Cicero's Songs

Security specialists use a variety of ways to address the risks that they face: and these risk assessments are made in the certain knowledge that the actors in the system hold only incomplete information. Although much mocked at the time, Donald Rumsfeld’s categorization of “known unknowns” and “unknown unknowns”, is now generally recognized as a succinct summery of his strategic quandaries. By contrast, actors in the financial markets have a more sanguine assessment of the risks they deal with: they divide them into two kinds of risk: quantifiable and unquantifiable. Unquantifiable risk is not generally considered, since there is usually no financial profit that can be made except from pure supposition. Therefore for the purposes of the financial markets, any given event is priced relative to its level of probability, that is to say its quantifiable risk.  Depending on the market, higher levels of risk generally carry higher prices, lower levels generally lower prices. C...

It is, or ought to be, true that a citizen who is full time employment should be paid enough to live on.  So, unlike many on the so-called progressive wing of British politics, I am not in principle a supporter of tax credits. To me. the fiendishly complicated system devised by Gordon Brown was not a "leg up to the poor" but a subsidy to corporations who would not or could not pay a fair and sustaining wage. So when the British Finance Minister announced in his Budget that he intended to phase out tax credits and institute a much higher minimum wage- the so called "living wage", I did not leap to the defence of the expensive bureaucracy that the tax credit system has created.  However, George Osborne enjoys the game of politics far too much to want to play fair.  His agenda of the abolition of tax credits has now been subsumed into a wider ideological battle. In principle Osborne believes in a small state. He has a stated preference for simpler and lower taxes...

Amid the occasionally rambling and bizarre comments from Vladimir Putin's annual press conference yesterday, a couple of critical points are rather obvious.  Firstly, Putin accepts no responsibility for the crisis that has hit Russia, continuing to believe his own paranoid fantasy of Western economic destabilization .   Secondly, he intends to double down and continue his aggressive and disastrous policies . However, despite the current dead cat bounce in the Rouble, there are two things that could rapidly make the economic situation for Russia irretrievable. The first is in the small print of the Rosneft placement that triggered the deep crash in the currency . Essentially the Bank of Russia underwrote the placement of RUR 625 billion at 150 b.p. below Russian sovereign risk price- and since Rosneft had $7 billion to pay on 21st December, the whole placement went into the forex market. The implication is clear: The Russian central bank, in addition to being the lender o...

Yesterday the dam finally broke in the Russian markets: the Rouble had a heart attack and fell over 10%. The continued erosion of the price of oil down to $61 is placing Russian government finances in considerable jeopardy at a time when even a relatively small deficit is unlikely to be financed by Western lenders, and the increasing refinance risk on the existing debts of Rossneft and the banking sector is creating still further demands on the Russian public purse. At 1 am the Russian central bank raised rates by 6.5% to 17%. Moscow has made a choice to attempt to defend the Rouble from collapse, but the price of that choice will be a deep recession as the economy digests the rate rise shock. In fact this could prove to be a catastrophic decision. Russia urgently needs investment capital in order to modernize and diversify its economy: this has been true for some time. It is also recognized by the authorities as a strategic goal. Indeed the decision to impose sanctions on fore...

I make little apology for returning to the subject of Russia. The crisis in Ukraine is rapidly becoming a crisis in -and for- Russia. The third term of Vladimir Putin, began with a constitutional sleight-of-hand to allow the job swap between Dimitri Medvedev and Putin to take place- and we can date the breakdown of Russia quite precisely from the announcement of this cosy arrangement on 24th September 2011. Since that time the political atmosphere has darkened dramatically. As I have noted several times, Russia has already fallen 61 places in Transparency International's Index of corruption perceptions since the beginning of Putin's first term, but the breakdown of all rule of law has been confirmed by a series of extra-legal decisions taken in the past few months. The gap between rich and poor is now on most measures the widest in the world, and the ruling elite now comprises merely a few ten of individuals wielding astonishing power and wealth against an increasingly impo...

"Market gurus" in Investment Banking are in the business of marketing like everyone else, so much of what they do is more to do with presentation than reality.  I have been forcibly reminded of this in recent weeks as yet another "emerging markets" crisis has unfolded on the currency and stock exchanges of the planet.  In a way "Emerging Markets" is itself more a presentational than real idea, because the only thing that the so-called  "emerging markets" really have in common is that they are poorer than the so-called "developed markets". About three quarters of the worlds population lives in "emerging markets", and some are growing and some are collapsing. Hence the need for an overpaid "market guru" to try to make some kind of sense of the huge pile of data that comes from 75% of the world. Jim O'Neill, an economist with Goldman Sachs, is usually credited with coining the acronym "BRIC", standing fo...

After the usual tedious journey to Riga, I attended the kind of dinner that wealth managers inflict on their customers. I happen to have a long history with these particular wealth managers, so received an invitation- probably to make up the numbers, since we have not transacted any business. If I sound a little jaded, well, perhaps I am- the speaker was interesting in himself, but the topic- trying to institutionalize entrepreneurship- was not really what the first- really only- generation of Baltic millionaires is yet ready for. It was, of course a plug for the services that this particular house provides, and frankly, given the pleasant venue and good wine, fair enough.  Yet as so often in the past I was struck by the way that the large investment houses have a tin ear for the process of innovation and change that is hitting financial businesses around the world.  They seek to trade on a brand which reflects "centuries of tradition and continuity", yet this particular ...

As the economic crisis of the West grinds on, I find myself noting that the mistakes of policy are more and more political mistakes, and that the failures of leadership are more and more failures of political leadership.  Attempting to create a safer banking system by forcing increases in reserves, through Basel III or restrictions in concentration, is in fact having almost the precisely opposite effect to that intended. The increase in reserves has not made banks safer, but it has forced a dramatic shrinking in bank balance sheets. The result is a crash dive in lending- especially to the critical small and medium enterprises sector. This is now getting to the stage where, in the words of a senior banker operating across the Baltic and Nordic markets who I was speaking to over the weekend: "within five years, no bank will be able to afford to take on SME lending". This continued credit crunch carries not only short term implications, but also long term implications, since the...

OK, so the Barclay's scandal is just one amongst many. However, the reaction to the forced exit of the unlovely Bob Diamond from the Barclay's PR guys: basically "spread the shit as widely as possible on the government agencies" is so blatant, that to be honest, the government should have a very simple response. Arrest and charge the lot of them. Any Barclay's employee or agent that has been involved in the "take as many of the bastards as I can" project of the unlamented Mr. Diamond should be charged with an attempt to pervert the course of justice. Diamond himself should also be charged.  Trying to blacken the name of HM Government in this puerile way is pretty pathetic, and it does seem to me that legal moves "pour encourager les autres" are rather overdue. Does rather underline why Diamond was a shit though. PS: still think Murdoch should go to gaol first.

Bob Diamond is a figure who it is hard to love.  Ever since he made the comment that the " time for Banker's remorse was over ", he left a huge hostage to fortune, in the event of anything going wrong at Barclays. As we now know, something has gone wrong, and in the event, Mr. Diamond's bullishness has become his downfall- the time for remorse is now is the almost inevitable headline in most newspapers. Yet, although Bob Diamond may not be the most sympathetic creature, the reality is that - as his own resignation shows- he has not been in control of events. The fact is that the huge banking conglomerates carry within them the seeds of their own destruction. The interconnected nature of the global financial markets has created vast black boxes within the various banks, where few- if any- can understand, let alone control, the risks. The resulting lack of transparency has allowed financial malpractice and even criminality to flourish unchecked. All the Basel ...

A lot of anger is directed towards those in the corporate world who earn large salaries. Sometimes, in my view, that anger is not truly justified: for example, when an entrepreneur takes out income based on their ownership of a company, I -for one- tend to see it as just reward for those who take a risk with their capital. However, listening to Martin Sorell on the Radio trying to justify his large remuneration , despite the objections of the shareholders in WPP was not an example of just reward.  The fact is that Martin Sorell does not own the company he founded and built any more- his ownership is less than 1% of the shares- which still represents £800 million- after several sales, not least following his divorce from his first wife in 2005. he may have founded it, and built it but now he no longer owns it. However, Sir Martin, is insisting on a substantial increase in his remuneration, to reflect, as he sees it the success of WPP over the past year. Yet, he does not seem t...

Amidst all the Jubilee hullabaloo in the UK, the second- and ultimately more significant- story remains the ongoing crisis in the Eurozone and the continued instability in the markets. The signs of a slowdown in the Chinese and the American real economies have put further pressure on the Eurozone economies that are still struggling to return to growth.  The ongoing restructuring of the Spanish banking system has alerted the markets to the fact that their remains a significant capital requirement, even after the forced mergers of the Cajas . However, despite the more hysterical of the comments from UK commentators and politicians, the fact is that the Spanish economy does not have the same long term government problems as Greece does. The deficit issues are a function of the the banking system breakdown, not the series of policy mistakes that hampers Athens even beyond the banking crisis. As a result, although serious, there is far greater trust offered to Madrid- and that solidar...

Viewed from the perspective of the Euro's newest member state, the British political and media narrative still seems completely off the point with regard to the single currency. To reiterate: this is not a currency crisis, it is a debt crisis. The majority of the members of the Euro zone have controlled their deficits and are retrenching their debts. It is where deficits are not being controlled- in Greece and in the Latin bloc that the crisis has its centre. There are two sources of deficit pressure: one is fiscal incontinence, that is to say that the structure of debt is wrong or as the result of welfare or other general calls on the public purse government expenses are not being controlled versus government income. The second is the need to recapitalize the banking systems following a largely property inspired meltdown. The scale of the recapitalization is so large, because governments have undertaken not merely to compensate depositors, but all those, including bond holders...

The likely change of President in Paris is now coupled with severe tension in the government in the Netherlands. As in 2005, these two founder members are questioning the long standing consensus in the European Union. Usually, when asked about the future of the Euro, the response from officials and from many national governments is that the solution is "more Europe". This is short hand for creating the common institutions, such as a treasury and a system of fiscal transfers, that were not created when the single currency was first established. The problem about creating such powerful new institutions is that they lack democratic political legitimacy. They may be the most obvious and practical solutions to the crisis, but they are not sufficiently supported in most countries to allow them to happen. The political problems in France and the Netherlands only underlines the difficulties in gaining democratic support for the necessary policies to allow the Euro to survive. T...

As Monday looms ahead, there is now the real probability that Greece could default this week.  No one knows what happens in that event: the policy makers and many market practitioners now think they can cope- but the reality is that no one knows. I think we are about to find out whether Mrs. Merkel's policy of masterly inactivity will actually work. I don't think it has, and I suspect that the impending Greek default could well lead to the failure of Hungary and Bulgaria. This feels like the calm before the storm.

The thunder of the Brussels Summit is only just fading, and it is still by no means clear what happens now. In many ways the summit has created more questions than it has answered.  However, there is no doubt that the relationship of Britain with the rest of the European Union has reached a point of fracture that places the UK outside the core of the organisation. David Cameron has, as he threatened, wielded the British veto, but the consequences were not what he intended. Instead of forcing the other 26 states to address British concerns, they have instead created a separate agreement without the participation of the UK. Although the British have- rather childishly- insisted that this group of 26 not use the facilities, even the offices of the European Union, the fact is that the Franco-German entente has  de facto  expelled the United Kingdom from the new direction of the European Union. The miscalculation that David Cameron has made was not to think beyond the veto...