Monthly Archives: June 2008

The Financial Services Authority (the main UK financial regulator and supervisor) announced on Friday 13 June 2008, that as of Friday 20 June 2008, short-sellers will have to disclose short positions in stocks undergoing rights issues, if these short positions amount to more than 0.25 per cent of the total shares outstanding. This new disclosure requirement for short sellers is much more stringent than the 3 per cent disclosure level that applies to long positions.

The FSA justifies this measure on the grounds that under current market conditions (post-August 9, 2007) short selling can be especially disruptive and damaging:“In current market conditions, there is increased potential for market abuse through short selling during rights issues. As a result, there has been severe volatility in the shares of companies conducting rights issues. This is potentially damaging not only to the issuers in question but also to confidence in the overall fairness and quality of the UK market. It can be particularly prejudicial to the interests of small investors. The problem is compounded by the length of time taken to complete rights issues.”

Quite so. But this leaves a number of questions unanswered.

On June 11, I went to a presentation at the London headquarters of BP of the BP Statistical Review of World Energy, June 2008, by Tony Hayward, Group Chief Executive of BP and Christof Rühl, the Chief Economist. Nice presentations, good documents, until the Chief Executive extolled the unique virtues of Cap & Trade and the Chief Economist jumped in by asserting that Cap & Trade was, unlike the taxation of carbon emissions, an efficient way to deal with the environmental externalities of greenhouse gas emissions. This assertion deserves a one-word label: baloney.

Cap & Trade is an efficient way to deal with the environmental externalities of greenhouse gas emissions because it is equivalent to a tax on greenhouse gas emissions.

48 hours that is.  The UK’s gutless House of Commons has just consented to the most serious assault on a free society and on our essential liberties this country has seen for at least a century.

It will now be possible for persons suspected of terrorist crimes to be detained without being charged for up to 42 days.  This is a major step on the road to a police state in the UK – a horrifying encroachment on human rights.  If the government believe there is a war on, let them declare a state of emergency and assume emergency powers.  This introduction of state-of-emergency-instruments and powers during ‘normal’ times, is a constitutional outrage.

The UK Treasury is considering the creation of something I shall refer to as an FSC (for Financial Stability Committee/Council) to advise/assist/overrule the Governor of the Bank of England and the other four executive members of the Bank of England’s Monetary Policy Committee (MPC) who currently deal with and decide on financial stability matters.

This could be a good idea or a bad idea, depending on how it is implemented.

The first casualty of war is truth,” said US Senator Hiram Johnson. Truth is also the first victim of political partisanship. Not surprising, really, as the true believers in any political cause view their campaigns as wars. The second and third victims of political partisanship are, respectively, one’s sense of humour and the ability to write in proper English.

Those who doubt the truth of these propositions are invited to take a look at some of the self-righteous nonsense, often expressed in bad English, that poured in in response to my blogs on Senators Obama (here & here)and Clinton (here).

In the latest kerfuffle, it was supporters of Senator Clinton who got their knickers twisted. The statement of mine that caused such apoplexy among the Clintonistas was the following: “Senator Clinton has lost. She deserved to lose. She ran an ugly campaign. Just one vignette. When asked (again) on the CBS show 60 Minutes whether she believes Obama is a Muslim (a ludicrous rumour spread by right-wing bloggers and media in the US), she replies: “No, no why would I – there’s nothing to base that on – as far as I know”. She said this with a strong emphasis on the last ‘I’.”

The ECB, through its President, Jean-Claude Trichet, is back in the game of pre-announcing future interest rate changes. I would have thought that the experience of August 2007 would have cured them of this urge for a bit longer. On August 2, President Trichet flagged a rate rise for September by using the ‘strong vigilance’ code words: “… strong vigilance is therefore of the essence to ensure that risks to price stability over the medium term do not materialise.” Then events, dear boy, events intervened in the form of the August 9 eruption of the financial crisis, and the pre-announced rate hike was hastily shelved.

The wordsmiths at the ECB appear to have been busy in the mean time coming up with a new collection of code words. Strong Vigilance is no longer with us, and neither is his weakling half-brother, Mere Vigilance. Instead the Governing Council is reported in the Introductory statement of June 5th to be “… in a state of heightened alertness…”. Taken at face value this means no more than that the majority of the members were awake during the meeting, because the President had removed the decaf.

Unless Chairman Bernanke’s recent statement about the US dollar signals either a greater willingness to raise rates (or not to lower them) than before, or a greater readiness to conduct foreign exchange market intervention to stop the US dollar from falling further, it was cheap talk.

I can see two plausible sets of circumstances that would permit a test of the cheap talk hypothesis. The first would be a sharp weakening of the external value of the US dollar (as measured by its effective or trade-weighted nominal exchange rate) not associated with an obvious further weakening of domestic activity. An increase in oil prices caused by a negative shock to oil supply would be a possible trigger for such a configuration of economic outcomes.

Senator Obama calls himself a black American or African American. He is seen as a black American or African American by most of the black/African-American community and probably also by the white community and the other racial/ethnic communities in the USA. By self-identifying as a black American, Senator Obama, who has a black Kenyan father and a white American mother, denies or diminishes the 50 percent of his parental heritage that is white.

Self-identification is, of course, a matter of personal preference and choice. But if I were to self-identify as a black female, a few eyebrows would be raised. When a self-identifying choice makes little sense because of its lack of congruence with easily observable facts, it is open to question, even to criticism.

The US primary season is over, but for the final shouting. Senator Clinton has lost. She deserved to lose. She ran an ugly campaign. Just one vignette. When asked (again) on the CBS show 60 Minutes whether she believes Obama is a Muslim (a ludicrous rumour spread by right-wing bloggers and media in the US), she replies: “No, no why would I — there’s nothing to base that on — as far as I know”. She said this with a strong emphasis on the last ‘I’.

It’s sad that being an adherent of the one of the world’s great religions would, apparently, disqualify you from being an effective candidate for the US presidential nomination. I would much rather have a liberal Muslim than a fundamentalist Christian as president of the USA. But it’s truly distasteful to spread electoral poison by insinuation.

Maverecon: Willem Buiter

Willem Buiter's blog ran until December 2009. This blog is no longer active but it remains open as an archive.

Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions.

Willem Buiter's website

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