I attach no intrinsic value to national sovereignty or to any group rights whatsoever. Whatever significance or value is attributed to national rights (and group rights, minority rights, majority rights, gender rights, linguistic group rights, religious rights, ethnic rights or whatever rights) are derived significance or value - significance or value derived from human rights, that is, rights of individuals.

Given that starting point, it will come as no surprise that I support immediate outside intervention in the human tragedy that is unfolding in Myanmar/Burma. The deeply evil military regime that has ruled and destroyed that country for the past 46 years must be overthrown to safeguard the fundamental and inalienable rights of its people to life, liberty and the pursuit of happiness. This wicked junta now intends to prolong its miserable existence by preventing and subverting the efficient distribution of aid to the countl (more…)

Yesterday, Saturday 11th May 2008, a sixteen year old boy, Jimmy Mizen, was murdered in a bakery shop in Lee, Lewisham, South East London. He had turned 16 the day before, and this was his first day at work. I did not know him or his family, but this killing feels personal, because it took place within a seven minute walk from my home and less than 100 yards from Lee Railway Station, which my wife and I use every day to get into and back from work. I have never been inside that bakery shop, but my seventeen year old son knows it well. His school is just around the corner and according to him the people there are nice and make great sandwiches. (more…)

In a recent Column for the Financial Times, Larry Summers has, once again, combined truth with half-truth and a fair measure of obfuscation, mixing of issues and blurring of key distinctions. What Larry says and writes matters, because he is an influential voice in the Democratic party on economic issues. Both candidates for the Democratic presidential nomination appear to have taken the King’s shilling and are about to set sail on the good ship Protectionism. For the sake of the US economy, its workers and the rest of us, they should think again. (more…)

The Bank of England’s semi-annual Financial Stability Report, whose 23^rd instalment was published a couple of days ago, lists as members of the Bank’s Financial Stability Board, John Gieve (Chair),Martin Andersson, Andrew Bailey, Charles Bean, Nigel Jenkinson, Mervyn King, Rachel Lomax and Paul Tucker. This listing of the membership of the Financial Stability Board raises a constitutional issue and a factual issue. (more…)

Mervyn King, Governor of the Bank of England, is correct in linking the reckless lending by banks and other financial institutions that, together with the matching reckless borrowing, lay at the roots of the current financial crisis, to remuneration structures that rewarded extreme risk taking on poorly designed financial products. The diagnosis is fine. What to do about it is less obvious. These remuneration packages did not fall to earth from the moon. They are the result of a distorted economic environment. The key distortions, unfortunately, cannot be remedied, because they have highly desirable consequences as well as the dysfunctional ones highlighted by the crisis. Let’s consider some of them: (more…)

The Olympic games have become a joke. A bad joke. It is time to put the event out of its misery. There was about a 1500 year gap between the last of the Olympic Games in Ancient Greece, and the first of the Games in the new Olympic era. Let’s have another 1500 years without Olympics. Then we can see again. There are three arguments that support this recommendation. (more…)

The Bank of England and HM Treasury are likely to announce a package to take some illiquid assets off the banks’ balance sheets. It is hoped that this measure will (a) encourage the banks to engage in more mortgage lending to homeowners and (b) will help unfreeze the markets for residential mortgage backed securities (RMBS) that have been dead since last August. The amount involved is rumoured to be about £50 billion, an amount equal to just under half the net home lending in the UK last year, and probably close to the amount of net home lending we will see in 2008 (even with the injection of Treasuries that will be announced). (more…)

The failures of the western financial models

The worst outcome of the current financial crisis would be a return to the status quo ante that produced the pathologies, anomalies and contradictions that are its root causes.

I believe that the Western model of financial capitalism - a convex combination of relationships-based financial capitalism and transactions-based financial capitalism - has, in its most recent manifestations (those developed since the great liberalisations of the 1980s), managed to enhance the worst features of these two ideal-types and to suppress the best. This period has been characterised by a steady increase in the relative dominance of the transactions-based financial capitalism model in the overall financial arrangements of the world, most spectacularly in the US, the UK, and such smaller countries like New Zealand and Iceland, somewhat less in most of continental Europe and elsewhere. (more…)

When I hear or read the words ‘off-balance-sheet financing’ or ’special purpose vehicle’, warning lights begin to flash and I grab for my obfuscatometer. Off-balance-sheet financing is any form of funding that avoids placing the owners’ equity, liabilities or assets on the balance sheet of a firm or other legal entity. The most common way to achieve this is by placing those items on some other entity’s balance sheet. A standard approach is to create a special purpose vehicle (SPV) and place assets and liabilities on its balance sheet. An SPV is a firm or other legal entity established to perform some narrowly-defined or temporary purpose.

There are circumstances (possibly as many as one percent of the reported occurrences of SPVs), where such entities are created to achieve true efficiency gains. For instance, creating a separate legal entity for certain activities may better align incentives for risk-sharing or may avoid conflict of interest. The overwhelming majority of SPVs are, however, created for nefarious and/or dishonest purposes: evading or avoiding regulation (and associated financial burdens and constraints or reporting obligations); tax avoidance or tax evasion; accounting shenanigans, including the circumvention of ceilings on the budget deficit or debt of public entities; and hiding assets or liabilities from scrutiny by interested parties. These often clever schemes are always economically equivalent to a much more straightforward on-balance-sheet arrangement. (more…)

The Institute of International Finance,  an organisation representing many of the world’s largest banks and other financial companies, has issued a pretty frank mea culpa for the litany of errors of omission and commission perpetrated by its members during the financial boom that turned to bust in August 2007.  The Interim Report of the IIF Committee om Market Best Practice states a large number of home truths and makes a host of useful suggestions about risk management, liquidity managements, compensation of senior bankers and superstars, over-reliance on formal quantitative models etc.

The tone of the report is one of “We know we screwed up, but now we’ve learnt our lesson (really we have!!) and we’ll never do it again; so there is no need to regulate us more severely and intrusively”. (more…)