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The British State: the biggest Ponzi scheme in history

Perhaps the oldest fraud in the financial system is the Pyramid scheme, a fraudulent operation that pays returns to investors out of the money paid by subsequent investors rather than from profit. In America, the Pyramid is known a the Ponzi scheme, after the name of one high profile fraudster of the 1920s.

The principle is simple: the scheme usually offers abnormally high returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going. Yet the system is destined to collapse because the earnings, are less than the payments. Normally the authorities intervene, although in the case of the latest pyramid scandal- that of the "funds" run by Bernard Madoff - the scale of the losses is truly vast: an estimated $ 36 billion.

Yet, despite the scale of Mr. Madoff's alleged crimes, there is an even bigger Ponzi scheme, much closer to home,…

Gaps in time

Well a periodic return to the UK for Christmas has left me nursing a dose of the flu- hence blogging silence.

When on the mend I shall renew normal service.

Learning the wrong lessons from the Crash

The scale of the financial and economic crisis that we now face, across the globe, is exceptional. It not just the absolute numbers- which, in a growing economy increase anyway- but the relative numbers which now look eye-popping. The scale of capital destruction is now even beyond the levels of the 1930s. There is no measure that we can grasp that means anything.

Many assets- like your house- are unsaleable at any reasonable price, possibly at any price at all. Meanwhile, Britain is choosing to take on the unlimited liabilities of the banking sector, and thus nearly doubling long term government debt and massively increasing state control over the economy. The idea of bank nationalisation- rejected by socialists in the past as too radical- is now embraced across much of the political spectrum. Government investment and even control is regarded as vital.

Er... hang on a minute.

It is not freedom or the free market that got us into this mess.

It was the fervent belief by bankers that they …

More Migrationwatch twaddle

I have never had much time for Andrew Green - the absurd extrapolations of questionable statistics that his "Migration Watch" group publish periodically serve only to get a few scare story headlines rather than actually contributing to the debate on migration.

Since Mayor Boris Johnson- a figure who increasingly impresses me- mused publicly about the idea of an amnesty for illegal immigrants, it was only a matter of time before Green would publish some swivel-eyed nonsense.

The scare story headline was that "legalising" illegals would cost £4 billion. However even before we start, we find that half of this is somehow attributable to the partners and families of illegals- many of whom are actually already legal British tax payers. So even on Mw's numbers, then the cost falls by half to the still eye-popping £2 billion.

Then you look at the assumptions.

Essentially Migration Watch assume that those who are working would not only not pay tax, but would instead become …

De Mortuis....

A principle said to have been first recorded by Chilon of Sparta, but more usually given in Latin is "demortuis nil nisibonumdecendum est"- "Of the dead speak nothing unless good", or rather, do not speak ill of the dead.

Yet there are those where it is very hard to adhere completely to this rule. I don't mean such obvious villains like Stalin, but more nuanced figures. Such a figure is the late Russian Orthodox Patriarch, Alexius II. His death at 79, announced on December 5th, came after a long illness. In its wake came a raft of obituaries and even the conventional obsequies hinted that there was perhaps rather more to this man than a conventional prelate.

AlexeyRidiger was not born in Russia, but in independent Estonia in 1929. he was the child of a German Baltic baron and a Russian mother. Although his family had fled to Tallinn to escape persecution, he was not a figure likely to be friendly to his birthplace. Nevertheless even after the occupation of Estoni…

The Speaker: on and on and...?

Mr. Speaker Martin is holed below the waterline.

His attempt to brazen out his crisis by placing sufficient blame on the Sarjeant at Arms to distract attention from his own personal culpability in allowing Police to search the Parliamentary office of Damian Green MP at best strained credulity and at worst was simply contemptible cowardice.

The support he is receiving from such figures as Peter Mandelson demonstrates the scale of the Speaker's failure: his performance has become a matter of party politics.

Now, we understand, the Speaker intends not only to remain in office until the next election, which might have been tolerated even by a House of Commons that has been severely shaken by his incompetence and cowardice, but even to stay in office after the next election.

This is simply not acceptable.

The next election could lead to a hung Parliament, with Labour losing the popular vote and yet still gain the larger number of seats. In such circumstances the country must have confidence…

The Self Server self serves.

All opponants of this Labour government will now need to be adamantine in their discipline this afternoon.

The disgraceful intervention by the poisonous figure of Lord Mandelson is a deliberate attempt to pour petrol on the flames of justified indignation over the detention and arrest of Damian Green MP.

To accuse those who are already extremely angry at the contempt of Parliament that the executive has shown of being "self-serving" is outrageous. It is also a deliberate attempt to wind up the opposition and ensure that the effectiveness of their attack on the partisan and incompetent Mr Speaker Martin is blunted.

It is a classic of the Mandelsonian oeuvre of political wickedness.

I think the agenda of the Conservatives and Liberal Democrats and those Labour MPs who are also deeply concerned about what has happened needs to be to protect Parliament above all else.

After that, if the Speaker is culpable, then he must face severe censure and consider his position.

As for the contemp…

Defining Liberalism

Stephen Tall, in a terrific post at Lib Dem voice, has made a challenge: to sum up the idea of the Liberal Democrats in a single phrase or sentence.

He points out that Conservatives can sum themselves up as supporters of "wealth creation", and Socialists as supporters of "equality".

It is of course very difficult and may be pointless to try to sum up the richness and power of liberal ideology in a single phrase, after all the Wikipedia article on the subject of Liberalism is one of the largest.

Nevertheless, in response to challenge from the former Deputy Lord Mayor of Oxford, I will give it a go:

"Liberals believe in the perfect right of the individual to control their own destiny"

Nick Clegg: Time to listen as well as talk

The latest gossipy nonsense published by the Sunday Mirror reporting comments that Nick Clegg made in a conversation with Danny Alexander on the flight to Inverness that were overheard by a journalist are no more than the trivia of political backstabbing. They can - of themselves- be safely ignored, however embarrassing they may be. However, as with the unfortunate interview where Nick gave a -no doubt truthful- account of his sexual experience, and his rather weird comments recently about what his family are doing to face the credit crunch (not much), the fact is that he has again been rather too loose-lipped in public.


Although I do not know Nick Clegg personally, I have known several past leaders of the Liberal Democrats quite closely: Charles Kennedy is a long time family friend for example, and as a former Scottish activist, I have also been on friendly terms with Ming (and Elspeth) Campbell. Paddy Ashdown remains a personal hero of mine. I am very well aware of the problems, both…

The Speaker for The Constitution

The arrest and detention of Damian Green MP marks a point where executive power has been deployed against the very legislature to which it is supposed to be accountable.

Rightly, figures amongst all parties have expressed profound concern. The badly drafted and anti-liberal terrorism legislation that MPs agreed, despite widespread public misgivings and the deep opposition of Liberal Democrats, has actually been deployed against one of their own members.

In fact it appears that the Parliamentary authorities actually agreed to permit the Police to search Mr. Green's Office.

There are two responses.

Firstly it is now quite clear that supposedly "anti-terrorist" legislation is being used as a catch-all. The seizure of the assets of Iceland: a friendly power and fellow NATO member, and the arrest of Mr. Green demonstrates that much of this legislation has far too broad an application. The measures should at the very least be redrafted to permit only a specific scope, or -better s…

Brr... its global warming

The snow has come to Tallinn, and after a rather warm and not very snowy winter last year, the Estonians are hoping that this year will revert to the traditional cold, snowy and crisp season that allows people to ski most of the time.

This year we have even seen early snow in London. So, despite the undoubted issue of Carbon Dioxide emissions, we could still be in for a colder than average winter across Europe. Indeed, the global slowdown will certainly reduce the emission both of CO2 and heat into the atmosphere- and thus, as in the recession year of 1981, the reduction in the overall economic activity of mankind may notably chill the planet.

The inevitable reaction from many will be to ask: "What global warming?" and perhaps to dismiss the large body of evidence that suggests that CO2 emissions is a significant pollutant and is effecting major and possibly critical changes to the global climate. Of course, a cold winter will change the overall averages, but the data will sti…

The Liberal Principle

The return of Mandelson to British politics has certainly increased the shrillness factor. Despite pledges of bi-partisanship in "facing this grave crisis", within a few weeks we are back to business as usual. Despite the blatant culpability of Gordon Brown- "no return to boom and bust" now sounds like a slightly off-colour Carry-On joke- the Conservatives have struggled to inflict further damage on the Labour government.

There has been much discussion- not least amongst Conservatives- about why this could be. Some have pointed the finger at George Osborne. Certainly he has been guilty of some serious personal misjudgements- not least over the Corfu affair. It is also true that the timbre of his voice and his rather effete demeanour bring out the worst in even the least sensitive class warrior. Despite the fact that those who know him suggest he has an astute political brain, the fact is that he irritates a lot of people, including on his own side. Yet it it is what…

The disastrous miscalculation of Vladimir Putin

As I have warned over the past few months, Russia is being particularly badly hit by the global financial crisis. Partly this is a function of the severity of the collapse of commodity prices, especially oil and gas, which has had an exceptionally serious impact on a country where 85% of GDP relies on the extraction of raw materials. However the scale of the crisis in Russia has been hugely increased by a number of massive miscalculations by the Silovik state. Now the speed and scale of the Russian meltdown could conceivably become a threat to the stability of the Silovik regime itself.

As energy prices rose from their lows of a decade ago, the regime which took power after the resignation of Boris Yeltsin on New Years Eve 1999 made oil and gas the central plank of their economic policies. In a sense this was a natural thing to do, but from the Kremlin's point of view, it had several political advantages. Firstly, control over oil and gas was a lot simpler than controlling the comp…

The indiscreet charms of George Osborne

Much has been made in the British press of the comments by George Osborne on a future British currency crisis, what he called "having a proper sterling collapse, a run on the pound". Leaving aside- for the moment- the convention which Osborne has broken that opposition politicians do not talk down the British economy, let us examine what George Osborne is saying.

On Friday, Sterling hit a a six and a half year low against the US Dollar and a record low against the Euro. The immediate cause was a series of extremely gloomy predictions for the UK economy and the expectations, that despite the 150 basis point rate cut, there could still be further reductions in British interest rates. None of this, you note has much to do with UK government borrowing. However the risk of a run on the Pound that George identifies is based on the idea that the Labour government intends to make a significant fiscal stimulus, in effect following the Lib Dem line that significant tax cuts are now req…

And thats not all...

I see that some sections of the British media are tearing themselves apart because some survey has identified that some parameters of health care are better in Estonia than in the UK.

Well like... duh.

My experience of the Estonian health care system is very positive, while for chronic illness like cancer, they probably can not score better than Britain, since the number of patients is so small, there is little doubt that the flexibility of Estonian health care is better than in the UK. At my doctor's surgery in London I may call on Monday in order to get an appointment on Wednesday. I may not call earlier, because government targeting will not allow me to wait more than 48 hours for a doctors appointment. In Estonia I can call whenever I wish and an appointment is usually available within the same day or at the very least at a time at my convenience.

Of course the Daily Mail -which is particularly cross about this Estonia comparison- probably thinks that Estonia is a third world sta…

Yo-ho-ho and a bottle of Rum

The news that HMS Cumberland attacked and captured a Somali pirate vessel in the Gulf of Yemen was one of those slightly quaint pieces of news that is somehow rather cheering.

On the one hand while we know how desperate the situation is in Somalia and the autonomous Puntland, Pirates, by definition, are the bad guys. The seizure of the Ukrainian ship "Faima" and its cargo of weapons was clearly the last straw for the international community. The fact is that we can not allow global logistics chains to be disrupted like this. On the other hand, there is not the global political will to actually sort out the truly awful situation on the ground in the wreckage of Somalia.

Personally, I think it is about time to admit that Somalia as a state is not fixable. To my mind that means recognising the independence of Somaliland- the former British Somaliland- and allowing that country to develop more normal relations with the rest of the world. It is, after all a more or less orderly sta…

When Bloggers attack

I had been holding off blogging- partly because being located in two countries at once seriously limits your free time, but also because I had come to question the value of blogging.

This blog is not a particularly widely read one- although when it is running regularly it attracts about 5000 people a month. The big blogs, such as Politicalbetting.com or Iain Dale or Guido Fawkes attract hundreds of times more readers. The problem is that many of these readers seem to leave their brains at home. Guido makes a point of stirring, so we can hardly be surprised at the visceral response that his posts attract. Even Iain Dale likes to gently goad his political opponents. The biggest disappointment for me though has come from Politicalbetting.com. The current joke is simply to wait for a new thread and then post "first"- which I simply find irritating. The level of debate has become a lot more variable, and the level of vituperation and rank rudeness has grown stronger over time. The…

Understanding risk: why we are storing up even more trouble in the banking system

The last few years have seen a extraordinary consolidation in the global banking sector.

The rise of the global mega-banks has devolved global decisions onto a very small number of credit committees and a steadily smaller number of different lending policies. Many have argued that this has simply reflected the increasingly globalised economy, where corporations require a limited number of the banking relationships but still want to have access to large pools of credit and capital.

The ecology of the global banking system has become increasingly a monoculture.

The problem remains that the general view of what risk is is becoming broadly similar around the world, yet as we have seen in the repeated need for recapitalisation of different banks, this general view is wrong.

Now, we are seeing emergency rescue plans for the banks that involve yet further injections of equity capital, but this time, at the expense of the state and not the market. Meanwhile the proviso is that in exchange for thi…

The difference between may, might and will

Cicero does not believe in predicting the future- understanding the present seems complicated enough.

Journalists, on the other hand have no such scruples- they are quite happy to extrapolate to absurd conclusions and then print such conclusions as though they were definite fact. For example, for some time the conventional wisdom is that the UK and the Western world will suffer an obesity "epidemic". Now, leaving aside the idea that obesity could somehow be infectious, the numbers quoted for the overweight were generally forecasts, and were based on then-current trends. Usually the journalist would say something like "on current trends by X year 95% of us will be morbidly obese and as a result suffer from high levels of X", usually heart disease, diabetes etc, which are illnesses associated with obesity. Now, this story has become rather old and we now have stories that "obesity may have peaked". This is not a new story- it is simply the other side of the …

Cultural Austerity: Political Seriousness

In some previous posts, I suggested that the likely effect of the economic downturn might include some significant cultural changes. After the age of excess, I suggested, there might come an age of restraint, and that not of of this would be negative.

To a certain extent the suspension of Jonathon Ross and Russell Brand for making obscene telephone calls on a radio programme is the kind of thing that I meant. I do not particularly like Ross or Brand whose style of humour is pretty coarse at the best of times, but the spectacle of two middle aged men behaving like teenagers seems to have been pretty unedifying to a whole lot of people. Although some sources close to the BBC have suggested that the root of the complaint was "salary envy" at Ross's £18 million package, in many ways the whole idea of such a vast amount of money being paid to anyone seems, well so "last year". Ross's vulgar humour in any event is based on a certain level of cruelty which now seem…

Osborne: Goodnight and thank you

George Osborne "has done nothing wrong"- or so the leadership of the Conservatives is trying to tell us. How then, to explain the news that Mr. Osborne will no longer be taking an active role in fund raising for the Conservative party.

If he is not a fit an proper person to be concerned in the finances of his own party, how then, can he continue to pretend that he would be a credible Chancellor of the Exchequer?

I mean, it is not as if Mr. Osborne's entire brief is to look at finance and regulate financial probity or anything.

The man is holed well below the waterline- David Cameron might have left him with a bottle of whisky and a pistol, but he seems to be too caddish to take the hint.

It would now just be a kindness to put him out of our misery and remove him- Osborne is simply a laughing stock.

Russia: The Financial Storm becomes a Hurricane

For a long time this blog has warned of the dangers of the aggressive regime in place in the Moscow Kremlin. In common with commentators like my friend Edward Lucas, I have pointed out the consequences of the lack of property rights and the extraordinary level of corruption in modern Russia.

This prickly and aggressive approach has had an impact on any country that is the focus of Russian policy. As Vygaudas Uzackas- the Ambassador of Lithuania in London- observed in a conference last week, Russia still has trouble escaping the mindset that it must deal with other states either as enemies or as vassals. This zero-sum world view of the Kremlin looks not only old fashioned, but self defeating.

The Russian Federation , during the past five years, has built up an extraordinary war chest of liquid reserves. Indeed, although there is some uncertainty about the actual level of reserves, it seems clear that they are now around the third largest in the world. This gave confidence that the Russia…

None dare call it treason

"Treason doth never prosper, what's the reason?
Why, if it prosper, none dare call it treason"

Sir John Harrington (1561-1612)

There is more to the Osborne affair than meets the eye.

The alleged facts are simple, in the words of Nat Rothschild's letter to The Times,

"George Osborne, who also accepted my hospitality, found the opportunity of meeting with Mr. Deripaska so good that he invited the Conservatives' fund raiser Andrew Feldman, who was staying nearby, to accompany him on to Mr. Deripaska's boat to solicit a donation. Since Mr. Deripaska is not a British citizen, it was subsequently suggested by Mr. Feldman during a conversation at which Mr. Deripaska was not present, that the donation was “channeled” through one of Mr. Deripaska's British companies. In a subsequent phone call in mid-September about one month later, Mr. Feldman again raised the issue of the donation with me. Mr. Deripaska decided that he did not wish to make any donation."

In …

Those who are not with us...

The US election has as they say over there "gotten" nasty.

While it may have been a joke to say that they only difference between a pitbill and a Hockey mom was the lipstick, I really don't understand why American pitbulls wear lipstick. The bare faced lies that Sarah Palin has been prepared to sell to the American public: that Barack Obama "pals around with terrorists" etc. either mark her out as a truly exceptionally stupid woman or they demonstrate a contempt for the American people that is, quite literally, an insult to their intelligence.

It is now hardly a surprise that the McCain campaign is going down with all hands.

In fact, and more accurately, it is the Republican party that is holed below the waterline.

Sen. McCain has a record of distinguished service. However even he -and still less the witless Gov. Palin- can not overcome the legacy of the Bush administration and its record of reckless arrogance. The strutting mock-Texan George "W" Bush tr…

The night is darkest..

It is just over seven months since Bear Sterns was forcibly incorporated into JP Morgan. It is just over six weeks since the United States government took over Fannie Mae and Freddie Mac. It is a month since Merill Lynch sought an emergency sale to Bank of America and Lehman Brothers went under. AIG was rescued four weeks ago. Goldman Sachs and Morgan Stanley were transformed into bank holding companies on September 22nd.

Over the past four weeks all of the listed former building societies in the UK have disappeared. HBOS has been forced to merge with LloydsTSB. Of the former big four clearing banks two have essentially been nationalised.

In the Euro-zone, Dexia and Fortis have been rescued, the latter forced to merge with BNP-Paribas.

The run on the Icelandic kronur has brought the country to the brink of penury.

Any single one of these events would have been considered spectacular on its own, taken together they represent the greatest single economic failure in at least two generations…

For fresh bank confidence

Another week begins with a panicky market marking down value across the board. Even though the UK banking system has now largely reverted to the Pre-liberalisation big four: Barclays, Lloyds, Natwest (RBS) and Midland (HSBC) plus the government and the large Spanish bank, BancoSantander, there is still pressure on the British government to follow Germany, Denmark and Ireland and issue an unlimited guarantee to British bank depositors.

Now, this is getting silly.

Firstly the scale of the guarantee is much bigger for the UK banking sector than it is for the others- largely because the UK depositor base is much bigger, so it is more difficult for Britain. Yet paradoxically the larger base is a sign of the relative strength of UK banks- they are able to fund relatively more from deposits than from the money market and in the current circumstances that is a good thing.

Despite the fall out of the Lehman collapse, the British bank sector has now consolidated dramatically and although RBS faces…

Return of the Undead

Peter Mandelson is an... unusual... political figure.

He began his career as an exponent of the blackest of the black political arts. The quintessential back room boy, he was one of the most ruthless of the political spin doctors who jointly founded the New Labour project. Fiercely loyal to Tony Blair, he repressed anti-Labour stories and promoted the New Labour project with a will that one of my friends, who as a Newsnight producer was a regular recipient of Mr. Mandelson's brand of charmless bullying, did not hesitate to describe as "evil".

Yet, as a Minister, he was surprisingly clumsy. He was forced from office, not just once, but twice under circumstances that would have destroyed any other political career. His forgetfulness over loans advanced to him to purchase his large house in Notting Hill could have left him open to fraud charges. His handling of the Hinduja passport applications was said to be "naive", yet the very word naive seemed the antithesis of…

Taleb tries not to say "I told you so"

In the dead slot of the BBC Radio 4's Today programme, after 8.45 when everyone is arriving at work, there are often interesting debates about the issues of the day.

Today Nassim Nicholas Taleb was one of the guests and, as he has done before, he spoke out about the systemic risks that bankers did not realise that they were undertaking.

He also made the point that in the 1982 Emerging markets crash the Bankers lost all the money that they ever made, and then they did it again in the 1991 Savings and Loans crash. In other words, most of the banking system has not, in the long term, been a profitable business. He added that with each successive crash, risk has become concentrated in a smaller and smaller number of banks. As a result the problems have grown larger.

The answer is clear- if not simple- the ecology of the global banking system needs to change and become more diversified. Single risk should not be concentrated in the system. Diversity is critical in order to reduce the con…