Woolman Wonders

Occupy London: So Near, So Far

2011-11-02T09:40:00.000-07:00

There have been times over the last couple of weeks where I felt truly tempted to drop everything and head for St Paul's Cathedral.

What? In truth, from this distance, the protesters are difficult to like. I don't automatically respect people who paint their incoherence as a sort of democratic innocence, and I don't like those who claim their innocence as a cover for self-indulgence borne out of privilege. All told, we the spectators to their spectacle could feel justified disappointment that, in the end, though they have demonstrated an ability to attract the TV cameras, they seem to have nothing coherent to say to them. Instead, we get a generalized attack on capitalism (yeah, thanks, grandad) or the inner practices of the Corporation of London (Huddersfield talks of little else, I assure you).

It is as if they do not truly feel the weight of their actions; and probably do not truly wish to feel the weight of their actions. Protest ultimately as self-expression rather than political action.

Despite all that, there's just this feeling that they're close, so close, to something important. Forget all I said about protest as self-expression, forget the jibes about trustafarians, sometimes when you're reaching for a new idea, the creative process is messy, silly, annoying, time-wasting. Sometimes the struggle to be born looks a lot like dicking around.

If only these people had the faintest inkling that a fair number of people in the City feel the same as they: that something has gone deeply wrong; and that the opportunity to rectify it is slipping away day by day; and that as it slips away, so do our chances for the future.

And so, in all seriousness, I offer this as a simple one-stop program for reform around which the St Paul's protestors, the Archbishop of Canterbury, academics and intellectuals, a coalition of politicians from all points of intellectual sentience across the spectrum, a hefty slice of the City, and even Islamic thinkers could unite:

'We ask that the law be changed in order to recognize the fundamentally one-sided and immoral nature of the deposit contract, and for such contracts to be made illegal under UK law.'

Frankly, that single change would do it. Just that single change. And from that springs the Fundiflora.

Why Nothing Changes

2010-08-25T09:26:00.000-07:00

Does it seem incomprehensible to you that nearly two years after the derivatives market blew up the world's opaque and monopolistic commercial banks, taking your money with them, there's still no move to stop them doing it again? That they're still to be allowed to gamble your deposits and take what winnings they can without so much as a by-your-leave? It should. One of the points of Woolman Wonders was to point out that a post-bank financial system is easy to envisage, and would deal with the current system's dreadful breakdown in transparency and responsibility, and would, as a consequence, allocate savings better.

Yet there's no sign that any politician anywhere in the world is willing even to demand the divorce between retail banking and investment banking. They're all trying to reconstruct the system that failed so disastrously.

Want to know why? Here's a clue. Britain will do nothing without a lead from the US. And in the US, the policy is being determined by a US Congressional Financial Services Committee, chaired by Democrat Barney Franks. Let us consider this committee.

First, it's huge, with 71 members, of whom 42 are Democrats, and 29 are Republicans. At first sight, that looks like a big majority for the Democrats - not usually considered the friend of Wall Street (let us suppose). But delve a little closer and something very strange appears: of those Democrats, a dozen hold seats which are, in British terms, marginals.

Let's name them: Paul Kanjorski (PA); Ron Klein (FL); Travis Childers (MS); Walt Minnick (ID); John Adler (JB); Mary Jo Kilroy (OH); Steve Driehaus (OH); Suzanne Kosmas (FL); Alan Grayson (FL); Jim Himes (CT); Gary Peters (MI): and Dan Maffei (NY).

For all these Representatives, the best hope for re-election is to spend money - loads of it. The total campaign spend for the coming Nov mid-term elections is . . . US$3.7 billion according to the US Center for Responsive Politics.

Where will these poor marginal Democrats get their finance from? Nancy Pelosi might as well have hung a 'For Sale' sign on the Committee door.

One further thing, even if just half of those 12 Committee members looking for money to fight their marginals vote against significant financial reform, the Committee is deadlocked.

There is a moral to this. If we want to develop a post-bank financial system, we'll have to fight for it. We'll have to become a more powerful political force than Wall Street.

Ghastly Dance: Financial Repression

2010-07-12T09:44:00.000-07:00

It's a rule: governments act in their own interests, and so do monopolists. For most of human history, these two look each other in the eye, and like what they see. Soon enough, no-one else gets a look in.

It now seems inevitable that this ghastly mutual attraction is once again going to shoulder aside the interests of you and me and the rest of the economy, let alone the interests of fairness or even prudential common sense, in the re-shaping of the banking industry. Naturally enough, it comes tricked out in the most reasonable and ethically self-congratulating disguise: in order to ensure that greedy bankers never again etc, the government's going to ensure raised bank reserve and capital requirements, are going to keep an eye (and maybe a thumb) on the amount of credit extended, and doubtless provide a guiding hand to ensure the right people get the credit.

I could go on - and probably will soon enough. But suffice it to say that what's being proposed as our salvation is simply financial repression in one guise or another. Oh, it'll mean your savings are allocated even more poorly than before (which matters if you want a pension or an economic infrastructure), but never mind, it's for your own good. In fact, it's very markedly for the government's good, because if the government can mandate (or regulate) a monopoly position for banks, it'll be able to tax them both overtly (stand by for windfall taxes) and covertly (by creating a captive market for their debt).

Meanwhile, for the incumbents - ie, for the bankers - all the regulation is just a further entrenchment of a monopoly power which they have already abused to very nearly the destruction of the entire economy.

And the logical outcome of this is, of course, that there are plenty of people who want to get on-board this new financial repression/financial monopoly gravy train. Step forward Metro Bank, step forward Virgin Money. And step forward Lord Levene, a former chairman of Lloyds of London - a man so keen to pitch himself into this new monopoly that he's raising money on the AIM market before he has even put in the time to think of a name for his wretched bank. As someone might once have put in their prospectus: 'a company for carrying out an undertaking of great advantage, but nobody to know what it is' called.

I wonder - I seriously wonder - whether the politicians of all stripe who lobby for this disgraceful entrenchment of failure, know what they are doing. Can they be so bereft of imagination that they don't know what they are doing? Can they not grasp that there is an alternative which takes apart the monopoly, rather than entrenches it?

'Now all my tales are proved untrue,

And I must face the men I slew.

What tales will serve me here among

Mine angry and defrauded young?'

Growth and Ignorance

2010-02-28T03:43:00.000-08:00

As the man said, most of the problems of the world could be fixed with five minutes concerted thought: but thinking is hard work, and five minutes is a long time.

One of the characteristics of the British at the moment is that we are happier debating in an information vacuum than when in full possession of the facts. Nowhere is this embrace of passionate ignorance more destructive than in political and economic debate. Consider again our approach to growth. To summarise, for most of the world most of the time, I think economic growth equates to an increase in human security, without which most of the things we value and love about humanity comes under threat. But plainly, not all growth delivers increases in security: growth generated by excessive 'returns to agglomeration' in cities measurably results in people finding it more difficult, expensive and therefore risky to retain their toehold in the successful city. Alternatively, growth sustained only by ever-larger acceptance of debt by households and families can hardly be said to have increased the debtor's security. Put the two tendencies, and rapid economic growth can degenerate into a desperate struggle to stay on board the careering train. If you live and work in the fully developed world, you can count yourself lucky if you don't recognize this.

We could, if we wish, make some attempt to measure the extent to which economic growth seems to be delivering or destroying the good life.

India does - a legacy of Amartya Sen's work, perhaps. In its annual Economic Survey, published this week, we have this:

India’s growth performance over the last couple of decades or so has been a subject of a great deal of scholarly enquiry, as well as a cause for celebration. A measured optimism, in this regard, would be understandable–-but a spillover into unbridled euphoria would not. The case against complacence resides in the large magnitudes of both poverty and inequality which coexist with growth. A natural question that arises is: is there a simple summary statistic that might throw some light, all at once, on the phenomena of growth, inequality, poverty, and inclusion? In
a broad and suggestive way, yes: the statistic in question is the “quintile income”, or average income, of the poorest 20 per cent of population.

Actually, what they produce is a comparison of the bottom quintile expenditure as a proportion of the average. It shows that spending by the bottom 20% rose from an average of 42.3% of the average in 1977/78 to 49.7% in 2004/05. If the figure is right, it suggests that India's growth has probably not been a matter of the rich getting richer whilst the poor get poorer.

I have tried to produce something similar for the UK, but - surprise, surprise - the data, if collected, is neither current nor easily available from the National Statistics Office. I can construct them only for the three fiscal years ending 2002/03. They show that the bottom 20%'s expenditure was only 37.5% that of the average in 2002/03. On the face of it, Britain, with all its pretensions to being a rich social democracy, has an income distribution markedly more uneven than India. What's more, within the three years of the data that is available, there is no sign that things were getting better - indeed, the situation in 2002/03 was slightly more uneven than in 2001/02.

Any set of politicians who had an interest in addressing these issues would ensure that this data would be released simultaneously with the quarterly GDP figures. We could then see not just whether the economy is growing, but also begin to fathom out what the growth, of lack of it, actually meant. We would soon learn to understand not just how we ourselves were developing as a society, but also where we stood in comparison with others. More, if things started going wrong 'despite all our efforts' (you hear our politicians cry), then there'd be an advantage in debating and understanding the causes. In particular, it would be difficult to escape the ownership of the results of policies.

But you can see why this would make our politicians nervous. Our current crop might have to defend themselves against charges that large-scale immigration had undercut the lower end of the labour market. We'd find out if the combination of minimum wages and tax credits actually worked in the way they were (presumably) intended. Our future crop would have to explain why the rise of unemployment and/or cuts in welfare spending were a price worth paying.

Having the information is the start of the debate. Our current determined and perverse ignorance merely suggests that our political establishment has no real interest in our society.

Fundiflora: Sketch of a Post-Bank Financial System

2010-01-24T04:48:00.000-08:00

The engines at the heart of the post-bank financial system will be a whole new ecology of daily quoted money market mutual funds. These would be the principle way you saved, and would be the principle source of money for those wanting to borrow.

What's so great about money market mutuals? Let's say first of all what they are. Money market mutual funds are open-ended investment funds which invest in debt securities and the price of which is quoted every day. So if you buy a unit of a money market mutual fund at 100p on day one, and the fund receives interest of 1p during that same day, it'll be quoted at 101p the next day. Since it's an open-ended fund, there's no room for 'speculators' to manipulate the price, since it is re-priced every day at the net asset value of the unit. When you want to get back some of your savings, you simply sell the unit.

What does the money market mutual fund do with your savings? It lends them out, of course, by buying bills and/or bonds.

Why would a system of money market mutual funds be so much better for saver and borrower than the current ecology of commercial banks?

The first benefit is that by being a mutual fund, any money they earn goes back to you, the saver, not the 'banker'. I pointed out in The Sheer Cost of Opacity that at the moment average deposit rates are 0.31% whilst the average interest rate on personal loans is 13.38% - that's one potato for the saver, 25 for the banker. In a money market mutual fund, you get all the potatoes, except the scraps you're prepared to throw to the menial drudge who manages the fund for you. How much you choose to throw to the manager is up to you - after all, he's just advising on the administration of your fund.

If one stipulates that the fund must always provide its owners with a detailed breakdown of its holdings, then a second benefit emerges: we get an extra layer of transparency which should help to improve credit decisions.

The third reason is that such clarity and transparency will encourage a wildly diversified 'fundiflora'. Some people (many probably) will want the absolute security of return which forms the bedrock of the bad deals depositors make with commercial banks. For these people, there will be money market mutuals which invest only in government bills and bonds. True, the interest they receive on these bonds won't be great - but it won't be nothing, because, after all, 10yr gilts are yielding about 4% a year. But the fund will only every go up, not down (provided the government doesn't default).

Then there'll be people who want a higher rate on their savings are are prepared to accept more risk in doing so - perhaps by investing in commercial paper and corporate bonds. There's be some people who go the whole hog, and want to risk a portion of their savings in high-risk paper. They'll have to accept that at some point, their usually rapidly-rising fund will take a fall.

And there'll also be funds for people who have strong views about where their savings should end up. Why not have a money market mutual fund for people wanting to fund micro-credit schemes in developing nations (or Hartlepool for that matter?). Money market mutuals for people who want to make sure their savings don't finance the arms trade, or ciggies/booze trade, for example. Money market mutual funds, in other words, for those who want to put their money where their mouths and consciences are. Our current financial system blithely incorporates the assumption that 'homo economicus' is a simple creature motivated solely by profit. We all know people have vastly more complicated motivations than that.

Those are just the benefits for you the saver. But there are benefits to the borrower too: removing the opacities of the deal between saver and borrower will close the 'banking spread.' Will some borrowers object to their borrowing becoming public information? Oh, perhaps - but they've learned to live with it in the bond markets, and they'll learn to live with it in 'banking' markets, provided their terms improve. If they really want secrecy, they'll have to pay extra for it.

And, of course, if the terms for both savers and borrowers improve, then capital allocation improves and so, in the medium-term, does the performance of the economy lucky enough to be serviced by such a financial system.

But it's not just a better deal for savers and borrowers, and the economy, it's a better deal for the financial system itself, since money market mutuals are incomparably more stable than commercial banks. Though it's not absolutely impossible for a money market mutual fund to go bust, their transparency makes them many magnitudes safer than commercial banks. Quite simply, they can't be brought down by either sub-prime defaults, or by the collapse of the CDS market - if only because the flow of cash into those markets would be cut off as the problems appeared.

Finally, though the death-throes of the commercial banks in such a system would be appropriately dinosauric (flailing, lots of noise, teeth and cannibalism), developing such a system now, and in London, would reinvent the City for the 21st century. I've previously described commercial banks as a pretty decent compromise for 17th century problems. The new fundiflora I envisage is above all a response to the key conditions of the 21st century - the collapse of the price of information distribution and the associated death of credentialism.

You can be quite sure that such a system will emerge somewhere in the world, and with it a new set of industries servicing it: administrators, IT guys, loans-sourcers and packagers, credit-assessors, ethical counsellors - the full gamut. Properly handled, it'll just outperform the commercial banking system out of existence.

So if not London, where? And if not now, when?

Gary Player's Law - A Bit of Luck

2010-01-23T13:38:00.000-08:00

I was loitering in Starbucks this morning innocently mopping up a cappu, when who should stroll in but one of the few MPs who doesn't necessarily view politics as a public auction of our liberties. So, after finishing what I was doing (creating a presentation on Taylor Rules -no relation - policy interest rates) I went over to give him a bit of encouragement.

(Well quite, I know what you're thinking - but the brave chap didn't flinch or cower. Rather, he humoured me, and finding I am an economist . . . . )

. . . he told me he was on a Parliamentary Treasury committee with Pope Vince Cable et al which was thinking about possible structural reforms of the City.

So if you're reading this, Mr D, always remember this: regulation rightly begins only when transparency, and thus choice, fails. Deal with the opacity, and a surprising proportion of the problems and failures are fixed . . . . by us.

Oh yes, and keep reading, because we've done most of the spadework now, and it's time to start building the new post-bank financial system.

The Sheer Cost of Opacity

2010-01-19T03:25:00.000-08:00

So I think I can build a new and better financial system, do I?

It's not just that the opacity of the current banking system is wrong: you give your money to a bank manager, who promises to pay you a fixed return whilst he feels free to do with it whatever he and his derivatives team can imagine, and take the profit on it. Nor is it just that the opacity of the credit decisions he makes is likely to lead systemically to bad decisions - though it does. These are reasons why the commercial banking system is bad in principle.

But in practice, commercial banks are even worse. By which I mean they offer a rotten deal to the saver, and a rotten deal to the borrower. And, of course, the rotten deal they offer is the practical consequence of the opacities behind which they hide.

Right now, Bank of England data tells me the average interest rate on banks and building societies' time deposits is 0.31%, whilst the average interest rate on a personal loan is 13.38%. In other words, you the depositor are getting 0.31%, whilst they, the bank, get 13.07%. In terms of dishing out the meal, that's one potato for you, and 25 for the bank.

Yes, we're at an extreme point just now, but over the last five years, the average banking spread between fixed deposits and personal loans is just under eight percentage points, whilst the average deposit rate has been just 3.5%. One potato for you, two and a bit for the bank.

So personal loans are a bad deal? Well, yes, but so too are five year fixed mortgage rates at 5.35%, when you consider they're getting your deposit for 0.31%. That's one potato for you, and nine potatoes for the bank.

And you wonder how they pay those bonuses.

My guess is that these extraordinary banking spreads are only going to get wider in the next few years, as the costs of regulating the dangerous opacities of the system grow, as the cost of recouping the losses of their previous bad credit judgements are maintained, and the baleful influence of the inefficiency of the nationalized banks is felt more widely.

But what this means is that these ridiculously excessive banking spreads means we have not just the motive to build a post-bank financial system, we have the means. Somewhere between nine and twenty-five potatoes worth.

Elite Delusions and the Wisdom of Crowds

2010-01-15T06:02:00.000-08:00

There are two reasons not to let commercial banks handle your savings. First, you can’t be sure that the bank will manage your money for your advantage rather than the banks’ (ie, the bank might take your savings to Monte Carlo, or, worse, the CDS market). Second, even if the bank manager doesn’t take depositors' savings out on the lash, he’s systematically unlikely to allocate them as well as the depositors themselves would, given the chance.

Commercial banks were a decent compromise solution to a very 17th century set of economic problems. First problem: the costs of collecting and distributing information were very high. Second problem: the costs of (and dangers of) transporting gold up and down England’s highways were also very high. It made sense to spread these costs as widely and thinly as possible, hence savings were agglomerated into commercial banks. For that economic benefit, though, savers accepted two opacities, two risks. First, they trusted the bank manager to look after their money carefully, even though they could have no direct oversight of what he did with it. Second, they trusted that in completing this task the bank manager would actually have better information than them on which to make credit decisions.

I think we all understand how things can go wrong with that first risk, and I’m not going to elaborate here. But if we are now really quite leery about what kind of gambles banks might be taking with our savings, the weight of justification falls ever-more heavily on the second opacity – ie, the idea that perhaps these experts really will do a better job than we could.

Trouble is, that argument has never looked more anachronistic. Now the costs of collection and distribution of information have fallen to near-zero, it is absurd to believe or expect that a bank manager will have any significant informational edge on credit decisions over any given intelligent and interested observer. But more, when you open up that credit decision to a mass of intelligent/interested observers, the betting would be that the bank manager’s decisions would be worse than the group’s.

(This is why investment clubs tend to beat the market, whilst fund managers don’t).

Hayek's crucial insight is that whatever else economics may be, it is a subset of information theory. Free competition, he said, is justifiable only because it uncovers information which cannot be discovered in any other way. (That's my precis of his life's work).

That's a statement not just, or even primarily, about economics. Rather, it is the practical justification for liberty, and the rationale every barbarian needs to start beseiging the walls of entrenched belief, buttressed as they usually are, by a credentialed elite. If you doubt how vigorous this truth turns out to be, take a look at this detailed account of how the market for ideas self-organized to overwhelm the most ambitious credentialist gatekeepers of our day. I think the writer is correct to identify that what matters in this debate is less the truth about climate change (which no-one knows), than the way in which the credentialist gate-keepers essentially brought into being their own self-organizing nemesis. The writer thinks it's an important moment in the history of ideas, and I think he's right.

Quakers have default-setting about their trusteeship of the world that correctly makes them vibrate to worries about the future of the planet. Despite that, Quakers should embrace this development with every fibre of their beings. The origins of Quakerism were, precisely, a revolution against the credentialism of the established Church, and the practice of meetings recapitulates this revolution every time someone gets to their feet to speak.

Back to economics and finance. The claim being that the banks experts (bank managers, the wedding cake structure of credit committees) can make better judgements about credit than depositors can is not only untrue a priori (cf Hayek) but it is also spectacularly untrue in practice, as we have discovered to our own and our children's loss.

The crisis of Western financial institutions is not just about the personal irresponsibility/ loss of understanding of what trusteeship entails, built into the structure of our financial institutions, but also about the epic stupidity its credentialist claims embody.

There used to be no alternative, but now there is. A friend in New York started a fund investing in Chinese companies in association with the #1 Chinese search website Alibaba.com. The point was to use the information received via Alibaba's collection of websites to determine how the fund's resources should be allocated. Want to do a credit check? Ask the customers, ask the wider world. It's like including Ebay’s recommendation system as part of your credit checking system. What, you mean you don’t?

When designing a post-bank financial system, this is one source of transparency you'd want - a system whereby major credit decisions are transparent to the saver (or indeed anyone else), and so open to challenge by the widest possible group of people.

At what point would you have been worried enough about your savings going to buy sub-prime mortgage paper to register an online query (what are you doing?). At what point would you have even contemplated your savings being played in the CDS market? Or look at it more positively: at what point do you consider that your savings might be better (in whatever sense you want to give to it) deployed in developing economies than in subsidising consumption in the West?

I don't pretend to know the answers to these questions. Which is precisely the point. What's needed is a structure that doesn't pretend it knows best.

In A Bar Off St James' Street

2010-01-15T02:08:00.001-08:00

"If you're earning enough to start worrying about the tax regime, you're earning enough." Advice given by fund management principal to prospective hedgie. . .

Credit's Not a Bad Thing

2010-01-09T10:28:00.000-08:00

This work is provoking difficult reactions. I'm getting support from those within the financial industry who feel that the Goldman Restoration is insupportable. From various Quaker sources, the reaction is more complex. Wary, as one would expect (although some at the Quakernomics website seem politely curious about views which at first glance are so comprehensively not theirs). But also disengaged - as though the very idea of thinking carefully about finance might be in itself corrupting. I was rootling around in the library of my local meeting house this week, looking for an account I thought I remembered on borrowing and lending, and I was pursued by one of the Elders. "I'm just not interested in money, you know" she said, "You mustn't think the Quakers have the answers on this."

Let it drop.

But Quakers really don't want you to check your intelligence in at the Meeting House door. So how can I let these questions drop, even though people I love and respect feel so unsettled by them? Finance is a serious thing, and the lopsided international access to credit is the biggest and most stupid (most wasteful) source of global inequality there is. How can one talk of equality if this topic is off limits?

So to work, and damn the torpedoes. What I want to do today is talk about credit - lending. I want to pursuade you, or maybe just remind you, that by and of itself it's no bad thing.

I think the reflex objections to credit are based on the fear of growing rich at the expense of others, and the siren call of luxury. Well, those are pretty good reasons to be wary. But to balance that I'd argue there’s far more poverty, suffering, injustice and enslavement in the world attributable to the absence of credit than there is to its profusion. When we speak instinctively of the lack of fairness in international finance, isn’t this partly what we mean – that if your skin colour is the right shade, and you live in the right part of the world, you have ‘access’ to inordinately more resources than if you aren’t born so prettily. If you’ve spent your career working in financial markets in Asia, you’ll have seen what happens when credit becomes available for the first time. Oh dear, I fear it may be true: HSBC has probably liberated more Asians than Oxfam.

(The logical extension of this, by the way, is that there’s also/even a moral case to be made even for ‘bad loans’. After all, if the real injustice is that people who could usefully use loans (ie, could use them to better their lives, and repay them) can't get them, then part of the job is to find the ‘limit’ of where lending should be made. And the only way you find that limit is by crossing it, breaking it.)

Where excessive caution allows human potential to go to waste, I can see no simple virtue. "The poor without employment are like rough diamonds, their worth is unknown" said John Bellers. I think you can say the same for the poor without credit in vast swathes of the world economy.

More, lending is the flip side of saving. No-one needs convincing of the virtues of saving, but unless people bury their cash, or buy gold (the same thing), their saving properly implies lending and interest payments.

And here we get to the nub of it: banking matters because the banker offers to intermediate between the saver and the borrower. The fact is, this is trusteeship, and it places the banker right at the centre of that 'vast and complex movement of social service.'

The early banking Quakers understood this, I think. A Quaker banker would have at the forefront of his mind the fact that he had taken deposit money on trust, and therefore he had to ensure he didn’t lose it. “If I lend you this money, are you in a position to repay it?” But in taking this care, in accepting this responsibility, perhaps he also brought something unusual to the table – an acknowledgement that a credit contract involves responsibilities not just for the borrower, but for the lender too. The lender has a responsibility to the borrower because he also has a responsibility to the depositor who’s money it is that is being lent. That responsibility starts in, and is implied in, the very extension of credit in the first place. The lender and the borrower have both put themselves in a position whereby they owe each other support.

And this insight,as I understand it, is what also underpins the success (measured by low default rates) of microcredit schemes.

It is also the insight that commercial banks have lost - completely, I think. The problem with ‘credit’ is, in fact, a problem with the institutions which allocate that credit. It is the lack of acknowledgement that borrower and lender have a mutual responsibility to each other, on behalf of the depositor.

So it's to the institutions that we must turn next.

Quakers, Finance, and the FSA's Folly

2010-01-03T08:06:00.000-08:00

One of the main things I'm doing here is trying to fashion a defence the financial industry, sometimes as it is, sometimes as it could be, from a Quaker and libertarian point of view. It feels an outlandish task, since an antipathy to finance seems common ground held comfortably. I want to win back this common ground, in as honest and sympathetic way as I can, for many reasons. But two will start. First, this antipathy is new: early Quakers were not merely involved in finance, they helped to build the very institutions we now query - including Barclays and Lloyds, and Gurney (of Overend,Gurney fame/notoriety). Indeed, the financial involvement, and success, of early Quakers got up the noses of other radicals (including William Cobbett and Tom Paine). Were these early Quakers simply being unquakerly?

The second reason is far more important: finance is an extraordinarily important part of the framework-setting within which much of humanity succeeds or fails - so it's got to be done properly. At the moment, it's not being done properly, and I think Quaker voices should be raised to help it be done properly. More, I'd like to see Quakers begin the reconstruction of a financial system themselves, building better, just like the Barclays, Lloyds and Gurneys did before them. It is not too late, and certainly not too early, to start refashioning a financial system that serves humanity rather than itself.

Over the coming weeks I'll share my effort to untangle the good from the necessary from the downright pernicious. I know it'll be an uphill struggle. After all, I've read 20.63: 'So much has the public conscience been warped from the living Truth that a man who has acquired wealth by operations on the Stock Exchange is spoken of as having 'made' his money regardless of whether any useful purpose has been served. . . . '

Actually, I think the 'public conscience' is in a much worse state than that. Today's Sunday Telegraph carries the quite extraordinary story that - and here I'm quoting, m'luds - 'The Financial Services Authority did nothing to prevent Icelandic bank Kaupthing from setting up British retail operations eight months before it failed because it thought taking personal deposits would help boost the bank's faltering liquidity.'

The crucial word in that sentence is 'because'. Frankly, one doesn't expect regulators to be the sharpest tools in the box, an assessment fully justified by the fact the FSA's regulators allowed Northern Rock, a deposit-taking institution, to run a loan-deposit ratio of 500%+. But even the frankly dim can be expected to know theoretically why they are there. Financial regulators are there to protect the depositors in opaque financial institutions such as banks, from the danger the greed and folly of those institutions exposes them to. In this case, however, it seems that the regulator sought to protect the financial institutions from the consequences of their own folly, by using the blind-sided depositor as a sort of ignorant financial shield of last resort. This goes beyond stupid, and indeed beyond dumb complicity, but puts the FSA into the realms of accessories before the fact. The depositors were mown down by friendly fire.

The head of the FSA at the time was Callum McCarthy. He was knighted in 2005 for 'services to finance'. Enough said.

I seriously want to master my anger at such dangerous and negligent insouciance. So let's just say that when the official mind has so grievously misunderstood the nature of finance, and is seemingly intent on compounding that misunderstanding at our expense, these may be fertile times to develop a new vision.

The 1859 Situation

2009-12-24T08:18:00.000-08:00

'In the present age . . . the claims of an opinion to be protected from public attack are rested not so much on its truth, as on its importance to society. There are, it is alleged, certain beliefs, so useful, not to say indispensable to well-being, that it is as much the duty of governments to uphold those beliefs, as to protect any other of the interests of society. In the case of such necessity, and so directly in the line of their duty, something less than infallibility may, it is maintained, warrant, and even bind, governments, to act on their own opinion, confirmed by the general opinion of mankind. It is also often argued, and still oftener thought, that none but bad men would desire to weaken these salutary beliefs; and there can be nothing wrong, it is thought, in restraining bad men, and prohibiting what only such men would wish to practice.

'This mode of thinking makes the justification of restraints on discussion not a question of the truth of doctrines, but of their usefulness, and flatters itself by that means to escape the responsibility of claiming to be an infallible judge of opinions.'

-JSM

More About Growth

2009-12-23T01:58:00.000-08:00

A couple of days ago I argued that economic growth was an ethical good because at a certain level growth was equivalent to an increase in human security. Grinding poverty is not decorous, it is desperate, degrading and above all dangerous. Getting out of that poverty is a Good Thing.

It's a powerful argument, because it doesn't just apply when it's about Chinese peasants escaping subsistence agriculture. It applies in Britain too: when the Corus steel plan at Redcar was mothballed earlier this month, 1,700 people, plus all who depend on them, discovered themselves more vulnerable than they'd ever expected. My guess is they'd understand the link between growth and security.

But we can't just say "as long as there's one person for whom economic growth can provide security, then it's justified". The are different types of growth, and different types of security, which matter, and which contradict such a simple conclusion. Not all growth promotes security.

Britain's recent economic experience illustrates this all too well. We are told we've gone through a period of 'debt-fuelled growth', and for the sake of argument, let's say this is true. If so, then it's obvious that a pattern of behaviour which involves taking on more and more debt simply in order to keep buying things isn't going to end in a net gain in 'security.' Rather the reverse. And similarly now, if we're going into a period when debts are repaid, albeit at the cost of reduced consumption (recession), then we can surely say that there are gains in personal 'security' as the debts are paid down. If that's the case, then on a net basis, the argument for security would have argued against at least some part of the 'growth' of the last decade. And I think it would be right, Redcar workers notwithstanding.

But not all economic growth is fundamentally 'debt-fuelled' - and what's more, I've got much less against credit as a concept than you might assume. So, strip away the excess of debt argument, and can we reassert that growth always will increase personal security and, more widely, wellbeing?

We cannot. I'll start with an observation: once the initial excitement is past, bull markets are horrid experiences for all concerned, even for its chief beneficiaries. By the end of most major bull markets, its participants (an ever-widening breed) breath their self-disgust with every breath. I once resigned from a Wall Street investment bank at the top of a bull market because of the ridiculous amount of money they proposed to pay me (ah! happy, younger, days). And I remember visiting Indonesia in 1996 at the very peak and apogee of Suharto's boom, and being bewildered and alarmed by just how angry everyone was. 'If that's how they're feeling now, when they're getting rich, what are they going to feel like when things get tough' I asked.

And on the contrary, the nicest times and places are those which are deep, deep, into bear markets and recessions. Ever since the Bubble burst in Japan in 1990, it's been a truly beautiful place to be. Even Hong Kong became an almost tolerable place after the financial crises of 1997/98.

Dickens had it right: it's the best of times, and the worst of times. . .

I think there's something systematic about this, and it's not just that things get 'irrational', or that the distribution of rewards during sharp business cycle upswings and/or bull markets is 'unfair' - though both these may be true. Rather, it is something measurable, urban and specifically a-human. It is that at a certain time-density of transactions , a certain speed' of economic activity, then the "rewards to agglomeration" become the driving factor. Why? Because when put under a certain economic and monetary pressure, a certain agglomeration of different talents itself becomes a decisive factor in the innovation and creativity which drives the cycle. And as a consequence, economic benefits are distributed not just to labour and capital, but also to the physical agglomeration itself - the city.

This sounds complicated, but what it means is that you end up living in a smaller flat, because even though the business cycle means you're getting rich, the value of the city itself is getting rich faster. The beauty of this theory is that you can actually see it, and measure it, as it happens.

But then parlay it back to the people involved: what it means that for almost everyone,their ability to stay in the city, or the terms on which they stay in the city, deteriorates just as the rewards to staying in the city are at their greatest.
In a word, they watch their security disappear in direct proportion to the strength of the bull market or economic upswing. For the 'winners' its an enervating experience. For the 'losers' - well, they simply get driven out of the city, like peasants driven off the commons. No, a severe bull market, or extremely rapid growth, is no contributor to human security.

Sadness and Impiety of the Sage

2009-12-20T13:22:00.000-08:00

Probably the Tyne's biggest and certainly its highest-profile venture - The Sage arts complex. As if an arts centre can flourish on the grave of the society and economy on which it is visited. I doubt they can even cover the lighting bill.

The Virtue of Economic Growth

2009-12-20T09:43:00.000-08:00

It seems strange that I need to argue for the virtue of economic growth, but it is so. There's a strain of ethical thought which, though it usually doesn't feel it needs to articulate itself clearly, can speak and think comfortably about the evils of growth, and the desirability of limiting it. I don't want to dismiss it entirely, because there are circumstances in which I'd go hand in hand with this strain of thought. But when I do, I know the circumstances are exceptional. The 'benefits of no-growth' arguments are a very special subset, and embracing them too easily provides easy access to a broad and well-populated highway to what almost always turns out to be someone else's hell.

So I'll admit it - I love economic growth. I love its effects, and I love its means. Show me an industrial town in the back of beyond, and I feel at home. I'll deplore the pollution along with the rest of you, but secretly, my heart is at ease. Show me round a Chinese factory, and where you might see a sweatshop, I see work, and growth, and hope. It's probably in the blood.

But if so, it's there for a reason. One day in the early 1990s, I was being shown round the Pearl River Delta, Guangdong. China was still in a post-Tiananmen deep freeze, though the scariest black-is-white period of repressions was easing. I worked for the Far Eastern Economic Review at the time, and my tour of the Pearl River Delta was probably part of the process of thawing - six months after my tour, Deng Xiaoping turned up in Shenzhen, and kick-started China again. Anyway, I was being shown round someone's house - an Asia boom-town villa, with aircon, sofa and the beginnings of a a garden, complete with concrete moongate. I like gardens, so I was poking around, and I saw his compost heap over in the corner - a pile of straw beginning to moulder nicely. 'What's that?' I asked via the translator. 'Oh, it's where I used to live'.

His straw hut. The alternative to growth.

In my bones, I think people who find it easy to oppose economic growth have no experience, even at second-hand, of what poverty does. Of how poverty grinds and enslaves, degrades and dehumanizes. I don't think they really know that at a certain level, economic growth is an unmitigated ethical good. I don't think they really appreciate that the attainment of a certain level of material decency is just A Good Thing. Indeed, if you haven't got it, it's almost The Good Thing. I have no doubts about this at all: the story of my career has been watching economic growth haul hundreds of millions in Asia out of desperate grinding poverty, and into a level of material decency which empowers them in ways unimaginable to generations of their forefathers.

I was standing on the footbridge spanning the Tyne just below the Sage a few months ago, watching the sun go down. In its way it was beautiful, and I'd been reading about how the salmon have returned. But actually to me, it was a dead river - a river which all the urban geography told you was meant to be a hard-working river. Now it's got no shipyards, just the money-pit Sage arts complex and somewhere down there, some salmon. Honestly, I don't think it's progress. I'd rather sit and watch the loaded barges churn up the smelly old Huangpu.

And of course, I remember paddling in the River Holme at the bottom of the valley, which turned blue or green or purple depending on what DP Dyers were working on at the time. I remember the steam and smoke drifting down the valley. Childhood memories, yes, but also memories of a town which was once prosperous, and is now quite obviously less so.

At bottom, the point about economic growth is that for most people most of the time, it equates to increased security. And for all too many people is the bedrock need upon which all hopes and dreams, and most human relations, are either built, or founder. Certainly I can feel this deep down, because there's what - probably only three generations of ancestors? separating him from me. My ancestors' acts of bastardy on the factory floor. And there's less than a generation needed to link his industrial dreams to mine - less than a generation, masked only by absolutely necessary ship-of-Theseus multiple mental/emotional replacements.

The pursuit of security, then, is my argument for growth.

Next time I'll destroy it.

To the Messiah

2009-12-16T01:27:00.000-08:00

The last time I heard Messiah sung in full was in a most elegant new concert hall in Tokyo, who's precise acoustics suited The Sixteen's precision immaculately. Last night we packed hugger-mugger into Huddersfield Town Hall to hear the Choral do it.

Huddersfield Town Hall is ground zero for the Huddersfield Choral Society singing the Messiah. It is to the Messiah what Bayreuth is to Wagner. But with this difference: that Wagner chose and created Bayreuth, whilst it was the men and women of Huddersfield that chose and created this Messiah. It is their expression of themselves, of their communality, and of their faith (though in what need not be too closely investigated).

The place is, of course, packed, though tickets are expensive. Black tie is common for the men, and in the Mayor's Box some johnny has got himself up in white tie and medals - a foreigner, we all agree. The choir troops in, great solid phalanges of sonic potential, stretching up to the highest blocks at the back. A bald and very solid looking elderly man sits at the organ. The surprisingly small orchestra comes on, and you wonder how they'll cope with the forces ranged behind them. The soloists, serious and self-regarding as they should be, though they are not the stars of the show, as will become clear soon enough.

It starts with a hymn - everyone on their feet, and this is not a place for holding back, so the hymn is sung. Back down again, squeezing into your seats, and we wait for it to start. 'Comfort ye, my people!'

And then the tenor starts in on 'Every valley shall be exalted' and it strikes me for the first time ever, that, of course, this includes the Colne and Holme valleys in particular. That what's being sung here is an affirmation and a promise, of present worth and future prospects. Every valley shall be exalted, even these grim and raining valleys where the mills are (or were) running lights into the night. And then the moment arrives, and the Huddersfield arise en masse, suck in great tides of air, and sing 'And the glory, the glory of the Lord, shall be revea - ee -ee-ee-led'.

And they could be said to be proving their point. Listening them sing, the first shock is of the huge and (you think) potentially inexhaustible power they are keeping in reserve. Later, as things go on, there's something more - the quite extraordinary nimbleness and sheer amazing skill and vocal dexterity on display. 'He trusted in God that he, would deliver him, let him deliver him, if he delight in him' is taken at a lick that I seriously doubt even the Sixteen would have contemplated, and it's a breathtaking slalom run, riotous and mischeivous and deadly serious.

If listening to the Sixteen do the Messiah was like watching a Ferrari tackle the swerves and curves and power-straights of a Grand Prix circuit, listening to the Huddersfield do it is like watching a massive and muscular racing Bentley do it at the same pace.

And so the evening passes. Each time the chorus rises, there's a thrill of anticipation, almost always rewarded with something jaw-dropping. Up we all go for the Halleluyah Chorus. We listen, critically (for this is, among other things, probably the most critically aware audience in the world - there are people here who've heard in 20, 30 times, and still bring in the score to check all is being done properly), as the soprano tries to sink into the utter quiet and simplicity of 'I know my Redeemer liveth' which, it strikes me, is the emotional and spiritual core of the whole work. She manages it, just about, by the end. And then it's on, on, willingly carried away on the tied of sound that is Part III.

By the time we get to 'Worthy is the Lamb that was slain' we have resolved all complexity, and it's now time for solid muscular declaration. All this stuff about the Lamb, of course, is lapped up here in the mill towns, the wool towns - maybe another reason this is Ground Zero for the Messiah.

We have reached the Amen chorus. After all, it starts tentatively, wanderingly, only to build up in confidence, complexity, volume and density until - and the morning after, this barely seems like an overstatement - you feel you are listening to the voice of heaven itself. The audience is on its feet, clapping and cheering, even whilst the voices are sustaining the last Amen.

This is the triumph of the common man, the little man, us, who've built this town out of these valleys, out of these outcrops, against the weather and reason. The women don't for the most part look glamourous in their unflattering blue dresses. The men in black tie look solid, but older and weatherworn - you know them because they pass every day on the street, hat down, collar up against the weather. Yet tonight they have pulled off, as every year, another miracle, another triumph, another mighty affirmation of themselves. We stand and cheer, and its ourselves we're cheering. The soloists and conductor come back on, and of course, it's their job to be cheered, but it's the chorus we're here for, and they've done us proud. For one night, every year, they've turned this hall into a communal rite, a triumph all can embrace, and we are rightly grateful.

This is a musical experience as authentic as any anywhere. As we crowd out into the raining night, I wonder 'Is Huddersfield Town Hall, with its wonderful acoustics, modelled on the Concertgebouw in Amsterdam, perhaps?' And outside, in the carpark, as we swap notes and raptures with strangers, just now friends, I point my children to the hulks against the skyline: the old mills, their shapes still clear, if not their purpose. 'That's what did this' I tell them.

I am the Woolman's Son

2009-12-13T12:10:00.000-08:00

Four years ago in March my father died. He'd worked to try and keep a West Yorkshire mill afloat, and finally threw down the struggle in autumn 1987, just before the market collapsed. He was a smoker, and they put 'emphysema' on his post mortem, but it's more likely he died of a particularly bad panic attack.

I was brought up counting the factory chimneys, and waiting for the mills to close. My father loved his golf, and his clubhouse happened to be the house of Richard Oastler, factory reformer and abolitionist. In my teens I read his testimonies. I also read the volume of Hayek my father gave me when I was 16 - the only, and right book I needed at the time.

Now I work my family's passage analysing Asian economies for money managers of various degrees of aggression and success. And I attend my local Quaker meeting. Earlier this year I attended a Quakers in Business meeting in Manchester, and came away largely dissatisfied with the comfort and ease with which a consensus of the virtue of the public and 'third' sectors was assumed, as was the evil of the financial sector. 'We don't get many Quakers from the financial sector' I was told.

I didn't agree then, and I don't agree now. Finance is a weighty matter, and the early Quakers knew it. But if you take it seriously, as you should, because it will certainly take you seriously, and if, moreover, you have Libertarian instincts, then there's some thinking to be done. What's more, I have the legacy of John Bellers, Quaker and economic thinker, to wrestle with.

Here's where I'll do it. I am the woolman's son.