Not even an illusion of safety

Looking for the illusion of safety, there’s no such thing as a safe anything anywhere. In terms of the financial system and capital adequacy, and say pricing models like the CAPM and/or Black-Scholes, the risk free rate is an artificial construct based on a (financial) economist’s premise that such a thing exists. As far as the GFC is concerned, it wasn’t anything to do with the traditional idea of a ‘safe’ asset so much that financial engineers could create a proxy in their CDOs or CLOs or the like that the ratings agencies could find a tranche that they could label as ‘risk-free’. The subsequent problem that made things so much worse was that these assets on that basis were then able to permeate through the financial system.

Certainly gilts and US treasuries are ‘risk-free’ in the traditional sense of the word, in as much as their holders are as guaranteed as is possible to receive coupon and principle according to the terms of the bond, but that doesn’t make them a safe asset.  For one like any other financial instrument their price varies, meaning there’s no guarantee you’ll receive what you paid when you come to sell them. Equally given the difference between real and nominal rates of return, the effect of inflation on the value of money means that the purchasing power of your asset may well deteriorate.

The idea that gold has anything to do with this, creating so called ‘safe assets’,  is just ridiculous. Gold is a commodity that like any other has value as a means of exchange and as an investment. In some cultures it may be seen as a store of value, but this tends to be where there’s a requirement for a tangible, portable or fungible means of exchange, but at the same time they are also aware of the relative purchasing power of money.

The whole conception of ‘safe’ or ‘risk-free’ with regard to assets is as much a manipulable, sales tool used across the financial community by bankers, economists, academics etc as any other, and needs to be treated with commensurate scepticism. The idea of a requirement to satisfy demand for such an asset is discussed here.

Equally, this post describes how negative rates of return can still be seen to constitute a safe asset.

Finally, it’s quite apparent that the search for safety is definitely not ubiquitously responsible for creating asset price bubbles. While this could well have a lot to do with the current ‘bond bubble’, I’m not sure how anyone could describe the dot com and irrational exuberance of the late 90s as having anything to do with it.

Comments gratefully received and maybe more to follow.

 

‘Those who live in glasshouses shouldn’t throw stones’. An alternative EU view.

After reading another feisty post from Pat on her Madkentdragon blog in her most recent offering on this longstanding popular favorite, ever polarising chestnut, felt inspired to present an alternative view.

It’s hardly surprising given a thousand years of history and as a mercantile island nation that lost its empire, situated on the edge of Europe, that us Brits have always lived under the continuous gentle drizzle and occasional thunderstorm of Euroscepticism from the cradle to the grave that probably extends beyond just the EU to include in large part most of our our continental neighbours as well.

We joined the Common Market with a very different agenda to the rest of the club. After many years of being refused admission which I suspect probably lead us to a position that was strangely reminiscent of and/or vaguely akin to what Graucho Marx had to say on the subject. This was combined with a very much what’s in it for us attitude and a conveniently blind popular and political naivete to the fact that it was clear from day one it would evolve in the way it has. Unsurprisingly little has changed for half a century or more. It wasn’t long ago that in the face of seemingly terminal, inexorable, industrial and economic decline in the post-war years, that for decades this angst manifested itself in the aphorism ‘We won the war and lost the peace’ (and Germany vice versa). Little has changed now except the EU has become the bogeyman for us even if these days some countries might see German dominance of EU as its paymaster general as little more than a financial blitzkrieg on their country and economy, such that even the IMF recently has started to seem positively warm and cuddly by comparison. Maybe leopards can change their spots.

Have we ever not had politicians, the media and the like not take great pleasure in this political football?

To my mind, a lot of this EU bashing, makes for a convenient distraction from the far more egregious wanton profligacy of Whitehall procurement and general conduct in its business dealings; the NHS, MoD and DfT to name just three. Hardly surprisingly given the Yes, Minister acrimony of relations between Westminster and Whitehall. It serves the the politicians’ agenda as lawmakers living under the Damoclean sword of re-election, to seek to generate popular support and media coverage (where normally there’s no such thing as bad publicity) and electoral currency by keeping their departments busy messing with policy and endless headline generating reform and restructuring. Bar the inevitable, occasional ‘omnishambles’, keeping them on their wheel in this way also serves to keep the mandarins in their place and at the same time prevents them from having a chance to put their house in order, which should it occur would run the risk of putting ministers out of a job. A winning situation for ministers from whichever angle you look at it.

Certainly there are travesties in the EU budget and its accounting aplenty, but given its size and scale and the nature and composition of the EU, it’s hardly surprising that these problems have arisen, and it’s actually to be applauded for standing up to the misdemeanors of its member states. For goodness sake, there’s nothing else like it anywhere in the world. By all accounts and by any measure the EU DGs and its governmental insitutions run quite smoothly compared with the UK which looks more like a snake pit. For our part,  it’s taken the crisis of the GFC and the worst double-dip recession for a generation for government coffers to be so depleted and such a mountain of debt to have piled up for politicians finally to start to take action to rectify the situation. Reminded of the irresistible force paradox, I reserve judgement about these initiatives.

Just to finish with the observation that the NAO and PAC as the UK’s nearest equivalent to the EU’s audit watchdog are yapping chihuahuas compared to the EU’s, if toothless, Alsatian.

 

 

A paean to Persephone Books

I discovered this small London based publishing house quite by chance a few years ago, when I  read an article in the Weekend FT with the inimitable title of  simply ‘I am doing it for the books’ .  A profile of and quote from Nicola Beauman with regards her ongoing role as the founder of Persephone. She remains in charge to this day, with what by any stretch of the imagination must be one of the most challenging jobs in any business: running a young, independent company specialising in what most people would consider to be a deeply unfashionable part of the market, and all this in the wasteland or wilderness that is the current state of almost every part of your industry. All this, it would appear from my single visit there, from a small desk at their charming shop and HQ in Bloomsbury.

For a decade or more after leaving school, I devoured the classics and almost anything else I could lay my hands on that remotely caught my attention, as manifested by my frequent trips down to my local Waterstones, (which in due time not surprisingly turned into clicks on Amazon) when over time I would come home or receive parcels laden not with the worthy and improving titles I had hoped for, but increasing loads of dross. So being one who when he realises he’s in a hole tends to stop digging, so it became more and more of a challenge to find anything I wanted to read. The end result being increasingly forlorn perusals through mine or Dad’s bookshelves. More often than not drawing a blank, my most likely reading would probably be some business or finance book that I’d heard about in the course of my work.

So back in 2008, reading this article and finding out about the firm for the first time, but remaining sceptical, given then as now it describes itself as ‘reprinting neglected fiction and non-fiction by mid-twentieth century (mostly women) writers‘ thinking it must be something like Virago, which I’d never been much of a fan of growing up, I ventured on to their website for a look around and maybe order a book or two. Almost immediately it became my new favourite publisher (replacing the The Folio Society and Everyman’s Library which had pretty well run their course for me). So you won’t be surprised to read I’ve always paid as much attention to the quality of the bindings as the contents, sometimes the one to the detriment of the other. It was also a particular almost childhood delight for me to discover a new quality British niche publisher since I remember growing up going on various educational or exchange type trips to France and envying them the riches to be found in the panoply of bookstores of some sort or other to be found on almost every street corner, from the newsagent kiosks, the Papeteries (stationers) and the bookshops themselves, which all seemed to be filled with such a diversity of quality paperbacks or what have you one couldn’t help but feel sure that the French publishing industry was vibrant and thriving, benefiting all concerned – publishers, authors, booksellers and of course readers. The fact we live in a very different world these days is another matter.

The whole experience of buying these books was a delight. An easily navigable, attractive website with every detailed attention paid to making it as easy as possible for you to peruse the catalogue and find the right book. No mean feat when you consider that while you may be familiar with some of the authors, under the circumstances,  it’s unlikely you’ll know anything of any of the titles, unless your specific paths had previously crossed for different reasons. The same meticulous approach can be found in the books themselves, both as an object, that compared with some tatty paperback or hardback from the lastest bestseller list,  far from being an embarrassment, is likely to occupy pride of place in your briefcase or handbag or the like. Every one of them an individual marvel, with their smart uniform Persephone Grey dust jackets and cream ‘labels’ belying the unique, period endpapers and matching bookmarks that for them alone would be reason enough for collecting the books.

While I understand the books may not be widely available or even that visible on the high street, whenever I do come to mention Persephone to the right sort of someone, more often than not they’re already well acquainted with it. And for those of a nervous disposition, placing orders is very straightforward, either through the website, on order from your local bookseller, or even from the elephant in the room who shall remain nameless. For whatever reason you may come into contact with them, the staff are an absolute delight to deal with.  All in all, it’s not surprising that Persephone and its readers have come to form a real community if not a club that doesn’t require membership as it displaya all the hallmarks of a more social type organisation: newsletters and other periodicals both the old fashioned way and a vibrant virtual presence on the social networks of internet 2.0 that goes beyond simple commercial marketing or advertising, coffee mornings, readings and other events and so on.

Lastly, just a personal comment about what I’ve found so special about the Persephone world in the couple of dozen or so books I’ve read so far. Each of which is exceptional. Hardly surprising that something that was lost for decades and sought out and rediscovered will only see the light of day again if it’s unique in some way and stood the test of time in its own right and on its own merits. A far cry from a lot of the rubbish that gets churned out each year by the majors and is flogged in large quantities and/or on a limited campaign basis, where if a book isn’t an immediate best seller or at least hit its targets, it gets remaindered and risks the ultimate ignominy of being pulped. So unsurprisingly, the main concern for all involved becomes basically covering the author’s advance and all the other costs of producing a comparatively small number of titles on sort of a sink or swim basis where they seem to be almost betting the house on every title. Like in the music or film industry, these sorts of high stakes lead to an increasing aversion to risk, and a commensurate decline in nurturing talent and quality that will stand the test of time. I can’t imagine there being much need for a Persephone type media organisation in another 50 years.

While obviously this post hasn’t had much to do with lit crit, just one or two personal remarks about things that have particularly struck me after a first reading, though I suspect I’ll be rereading my collection many times with great pleasure for years to come. The most common preoccupation, not actual subject matter but looming in the background like an ominous grey thundercloud, is the War. What’s so fascinating is to read novels written at the time, not as historical or period pieces, but as current events when in many of these novels and short stories even the outcome of the war wasn’t known. Authors actually knew what they were talking about in describing how people went about trying to live their lives, how they felt and what it was really like whether it’s an adulterous young bride whose husband is dispatched indefinitely overseas; a family trying to preserve its heritage in the face of unstoppable social change, be it a stately or historic family home, a business, someone’s very family or even their own sense of identity. On the other hand they might be dealing with something more lighthearted like a collection of short stories about small incidents or petty niggles of everyday life as events/history go on around them. Elsewhere, there are wonderful novels about minorities, the aristocracy and  the ties that bind it with the USA; not forgetting the downtrodden and dispossessed so to speak, on both sides of the pond, and in one, which is one of my particular favorites I think, for this reason probably, that even in telling a story about your regular working man and the simple pleasures of his couple of weeks annual family holiday by the seaside, it still doesn’t neglect social realism.

What’s fascinating and to my mind possibly unique about this period, and one reason why it may have seen such a flourishing of woman writers, is that again because of the war, they were the only ones around who lived or at least aspired to any semblance of a normal life, let alone be in a position to read about it or write about it. Every book I’ve read so far has been a gem even if unsurprisingly I doubt anyone would take equal pleasure in every volume. I don’t think I’d be overstating the case to suggest that Persephone will be seen as a real national treasure for resurrecting and preserving this part of our heritage for future generations according to almost Reithian ideals and doing it with such style.

It’s time to say something

I was reading this blog post Opinion: Calling All Bloggers – Don’t  make me a tax avoidance accomplice quite by chance and just decided I’d had enough and it was time to say a few things, specifically in response to this post but generally to try and actually take a dispassionate view and present as objective a consideration of the matter at hand as I can.

An interesting piece of basically (party political) propaganda but the issue of tax avoidance is so emotive that facts often get forgotten about and given how serious is the state of our public finances, it’s worth having a look at reality in the cold light of day.

First, the usual suspects of Boots, Top Shop and Vodafone. As stated here ‘the trio is in the champions league of tax avoidance‘.  By any measure, it’s hard to defend Philip Green, but a lot of the outcry seems to be to do with high profile events that happened years ago, that a lot of people probably don’t even understand the mechanics of . You can say what you likes about the apparent ethics of how he runs his business, whether it’s worker conditions in the UK or possible use of sweatshops in his supply chain, but it’s the very opacity that makes him a target, as very few people know what’s really going on.

The fact remains though that he’s an extremely successful businessman who’s taken a ragtag bag of humdrum British fashion retailers and created a global empire. We should be singing his praises not condemning him for structuring the ownership and financing of his business in a tax efficient way. Think of all the jobs he’s created and the beneficial impact of the spending power of his employees in terms of income tax and NIC and of course all the VAT all this economic activity generates. Think of the beneficial impact having thriving stores has on high streets and shopping centres in terms of business rates, rents paid etc. It’s all manna from heaven compared with the the parlous state of the rest of the retail sector and so much of our economy. How many high street chains have gone out of business in recent years and how rare are these sorts of success stories. HMRC should be amongst his most ardent aficionados shouting from the rooftops.

Vodafone at first glance obviously pays a low rate or little tax. But hang on, few people seem to bother to differentiate between which part of the business they’re actually talking about, let alone define which tax they have in mind, before even coming close to thinking about why that might be the case. Say Vodafone UK, yes indeed, it does pay little corporation tax, but let’s not forget the billions of pounds (£5.9 bn to be exact) they paid to the exchequer for the 3G license back in 2001. A cost that almost bankrupted the industry.  That equates to close to £600 million a year paid to the treasury just for the license  before the company even begins operations. This is before we start to think about the massive amounts of capital expenditure required for rolling out the network. Now we can start to think of the costs of running the business and generating some taxable profits. Again Vodafone is a successful FTSE 100 company that we should be proud of.  It generates those benefits described above and even more.  As one of the most valuable companies in the world, it constitutes a core element of almost all our pension funds. Those dividends that the Greens send offshore are one of the largest individual contributors to the income that actually pays for our retirement, helps fund our insurance schemes and all sorts of other benefits.

Finally Boots. Again the critics demonstrate the same poor attention to detail in specifying what they object to and a general lack of  a understanding of its corporate and ownership and financing structure. Essentially, having been subject of a leveraged buyout, it’s possible we should be throwing brickbats at the LSE and PTM and complaining about the market for corporate control in the UK. All of which are legitimate concerns. For what it’s worth though, again we should be thankful that Boots has ended up as part of a thriving global concern rather than victim of an asset stripper, and even if they pay little tax, the same positive benefits accrue to all of us across the UK economy.

My last point is concerning the quote from the article in the New Statesman  which generally muddles tax evasion and avoidance all over the place and the author of the post it’s quoted in doesn’t seem to consider it worthwhile to differentiate between the two. Specifically to deal with what he writes about HMRC’s spending on publicity reducing tax evasion versus benefit fraud. Most noteworthy is that it’s publicity he’s talking about (not actual enforcement action, to be clear) and on this occasion not avoidance but tax evasion, so once again a completely different issue, but a few things need to be said so let’s deal with it briefly just to finish off.  Obviously, it’s hardly news that it costs a lot more to reach the entire population on any matter. In this case, inform them about action they’re taking to reduce the occurrence of an offence that involves a small amount of money committed by a large number of people. In fact, more often than not, publicity to reduce tax evasion can hardly be said to be publicity in the mass market or normal sense of the word.  And to be clear, HMRC has set up a special unit consisting of close to 400 members of staff to focus on tax evasion by the wealthy that in three years has already netted around £500 million.

While tax evasion is a whole other area and illegal, tax avoidance is legal and we all attempt it at some level. The schemes get bigger and more elaborate and more expensive the wealthier people are or larger the company. It’s human nature.  We tend to be outraged because we normally only find out about what they’re getting up to when people get caught and high profile cases arise. This though is as much a fault of the tax system, which creates the situation that just about the only people who get rich are the lawyers and accountants.

Please redirect…!

After a concurrent trial period, for now wordpress will be on hiatus. But many thanks for visiting and please do pass by my new permanent home for the time being.

http://jpblaw.blogspot.com

 

 

 

 

Hello world!

Welcome to WordPress.com. This is your first post. Edit or delete it and start blogging!

‘No Good Deed Goes Unpunished’

‘No good deed goes unpunished’ was my unexpected and unwanted life lesson of the bank holiday. It’s certainly all too true as aphorisms go and I had it in spades yesterday afternoon as my regular walk home from the local offy became anything but, as it all went Pete Tong in the most absurd fashion.

Out of the blue a couple of the local urchins who are a perennial presence around the place stopped me and asked for some help with their mini moped as the starter didn’t seem to be working properly. So even though I know I’m no kind of petrol head and pretty hopeless generally at anything practical like that, I thought for something as simple and straightforward as yanking a starter pull, just being a grown up should give me an advantage over pre-adolescent kids so it shouldn’t be too much of a challenge even for me. How sadly mistaken I was! I had a couple of goes on the pull cord which I realised wasn’t running smoothly at all and in my professional opinion seemed pretty well buggered. Meanwhile, the kids were already having a go at me to ‘pull it harder!’ and ‘keep trying’ but I realised straightaway (if you’ll pardon the pun) it was a non starter and I should cut my losses and try and leave with some dignity while I still could.

Had I merely ended up unable to start the damn thing, that would have been embarassing enough in front of the kids from the estate next door who I see all the time but then even worse realised I’d lacerated the inside of my finger on the sodding wire cable and blood was gushing. Hurrying home feeling kind of mortified as the kids shouted at me ‘had I cut myself?’ as they could obviously seem the trail of drops of blood that despite my best efforts to staunch the flow was spilling from my clutched hand. Not surprisingly I was quite shaken up by the whole business and trying not to lose or spill too much blood in the process, when I was able to inspect the wound saw how bad it was. It was not a pretty site. So I called NHSDirect and they said I should get to A&E pronto, which I was really hoping to avoid. So my afternoon and evening did not go as planned, spending most it at the Whittington Casualty Dept.

Anyway after being seen by about six different people in the course of two hours including two receptionists, a triage nurse, a doctor who referred me to one of his nurses who because he hadn’t have signed authorisation from the doctor for his oral instructions for dispensing medication, then had to consult back with the doctor yet again. But then my original nurse had gone off to do something else. Thankfully this time there was another nurse around who the doctor got to finally give me a shot. But even for this basic treatment it must have taken her a good ten minutes from her receiving the instructions to do whatever she had to do before being able to give me a simple shot.

I must have spent about an hour pacing up and down in the treatment room where there wasn’t even a chair. Just a rather uncomfortable PVC covered, foam padded treatment couch that I don’t actually fit on stretched out if I lie down and isn’t even much good for sitting on for any length of time, except for a bird-like temporary perch on the edge, as that sort of position can’t do your posture any good either. I mean it is a hospital where it often seems it’s been forgotten that you’re there to actually get better than you were. So many scandals. MRSA, murderous charge nurses or GPs, sexual predatory gynaecologists etc. etc… The list goes on.

So in the end I had the wound glued up and bandaged and got my tetanus shot and trundled off home feeling that my day had taken a definite turn for the crappy. Anyway, no permanent damage, just an ugly flesh wound. Though my finger’s got to stay as it was at the time of my misfortune so it will be all claw like for the next couple of days so as to give the wound a chance to close up and heal. It makes me think I had a lucky escape though as if my fingers hadn’t been clenched pretty tight with a nice thick fleshy pad to protect all the important bits, if I’d cut myself as deep I could have been looking at something a lot worse- ligaments, tendons, nerves and all the other bits and pieces. Some political thoughts to follow…

God I hate hospitals. If I was mildly annoyed at my stupidity for cutting myself, I was fuming after dealing with NHS Casualty. If there were widespread private walk in clinics offering emergency medicine I would gladly pay. I just don’t understand their general ineptitude and how inefficiently so much of the NHS is run. I mean it’s clearly within the realms of possibility as look at dentistry where most practices offer private and NHS treatment and while there may be nominal fees payable, at least on the whole you’re dealt with in a reasonably competent fashion so it doesn’t take up your entire day just dealing with the vagaries of the appointment system. Any economist could tell you how if a service is free at the point of use, you’re obviously going to have almost unlimited demand so after a lifetime of experience of dealing with all manner of different healthcare providers, something has to be done about the NHS. Throwing money at the problem, ultimately only has a limited impact on improving the quality of healthcare provision (I hardly need mention the USA so why not confront the sacred cow and tentatively introduce a contributory charging policy for certain treatments. We pay now as a matter of course for dentists, opticians and all kinds of other treatments so why does there remain this entrenched opposition. I’m sure there was equally vehement opposition when they reformed dentistry and opticians etc. but the political masters actually had the balls to take a stand. Love her or loathe her, Thatcher was probably a once in a life time occurrence. And maybe even she bottled out with those parts of the NHS… Oh dear!

In the meantime, there’s a local outroar at the moment as the NHS powers that be want to close the whole hospital which not surprisingly is not going down too well. I remember it was bad enough back in the 80s when Thatcher and her cronies included shutting loads of A&Es and even back then that was one of their least popular of a long list of unpopular policies. It looks like literally everyone at the Whittington are doing what they can as they’re trying to find £14.5 million worth of efficiency improvements in house but have only managed to raise £9 million so far. They’ve even got flyers up offering £100 M&S gift vouchers to anyone who comes up with a good idea. I guess that would certainly help try and justify a stay of execution to the bean counters at the NHS Trust. In theory, I can’t believe that should be too hard judging by the ridiculous amount of bureucracy I’ve seen there even at the front line of health care provision. Sadly in practice, things are never that simple as it’s hard enough to change working practices in any organisation, let alone a lumbering juggernaut of a supertanker that is the NHS.

Anyway enough of my pontificating. Congratulations if you made it through all my verbal incontinence. Definitely needed to get it off my chest as I was feeling really stressed out by the whole mallarkey. Thanks for reading. Bye for now…