s left wing credentials and finding them lacking…fuckin mindblowing. Any of you enjoy a kickabout down the park on a Sunday morning? Maybe you ought to be offering Fabio Capello the benefit of your international footballing expertise?

@67, the difference between the UK and China is that we have a government that places significant taxes on businesses and the wealthy, and uses them to compensate people who lose their jobs. They have a model of society where your choices are “work for the capitalist” or “starve”. We don’t, because it makes more sense for businesses to focus on economic efficiency and governments to focus on safety nets and social justice.

Unfortunately for me, if the BBC, Guardian and liberal Conspiracy are in any remote sense left or even left-liberal, then I’m so far off in the leftish hinterland that I must be away with the little red fairies.

Accurate self-analysis WIN.

We don’t, because it makes more sense for businesses to focus on economic efficiency and governments to focus on safety nets and social justice.

At the same time, societies where business do invest (and are expected to) in their local communities don’t collapse as a result, do they? For instance, where I live a creat deal of local spotr and culture is supported by permanent institutions – the nearest town has an Ibercaja cultural centre and library, Ibercaja operate sports and social clubs and so on. This would be harder to organise if Ibercaja (a very sizeable bank) were likely to pull out of the area at a moment’s notice and it makes a difference in a way that one-off corporate sponsorships do not.

@ 69 “the difference between the UK and China is that we have a government that places significant taxes on businesses and the wealthy, and uses them to compensate people who lose their jobs.”

We do not place “significant taxes on the wealthy” we place a massive tax burden on the working population. The rich are not highly taxed in this country, they pay less tax than they did under Thatcher, the working and middle classes pay for the state.
The only argument in favour of this is that they are also the most likely to use public services, (I don’t think many hedge fund managers use the NHS, send their kids to the local comp or would be on JSA if they lost their jobs) but don’t try and pretend that we have some Robin Hood style redistributive tax system, we do not. That is why the only people who have seen improvements in standards of living under lab have been those at the top and those at the bottom. Everyone else has relatively speaking, stood still. It is one (of the many reasons) why nu labour are losing popular support and will lose the next election.

I don’t think it’s so much that they are deliberately or conciously left wing, it’s more that the BBC is run by a small sub section of the population (London based, middle class, white 30 something graduates) so you inevitably get coverage of what that group deems to be the burning issues, and they tend to be soft left/what posh people regard as “liberal” concerns . So you get more or less blankety coverage of climate change, healthy eating, the benefits of multiculturalism, etc etc. Radio 4 especially is like listening to a Islington dinner party on a loop tape.

Funny how often that “Islington dinner party” theme comes round, as if it were being played on a tape loop…

(Do people still talk about tape loops, by the way? I ask this as somebody who has never so much as touched an iPod.)

“Radio 4 especially is like listening to a Islington dinner party on a loop tape.”

Oh dear. I seldom listen to much else on the radio and don’t watch any TV. I even refused to renew my TV licence in February in protest against the BBC’s £16 million contract with Jonathan Ross and because I’d not watched TV all last year. Many of the excellent docs on BBC2 on science and Adam Curtis’s take on the world seem to find their way onto YouTube.

Try: The Power of Nightmares-Part 1
http://www.youtube.com/watch?v=Qk1WkmioQvA

johnb

#Accurate self-analysis WIN.#

Tip: if your own self analysis doesn’t turn out along the lines of…pretentious, self-absorbed, “right-thinking” middle-class clone with a gift for thinking the single most predictable, trite comeback represents some kinda “wit”, then it’s back to the drawing board matey…or maybe another long period of introspection down at Cafe Nero…sheeesh…I couldn’t have made you up.

john b: “1) do you think it’s reasonable for owners of capital to make a (reasonable, non-crazy) return on their capital,”

But that’s not the question we should be asking, since that’s not the way the world works. Corporations do not stop profits at a “reasonable” or “non-crazy” moment. A corporation is obliged to make the absolute maximum return on their capital possible, as their legal obligation to their shareholders. Craziness or reasonableness is not a factor.

The only limiting factor is their own ingenuity and the laws constraining them from taking actions against the common or public interest – which unfortunately they are also obliged to lobby to dismantle, which they have done with great success. The removal of those regulations was a major factor in the recent financial crisis.

Perhaps we should be reconsidering how we’ve re-oriented our economy to be mostly run by corporations who are legally bound to attempt to override the public interest at every opportunity in pursuit of the most unreasonable and crazy profits possible.

“Remember, this is mostly ordinary people’s savings and pensions, not gazillionaires’ bounty.”

Really? I’d be intrigued to know what proportion of profits from shares and financial trading goes to ‘ordinary’ people, as pensions or otherwise.

I bet it’s considerably less than the ‘ordinary’ people’s existing share of wealth – I fail to see any other mechanism that could be driving inequality so fast even against the flow of a heavily redistributive tax system.

73. Matt Munro. Good points , the BBC suffers from group think. How many people making editorial decisions are rugby league playing ex coal miners from Lancashire or Yorskire or Nothumberland farmers or petroleum engineers working in the north sea ? The BBC is largely run by middle class humanities graduates who have gone to a few universities, are the children of middle to upper middle class parents and who live in middle class areas in west london. Therefore their collective experiences is quite limited. Perhaps an advantages of moving parts of the BBC to Salford would be to realise there is life beyond the middle areas of west London and Islington and people from different backgrounds have different views of the World.

Too often the inability of the press to adequately question politicians and senior civil servants as to the various failures in public life, is that they have attended the same schools, universities, read the same subjects, socialise together and have mutual friends. Perhaps it is time to ban anyone who has read law and PPE at Oxford from public life for the next 25 years.

If the BBC is run by committed lefties, I’m a bleeding hobbit!