Tuesday, 22 April 2008
Negotiation, Darling-style
FOR a set of negotiations to go ahead, you normally require two sides which each possess something that the other desires. Once this is established, it falls to the negotiating skills to decide which party comes out on top.
Not so our Government. It has decided to give the banks everything they want, and then ask for some favours in return. In a total volte face by both the Treasury and the Bank of England from around a year-and-a-half ago, they have decided to take the position that nothing, but nothing, should allow a major bank to fail and, from being the last to react to the credit crisis, they have now put in place the furthest reaching measures to combat the worsening economic climate yet.
This is all very well, but putting aside the huge profits that these very same banks made through quarters three and four last year (there's a good argument that they were skewed by activities in the first half of the year), what is expected of the banks now that they have had this considerably-sized lifeboat pushed in their direction?
Alastair Darling has been off to see them today, to beg leniancy towards beleagured borrowers. Banks, the BBC reported vaguely this morning, will tell them that there is little they can do.
In fact, this isn't true. As well as being guided by the Basel II agreement, banks - in line with the rest of the financial industry - is now facing up to a tightened Consumers Credit Act, as well as the Financial Services Authority's much-maligned Treating Customers Fairly principles.
It is with this that the Chancellor holds anything like a bargaining chip. Only with it can he seek a proviso after effectively forgiving their often reckless lending, their disregard for securitisation. Few would argue that the banks have not played a part in bringing about the credit crunch, yet the Government's response is a little bit like giving a child that's just burned down his school the keys to the sweet shop.
Nobody wants punitive measures, but greed is a powerful motivating factor, and there appears to be no disincentives from the Government to stop any further behaviour like this. The flavour of the outrage has focused on rich capitalists getting off the hook at the expense of the hard-working tax payer. But to prevent this behaviour from becoming cyclical, any bail-outs must come with strings that would be unpalatable at any time other than those of desperation.
Thursday, 17 April 2008
These salaries are not good for Wales
CONGRATULATIONS to BBC Wales for putting the meat on the bones of one of my favourite gripes.
Using the Freedom of Information Act, its Dragon's Eye reporters managed to wrest the salary figures of local authority officers from most of the councils throughout Wales.
The results were even worse than I'd imagined. Some 40 senior staff are each earning over £100,000, with at least eight earning more than First Minister Rhodri Morgan and Tory leader David Cameron. Two headteachers in the Vale of Glamorgan alone were earning more than their boss, education minister Jane Hutt.
Predictably, the Welsh Local Government Association defended the salaries. Chief executive Steve Thomas said the "hugely experienced" officers were "top people", working for councils that offered "great value for money", bearing huge responsibilities.
We all know that your pay is usually related to experience and responsibility, but what are the metrices for gauging these salaries? They are being paid up to six times the amount that other responsible public sector workers, such as medics and emergency workers, are paid. And this claim that local authorities must pay salaries to prevent these staff going elsewhere is fatuous - where would they go to? Most of them are time served, and many of them have moved up through dead man's boots. You would be hard pushed, even all these years after Thatcher reform, to prove that many councils are meritocracies.
Mr Thomas compares such salaries in Wales unfavourably with their English counterparts, claiming there are greater riches to be had over the border. This only reinforces my argument. It seems that most authorities have got into a wage race, believing wrongly that they have to out-do one another with remuneration.
What worries me most is what this means for the wider Welsh economy, already top heavy with public sector jobs. Those of us in private enterprise already have to contend with rising costs across the board, challenging our competitiveness. It's tempting, when we get a higher Council Tax bill, to think that we're financing someone who's enjoying the benefits of our sector without having to deal with those challenges.
Using the Freedom of Information Act, its Dragon's Eye reporters managed to wrest the salary figures of local authority officers from most of the councils throughout Wales.
The results were even worse than I'd imagined. Some 40 senior staff are each earning over £100,000, with at least eight earning more than First Minister Rhodri Morgan and Tory leader David Cameron. Two headteachers in the Vale of Glamorgan alone were earning more than their boss, education minister Jane Hutt.
Predictably, the Welsh Local Government Association defended the salaries. Chief executive Steve Thomas said the "hugely experienced" officers were "top people", working for councils that offered "great value for money", bearing huge responsibilities.
We all know that your pay is usually related to experience and responsibility, but what are the metrices for gauging these salaries? They are being paid up to six times the amount that other responsible public sector workers, such as medics and emergency workers, are paid. And this claim that local authorities must pay salaries to prevent these staff going elsewhere is fatuous - where would they go to? Most of them are time served, and many of them have moved up through dead man's boots. You would be hard pushed, even all these years after Thatcher reform, to prove that many councils are meritocracies.
Mr Thomas compares such salaries in Wales unfavourably with their English counterparts, claiming there are greater riches to be had over the border. This only reinforces my argument. It seems that most authorities have got into a wage race, believing wrongly that they have to out-do one another with remuneration.
What worries me most is what this means for the wider Welsh economy, already top heavy with public sector jobs. Those of us in private enterprise already have to contend with rising costs across the board, challenging our competitiveness. It's tempting, when we get a higher Council Tax bill, to think that we're financing someone who's enjoying the benefits of our sector without having to deal with those challenges.
The price is right?
COMING at the same time as the Basel II committee's warning that it may regulate CDOs and vehicles like them, European Union securities regulators said they were close to agreeing how they would value such securities.
If you remember, one of the key factors that led to the drying up of liquidity is that few of the financial institutions knew if the paper they were holding was worthless or not, and were therefore unwilling to lend to others who had taken similar positions.
I'm always a little bit wary when this sort of outcome is mooted as, first of all, I don't like governments interfering in the free markets and, secondly, because the impact of these measures is usually limited, as the smart boys quickly move on to the next instrument - or instruments - they've devised.
However, you can't help thinking that someone should get a slap for their recklessness. But is the EU big enough - and clever enough - to administer it?
If you remember, one of the key factors that led to the drying up of liquidity is that few of the financial institutions knew if the paper they were holding was worthless or not, and were therefore unwilling to lend to others who had taken similar positions.
I'm always a little bit wary when this sort of outcome is mooted as, first of all, I don't like governments interfering in the free markets and, secondly, because the impact of these measures is usually limited, as the smart boys quickly move on to the next instrument - or instruments - they've devised.
However, you can't help thinking that someone should get a slap for their recklessness. But is the EU big enough - and clever enough - to administer it?
More regulation on the way?
THE Basel Committee on Banking Supervision, that all-powerful body, says it is considering pushing banks to overhaul their risk management strategies in the wake of the credit crunch.
The committee said the current situation "has revealed significant risk management weaknesses at banking institutions". Coming as it did among reports of further write-downs at Merrill Lynch and RBS plans for a £12 billion rights issue, this comes as no surprise.
It's also considering beefing up the Basel II Framework, which is adhered to by the major banks, with specific regulation aimed at complex financial instruments, spicy paper, and the credit exposures that they brought.
The committee said the current situation "has revealed significant risk management weaknesses at banking institutions". Coming as it did among reports of further write-downs at Merrill Lynch and RBS plans for a £12 billion rights issue, this comes as no surprise.
It's also considering beefing up the Basel II Framework, which is adhered to by the major banks, with specific regulation aimed at complex financial instruments, spicy paper, and the credit exposures that they brought.
Will this be a lifeline?
THE worst-kept secret in the markets yesterday was the Bank of England's plans to allow banks to temporarily swap mortgage-backed securities for Government bonds, traditionally seen as one of the safest places to put money.
Will it work? Judge for yourself.
Will it work? Judge for yourself.
Wednesday, 16 April 2008
Single pot ... single purpose?
THE single flexible investment fund goes live in Wales tomorrow with aims that are both laudable and heartening.
Nice that the Assembly is flexing the muscle it has to produce something that, on the face of it, will be most welcome by businesses, who have long complained - here and across the rest of the UK - that access to public sector-based support is bewildering (some say deliberately so) and the passage to funding and advice is both draining and dispiriting.
One fund, one telephone number, one form - it could almost be a daytime advert for a secured loan company. Personally, I have many misgivings about providing funding for business, having seen too many fall into the comfort zone, only to come out the other side unprepared for the harsh reality of trading. They have gone to the wall, just as others have come to Wales to take the money before moving on somewhere else.
But then my business is service industry, and doesn't have R & D costs. The Welsh Assembly Government is determined that, if Wales is to compete globally, it must have companies that require highly-skilled workers. We can never be China, so we must be Germany, or a country like it. Since the One Wales Coalition began, walls between the Assembly's education and enterprise departments have been demolished, and this pot is another step along the road, another encouraging sign that the Assembly is resolved to meet its objectives.
There are a couple of things that niggle, and no more than niggle. The first is that one company could, technically, take the lion's share of the £92 million already in there. This sounds a little like those old horror stories of Common Agricultural Policy abuse, when several extremely rich grain barons in the East of England commanded the lion's share of the UK's allocation. All that it takes is one company, or a handful of businesses, that are particularly adept at playing the grants game, and all this good work could come undone.
As a consequence, a lot of responsibility rests on the shoulders of the customer relationship managers. The Assembly has already acknowledged this, with training for staff, and it
hasn't ruled out recruiting from the private sector. This may be worthwhile, along with competitive salaries to match, if we are to avoid the development of a system not to dissimilar to the way that commercial lobbying operates in Washington. God forbid that Cardiff should fill with lawyers and lobbyists lunching out on and lining pockets with the public purse.
However, of more concern is how such a scenario could derail the Assembly's efforts. More worrying is that companies that can afford to pay to play the system could push up the line, in front of dynamic, wealth-creating businesses that need assistance in taking those early, hard steps.
Once again, I am taking several leaps in assumption, and must stress that it is but a very small concern. With the greatest respect, the WAG is already exceeding most expectations. Such an assured move will also only contribute to business confidence, with companies knowing that the Assembly has got their backs. As we know, we all need a bit of that at the moment.
Nice that the Assembly is flexing the muscle it has to produce something that, on the face of it, will be most welcome by businesses, who have long complained - here and across the rest of the UK - that access to public sector-based support is bewildering (some say deliberately so) and the passage to funding and advice is both draining and dispiriting.
One fund, one telephone number, one form - it could almost be a daytime advert for a secured loan company. Personally, I have many misgivings about providing funding for business, having seen too many fall into the comfort zone, only to come out the other side unprepared for the harsh reality of trading. They have gone to the wall, just as others have come to Wales to take the money before moving on somewhere else.
But then my business is service industry, and doesn't have R & D costs. The Welsh Assembly Government is determined that, if Wales is to compete globally, it must have companies that require highly-skilled workers. We can never be China, so we must be Germany, or a country like it. Since the One Wales Coalition began, walls between the Assembly's education and enterprise departments have been demolished, and this pot is another step along the road, another encouraging sign that the Assembly is resolved to meet its objectives.
There are a couple of things that niggle, and no more than niggle. The first is that one company could, technically, take the lion's share of the £92 million already in there. This sounds a little like those old horror stories of Common Agricultural Policy abuse, when several extremely rich grain barons in the East of England commanded the lion's share of the UK's allocation. All that it takes is one company, or a handful of businesses, that are particularly adept at playing the grants game, and all this good work could come undone.
As a consequence, a lot of responsibility rests on the shoulders of the customer relationship managers. The Assembly has already acknowledged this, with training for staff, and it
hasn't ruled out recruiting from the private sector. This may be worthwhile, along with competitive salaries to match, if we are to avoid the development of a system not to dissimilar to the way that commercial lobbying operates in Washington. God forbid that Cardiff should fill with lawyers and lobbyists lunching out on and lining pockets with the public purse.
However, of more concern is how such a scenario could derail the Assembly's efforts. More worrying is that companies that can afford to pay to play the system could push up the line, in front of dynamic, wealth-creating businesses that need assistance in taking those early, hard steps.
Once again, I am taking several leaps in assumption, and must stress that it is but a very small concern. With the greatest respect, the WAG is already exceeding most expectations. Such an assured move will also only contribute to business confidence, with companies knowing that the Assembly has got their backs. As we know, we all need a bit of that at the moment.
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