Category: Blog

Yesterday I remarked how negative and defensive Obama sounded in his latest emails from the campaign trail. Then he stumbled badly. The video of him talking about lipstick and the pig does not make good viewing for his supporters. Let us assume he did not mean to attack his new opponent but her policies, it was still a very ill judged remark and was bound to remind the wider audience that the Republicans had put a woman on their ticket. Meanwhile it reminded the Democrats that he had sidelined Hilary, despite her popularity with half their party.

Yes, people want change Mr Obama. The issue is what change? How would it be brought about? If Mrs Palin wins and is “let loose” on Washington it could be just what is needed. If Mr Mc Cain is up for curbing the voracious appetite of big government to tax, spend and regulate, that would be news. The problem for Obama is his money raisers and advisers are telling him to run negative ads and copy on the Republicans. This just means he loses what made him different from the rest. He loses the image of hope and optimism, and looks like other spin age politicians, raising too much money to pander to what the polls say.

Many people say they wish their political parties would work together more often, try to find a consensus, stop arguing so much. Modern political parties are likely to take this at face value, and find more agreements than are desirable. It seems to be happening at the moment in the USA.

Both Presidential candidates agree that the State should bail out Fannie and Freddie. Both agree that the US should run down its troop levels in Iraq as “victory” allows. Both want to increase troop levels in Afghanistan. Now Mr Bush himself is joing the consensus, announcing troop withdrawals from Iraq, ordering more troops in to Afghanistan and bailing out Fannie and Freddie.

Obama calls for change. Mc Cain announces he and Palin are the change. Mc Cain urges tax cuts, so Obama comes up with the need for some tax cuts. Both recommend substantial borrowing by the state.

When the political parties agree it usually means you should look out for your wallet. It is usually agreement based on ever bigger and dearer government. Sometimes the projects – nationalisation, or the more active engagement in a particular war – are destined to have an unhappy end, but any critic is sidelined because the great political machines are behind them.

A lively democracy needs choices. Every major policy by an Administration needs challenge from a vigorous oppositon, to make sure it is tried and tested properly. In the UK the outbreak of consensus has often done huge damage to the public interest. The public is deprived of choice, government is not put on its mettle by having to answer an alternative approach and the public suffers from the smugness and folly of the monopolist down the ages.

Remember the Exchange rate Mechanism? This disastrous economic policy was the only economic policy of the Conservatives that came fully recommended and supported by Labour.
The 1990s in the UK saw the advent of what I call Blajorism – John Major and Tony Blair copied each other to a great extent, and both were fixated by how it appeared in the press rather than by will it work and will it help people?

The US had better be careful. Too much consensus makes the politicians lazy, and may not yield good results for the country.
It is interesting to see how Mrs Palin has changed the race. The latest communications from Mr Obama sound negative and desperate – just like so many other politicians.

For once I agree entirely with the scientists. You will still be able to read this after 8.30 this morning. The world will not have fallen down a human made black hole – as if mankind had such power!
The more interesting question is what benefit in our understanding of the universe will we be getting for the huge outlays of money and time on the particle railway under the Alps? It looks like a train set from an earlier age, which just took a long time to build. Let’s hope it lives up to the billing.

Last night the FT teamed up with the London Stock Exchange to discuss whether we need more, less or different regulation for financial markets. John Kay and Martin Wolf led the evening with their talks. Both were suprisingly cautious about what you can expect regulators to achieve in the fast moving global world of finance. Both were pessimistic, expecting we will end up with more regulation of a kind which will not make us safer in future.

John Kay reminded us that 236 people were employed in the USA to regulate Fannie Mae and Freddie Mac. Were their jobs really necessary? They were slow to realise the seriousness of the predicament these two large companies got into, and were unable to do anything against the lobbying power of the mortgage companies when they did think there was room for improvement. Despite the Regulators the companies got into financial trouble which required a huge Federal bail out.

Northern Rock was a heavily regulated business in the UK. Its business plan and accounts were permitted by the FSA. It took its regulatory duties very seriously. No-one suggests it bent the rules or tried to misinform the Regulator. Indeed, in the last Accounts before the crash the Dirctors were busily planning how to reduce the amount of capital they held for a given level of business in response to the relaxation of capital standards being pushed through by the world Regulators in Basel II! I was told by the Chancellor I was wrong to propose getting rid of the mortgage regulations the present UK government brought in, as that would be dangerous! In all the years when we did not have such specific mortgage regulation we had no run on a mortgage bank. Its enactment and enforcement did not save Northern, or prevent Northern and others lending money to people against high house prices on high multiples of earnings. So what was it for?

The Northern Rock saga should remind us that sometimes regulations preversely make things worse rather than better. If there had been no capital adequacy requirements laid down, Northern’s Directors may have been more cautious. Because standards are laid down, Directors are tempted to say “Let’s deliver the required standard” assuming that will be prudent.

John Kay gave us a more modest list of things regulators could do. They could concentrate on policing activities to try to prevent or intercept criminal activity within financial businesses – attempts to steal client money in one way or another. They could ensure a comprehensive deposit protection scheme. The Central Bank should concentrate on providing cash to the system – where it has a monopoly – against reasonable security from the banks. The rest should be left to the market.

I found his approach convincing. I liked its modesty of aim, and the practicality of the individual recommendations. If Northern depositors had known they would get their money back under a protection scheme there might not have been such a run on the bank. If Northern had been able to get more cash from the Bank of England against proper security to protect taxpayers, the bank would have found it easier to pay off those depositors who did want to get out.

Those who want more aggressive regulation have to answer some difficult questions. Let us take this area of mortgage regulation. What would the government have done if their new mortgage regulator had had real teeth in the boom phase? Would they have watched whilst person after person was told they could not borrow money because they were not rich enough? Would they have been happy to see a queue of disappointed mortgage applicants told they could not get a mortgage against the stated price of the house, but only against say 80% of the stated value? Yet that is the type of action the Mortgage Regulators would have to have taken a couple of years ago to prevent the negative equity and the repossessions of today. The regulator would have to be both wiser about the state of the cycle and more powerful than the banks making the loans. He or she would also need protection against judicial review and legal challenge, as they would effectively be running the mortgage banks for them.They would be preventing banks from lending money when they wanted to on the terms they wished to offer.

It simply is not practical in a fast moving global market to find regulators who are that good and to allow them to make all those calls. The 236 regulators of Fannie and Freddie and the Regulators of Northern could not have prevented the respective collapses. Employing more of them, or tightening the rules, will not prevent a future problem. All the time we have boom and bust Central banking and boom and bust government spending and deficits, there will cycles that are beyond the powers of the regulators to fix. So let’s this time stop the humbug about how we “have learned the lessons” and will put in “regulation to fix it”. As the two commentators implied last night, the authorities are unlikely to have learned the lessons. Indeed, they are sending exactly the opposite signal. The message going out on both sides of the Atlantic is that private sector banks can make money in good times by lending lots, and can let the public sector pick up the bills when things go wrong in the bad times.

I heard Giscard give a clever speech this morning to the GlobalVision/Telegraph conference. Apparently offering the UK special status, the true intent was to get rid of the UK’s veto on Treaty changes and to drive ahead with integration of defence and foreign policy before the Conservatives get into office.

When you have a veto you do not have to put up with anything you do not like. If you depend on opt outs you depend on the goodwill of other states to let you have them. I am just glad to hear EU professionals posturing ahead of a possible change of government in the UK – they seem to realise the easy times of pushing the Uk into any federal scheme they like will be over.

Today the Guardian runs a most important interview with George Osborne. In it it he makes some crucial points.

1. The government has borrowed far too much off balance sheet through Private Finance Initiatives, Public/private Partnerships and similar deals. These need to be evaluated, and their true liabilities and costs put into the public accounts.

2. Green taxes have been given a bad name by Labour, and are now seen as Stealth taxes by the public. The public does not want more of them.

3. The current large deficit will cast a long shadow over a future government. It will place such a government in a straitjacket.

These important statements imply that a future Conservative government cannot promise to match any spending plans for the next decade that Labour likes to dream up. Whilst no Conservative government would want to sack teachers, nurses or doctors, it will have to rein in the wasteful and undesirable spending which now abounds.
It also implies that tax cuts will not be funded from unpopular tax rises, but from the proceeds of growth as the economy starts to recover. Recovery will be strengthened and speeded if government gets a proper grip on spending.

The US Treasury has moved to support Freddie Mac and Fannie Mae, the two large mortgage companies that dominate the US housing market. In what amounts to nationalisation, the Treasury has pumped in new equity capital and offered guarantees.

Fortunately this action does not come straight out of the Northern Rock book of mismanagement. In these cases there was no run on the institutions forcing the hand of the authorities. They were thinking ahead. Nor will nationalisation mean halving the mortgages offered and financed by the companies, as it does at Northern! The aim is not to sack staff and reduce the number of mortgages, as in the UK, but to make cash available and to try to stabilise a tumbling mortgage and property market. To this extent it is good news, and accounts for the immediately favourable response of the markets.

I am glad I am not an American taxpayer. This is a huge budget commitment. The Treasury says that with careful management the taxpayer will have to put up very little. Let’s hope they are right. The fact remains that this is the biggest ever rescue, and the US taxpayer now effectively stands behind half of all American mortgages, offering to pay losses on them if customers default. That’s good news for all the other banks in the system but bad news for taxpayers.

It shows how serious the present crisis is that the US authorities think they need to take such drastic action. Who would have thought a Republican President would end up nationalising the world’s two largest mortgage lenders? I do not recall that in the manifestoes four years ago. What kind of message does that send out to bankers and mortgage companies about how they should behave?

It is true that existing shareholders in the two FMs may lose, but everyone else implicated in making too many bad loans will have the protecting arm of the Treasury around them. Is it perhaps time for Mr Darling to make another one of his speeches about moral hazard? Will be hearing anything on this subject from the Governor of the Bank of England, who used to be strongly against such an approach?

To all my readers who think I have been too ready to seek action from the authorities on both sides of the Atlantic that can help stabilise house prices, I plead guilty. Collapsing house prices brings down much else with the fall. Many families pay the price with lost jobs, shattered dreams, repossessed properties. No sensible person wants that. I also think there has to be some balance in action taken, to avoid a worse problem in managing public debt and the government deficit. The art of getting through a crisis like this is to say and do just enough to allow private sector solutions to emerge. Shunting all or most of the problem onto government balance sheets does not solve it. It just moves the problem on, to emerge in a different form on a different day.

If these institutions have lost a lot more than is so far reflected in their write offs, then the taxpayer now will have to pay for the losses. If these institutions were just suffering from too little overall liquidity in markets so that investors were being unduly pessimistic, there were cheaper and easier ways for the authorities to sort that out.

One way or another the governments are taking over the bad loans and the portfolios of debt where confidence has been damaged. The European Central Bank has been busily taking in such paper to keep its banking system liquid. The Bank of England has done more of the same. The UK taxpayer has taken on responsibility for all the Northern Rock book, and now the US taxpayer is the reluctant owner of a couple of huge mortgage houses. The taxpayer interest has not been as well looked after as it should be. Of course Central Banks should take in poorer paper and make money available when it is needed, but they should do so with large enough discounts and requirements for write offs that fully protect the taxpayers who pay their wages.

The government is now spending on average £10,000 a year on every man,woman and child in the UK. Or, put another way, we have to pay £10,000 a head on average to the government in tax to keep them going. As children do not pay tax, that means the average taxpayer has to pay well over £10,000 a year if you add up all the taxes you contribute to.

So what do you get for your money? Is it a good deal? I just get my dustbin emptied once a week, and am allowed to use some inadequate roads.
I don’t mind being asked to help pay for the neighbours children to go to school and I don’t begrudge my elderly neighbour a free knee op.
I am not so sure about contributing to all the government’s wars, and become livid when I have to pay for regional government, an army of spin doctors, the rising number of civil servants, and the glossy brochure industry that is a substitute for government action. I dislike having to bail out the odd mortgage bank and railway company, and resent the ever expanding quango state regulating every feature of our lives, at our expense

I would like to hear from more of you about which bits of public spending you think are worthwhile, and whether you feel you are getting your £10,000 worth today?

And why am I doing two blogs today, like yesterday ? Because the weather is so bad I have lost both cricket matches this week-end I was hoping to play in. That just about sums up this summer and this year’s rain sodden cricket season.

I guess I am relieved we were spared a posing Minister for drought three years ago, and an overexposed Minister for floods over the last couple of years. I would, however, like the Ministers responsible for water supply and water control to do something instead of just saying things.

Three summers ago it was hot and dry. We ran out of water, so it was rationed. I called for a new reservoir in the dry south-east, and backed the plan for a desalination plant for London to act as reserve supply for dry times. Neither project has got past the drawing board three years on. On the law of averages we will get a dry summer sometime, and clearly we will have one before this government has got round to building the extra capacity we need for all the extra people they have invited in and all the extra homes they are building in the south east.

Now we have had two of the coldest and wettest summers I have ever had the misfortune to live through in a row. Fourteen months ago all too many people were flooded in their homes. We have had fourteen months of memos, lawyers letters, arguments over which public body is responsible in each case, Ministerial statements, a major Enquiry and Report, but very few men in diggers actually improving the ditches and digging a few more where there is too much water flowing.

What people want is some solutions. Public sepnding is now racing to £10,000 a year for every man, woman and child in the country. Why can’t they, within these huge budgets, afford just something to improve our land drainage, and to collect enough of the water so in drier times we don’t run out? Why is this just impossible for them to do? Why does everything take so long, cost so much and work so badly? Why does the Environment Agency define its job as warning peopole they might be flooded rather than helping ensure they will not be flooded? And why yesterday did Ministers give up on talking to the media and leave it to an official to do so? Are they at last embarassed by their lack of action?

The BBC in its report on UKIP said with some glee that the Conservatives will face a challenge from the right at the European elections because UKIP will demand a referendum on Lisbon.
Why is it right wing to want to ask the people about such a crucial matter? Were Labour and the Lib Dems being unacceptably right wing when they promsied one in the last General Election? Did they become left wing when they ratted on their promise (Yes, probably! That’s a delightful unforeseen consequence of the BBC nonsense).

What the BBC should have said in its report was this. The Conservatives promised a referendum on Lisbon in the last Election. We kept our promise, moving an amendment to get one, and voting for it, when Lib Dems and Labour let us down by failing to keep their word. I seem to remember there were no elected UKIP MPs available to help us secure that referendum, and fewer Consrevatives than we needed because UKIP and others had stopped some Conservatives getting elected on the promise of a referendum.

Conservatives have made clear we will give a referedum if Lisbon has not been ratified everywhere when we come to office. It seems unlikely it will have been ratified, so there will be a referendum. If by any chance it has been ratified we will be taking other actions to sort out the EU mess, as we cannot live with Lisbon, or with other parts of the accumulated Treaties and powers of the EU.