Monthly Archives: July 2009

John Gapper

I am going on sabbatical leave until late September. Normal service will be resumed then.

John Gapper

What have the Romans ever done for us? is the rhetorical question posed by the rabble-rouser Reg in Monty Python’s Life of Brian, to which the reply comes from his audience: aqueducts, roads, education, wine, peace etc.

Colonial occupiers do not get a good press, rightly in many ways, but they often bring infrastructure and other benefits such as the rule of law to colonised countries.

Paul Romer, a Stanford economist, wants to bring back some of the benefits of colonisation without the nasty aspects. He believes developing countries should partner with developed ones to create special economic zones – or “charter cities” – as a means of boosting local economic development.

Prof Romer made the argument at TED Global this morning that developing countries should create their own equivalents of Hong Kong, the city state run for a time by the British and then assumed into China.

Hong Kong, with its free market system, independent courts and efficient administration became a model for economic development across China, he argued.

“Britain inadvertently through its actions in Hong Kong did more to reduce world poverty than all the aid programmes we have seen throughout the world,” he said.

Prof Romer’s first suggestion for a zone which could be developed on behalf of, or in partnership with, a poor country? Guantanamo Bay, which he suggests Cuba could charter Canada to develop on its behalf, assuming it would not want the United States to do so.

John Gapper

My weekly column for the FT this week is on financial regulation:

If you have not been concentrating for the past few months, you may think that nothing much has changed in the world of finance.

Banks such as JPMorgan Chase and Goldman Sachs have reported large profits for the second quarter, helped by big fixed income trading revenues, having repaid the equity injections the US government made in them last autumn.

Meanwhile, regulators struggle to devise a solution to the glaring problem that we now know such institutions to be too big to fail. Not only do they enjoy day-to-day access to central bank funding, but they are bound to be bailed out if trouble strikes; there is no use denying it.

The latest attempt to rewrite regulations to address this came from Britain’s Conservative party this week. The “big idea” of George Osborne, the shadow chancellor, is to abolish the Financial Services Authority and hand over the prudential supervision of all financial institutions to the Bank of England.

The Bank is doing better politically than the US Federal Reserve, which faces hostility from Congress after the US Treasury proposed beefing up its powers. Thus, most political energy is now being expended not on regulation itself but on the name of the regulator.

Given the scale of the crisis we have just endured, and appear to have survived, this is pathetic. If I were a banker, I would be laughing discreetly at the bumbling and misdirected efforts of governments to change my behaviour.

You can read the rest of the article here and comment below.

John Gapper

Listening to a bunch of neuroscientists talking, as I did at the TED Global conference in Oxford is, ahem, challenging. But it was also gripping, even if my brain is not fully up to neuroscience.

I particularly liked a talk by Rebecca Saxe, a scientist at the Massachusetts Institute of Technology who studies a portion of the adult brain devoted to understanding others’ feelings.

Ms Saxe showed films of how children gradually acquire the ability to interpret other people’s motives, and how that affects their moral judgments of them.

A bit disturbingly, she also showed how, by using a magnetic device, you can confuse that part of the brain – the right temporo-parietal junction – and reduce the activity in it while asking people to make judgments about others’ behaviour.

When you do so, you can change those judgments. More exactly, someone whose RTPJ is being affected is less likely to regard someone else sympathetically by taking their feelings into account.

It sounds Orwellian, although she pointed out that an sinister government agency using big magnets could not use the technology to make people amoral because the RTPJ affects interpretation of other’s feelings, rather changing one’s own.

“I think of what we are doing as not so much studying the defendant as studying the jury,” she said.

On the other hand, what if someone found another part of the brain susceptible to magnetism that does control our own morality?

Photo: TED/Duncan Davidson

John Gapper

I am in Oxford at the TED Global conference, a melange of all sorts of talented people people making short and provocative presentations over four days. The surprise attraction at the opening session this afternoon was Gordon Brown, the British prime minister.

Although I agreed with some of what he said, I thought Mr Brown suffered from making a politician’s speech to an event where you get points for being entertaining and off the wall (he was later followed by a man who makes micro-sculptures of houses on the heads of pins).

In my view, the most thought-provoking presentation was Alain de Botton‘s, which was a critique of the drive towards meritocracy in modern society on the grounds that it is a) impossible to achieve and b) implies that many people deserve to be at the bottom of the pile.

As Mr de Botton pointed out, we have come to expect that any of us can succeed if we work hard and have talent, whereas there in fact is a lot of chance and arbitrariness involved.

He noted that the poor in medieval times were known as “unfortunates”, a recognition that they were simply stuck with their social status, whereas we now talk about “losers” as if they deserve it.

He drew a comparison with the moral framework of literature, in which a hero’s tragic fate does not require an audience to look down upon him: “It would be insane to call Hamlet a loser. He is not a loser, although he has lost.”

It reminded me of some of the deconstruction of individual success in Malcolm Gladwell’s Outliers, in which he points out the importance of collective influence and random factors such as birth date.

Photo: TED/Duncan Davidson

John Gapper

I am not sure of the moral to be drawn from the fact that Citigroup, in its role as lender, has taken control of a resort hotel in California where American International Group held a retreat after being bailed out by the US government, but it is a straw in the wind.

The St Regis Monarch Beach in Dana Point is far from the only resort hotel to be in trouble as a result of the severe cutbacks in business travel and conferences following the financial crisis.

The hotel’s website advertises it as “imaginatively conceived to envelop the senses, answer every desire and stir the soul”, which sounds like a bargain at any price.

In the good old days, employees, customers and investors could look forward to spending a few days every winter in some resort hotel in Florida, Arizona or California listening to a few presentations and taking in a round of golf or a visit to the spa.

Now, as we know, that sort of thing is frowned upon. Not only are many companies cutting back on them but Wall Street financial institutions are still keeping their heads down.

There are some ironies. No corporate executive in receipt of taxpayer money can afford to admit on Capitol Hill to having held an event in Las Vegas, although it is about the cheapest place in the US to do so.

But, as a result, the luxury and resort hotel business is under severe strain. You would have thought that the politicians from the sunbelt states would be in favour of banks spending money at their local hotels, but it seems not.

John Gapper

The Federal Reserve and the Treasury must be patting themselves on the back today after managing to face down the finance company CIT successfully.

After being refused a further public bail-out, CIT managed at the weekend to negotiate a two-year $3bn rescue package with its lenders that keeps it out of Chapter 11 bankruptcy.

The FT points out today that, if CIT had entered Chapter 11, it would have embarrassed the Fed because it declared CIT adequately capitalised when it approved its application to become a bank. The US government also stood to lose $2.3bn in bailout funds handed to CIT late last year.

But even more important than this is the sense that the government and the Fed have regained the authority to allow financial firms to fail and not be pushed into public rescues by the fear of the consequences if such firms founder.

For the avoidance of moral hazard, it is clearly a good thing that CIT’s bondholders have had to restructure their debt and take losses. It has been hard for the government to live down not requiring bondholders of other financial institutions to take a haircut during last year’s crisis.

As part of its new resolution regime, the Treasury should set out clearly the expectation that lenders and bondholders to failed financial firms will suffer along with equity holders in any restructuring.

If Wall Street firms and finance houses find it harder to raise wholesale finance as a result, that would at least provide some disincentive to repeat their past mistakes.

John Gapper

I have written a piece for the Weekend FT on Charlie Gasparino of CNBC:

Charlie Gasparino, chronicler of Wall Street and champion television reporter of its downfall, is in his element. He is sitting at a prime window-side table at San Pietro, his favourite lunch-time ­restaurant in Manhattan, ruminating on the financial crisis, when a familiar face appears.

It is David Komansky, the former chief executive of Merrill Lynch, who has been lunching with another veteran Wall Street executive. He and Gasparino exchange warm words, and before Komansky leaves, he traces a circle on his left palm with his right forefinger. “Call me,” he mouths.

“He’s such a nice guy, and I wrote so many nasty stories about him,” says Gasparino. “I did this story about how Stan O’Neal [Komansky’s successor] took him out. O’Neal went to the board and arranged for everyone to report to him instead. Dave went ballistic about my story. He was very pissed and he told a lot of people I was an ass.”

You can read the rest of the article here and comment below.

Business blog

Strategy & managing

About this blog Blog guide
This blog is mainly about business and strategy and how and why people who run companies take the decisions that they do.

Most of the time, John Gapper is in New York and Andrew Hill is in London. We occasionally debate business issues between us, but your comments and criticism are welcome.




To comment, please register for free with FT.com and read our policy on submitting comments.

All posts are published in UK time.

Contact andrew.hill@ft.com or john.gapper@ft.com about the Business blog.

See the full list of FT blogs.

About John and Andrew

John Gapper is an associate editor and the chief business commentator of the FT. He has worked for the FT since 1987, covering labour relations, banking and the media. He is co-author, with Nicholas Denton, of All That Glitters, an account of the collapse of Barings in 1995.

Andrew Hill is an associate editor and the management editor of the FT. He is a former City editor, financial editor, comment and analysis editor, New York bureau chief, foreign news editor and correspondent in Brussels and Milan.

Archive

« Jun Sep »July 2009
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
2728293031