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from Chrystia Freeland:

‘Kumbaya’ capitalism collides with self-interest

DAVOS, Switzerland--George Soros is a traitor to his class. That’s not an insult or a tabloid exaggeration. It is, instead, a direct quote from my conversation with the billionaire investor and philanthropist at the World Economic Forum here.

‘‘I am a traitor to my class,’’ Soros said. ‘‘I think that the income differentials are too wide and ought to be narrowed,’’ he added, which is why he favors a bigger hit on those, like himself, at the very top.

But among his plutocratic peers, he said, that is very much a minority opinion. In fact, Soros, who helped spearhead the muscular Wall Street support for Barack Obama in the 2008 presidential election, particularly among hedge fund and private equity investors, believes the president’s call for higher taxes is the reason he has been ditched by the financiers: ‘‘That has led my hedge fund community to abandon Obama in favor of any Republican, because they don’t like to be taxed.’’

Henry Blodget, a former (and formerly disgraced) Wall Street analyst who has been resurrected as one of the smartest writers on business and politics, agrees that the financial class is strongly attached to its tax breaks. After his Wall Street friends have had a few drinks, he said, ‘‘they are cackling that they have fooled everybody into thinking that there’s some justification for this.’’ ‘‘This’’ is the carried interest tax provision, which allows some private equity and hedge fund managers to pay tax at 15 percent.

But the cackling may be coming to an end — and the hostility toward the president mounting — following his State of the Union speech on Tuesday. A centerpiece of that address, and most likely a central theme on the campaign trail over the next nine months, was Obama’s insistence that the 1 percent must pay up.

‘‘Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households,’’ Obama said, in an oblique attack on the carried interest tax break and on Republican candidate Mitt Romney, who paid an effective tax rate of 13.9 percent on income of $21.6 million in 2010.

‘‘Tax reform should follow the Buffett Rule,’’ the president said. ‘‘If you make more than a million a year, you should not pay less than 30 percent in taxes.’’ And, like Soros, the president has decided not to duck charges of class war: ‘‘Now you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.’’

from Funds Hub:

Morning Line-Up: Olympic mall, takeover rules revisited, Co-op insurance

News and views on the asset management industry from Reuters and elsewhere:

Olympic mall sale- FT

Britain takeover rules revisited- Reuters

C0-operative insurance sale- Guardian

from The Great Debate UK:

New UK coalition deserves 7 out of 10

-- Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own --

The new UK coalition deserves 7 out of 10. The pact between the Conservative and Liberal Democrat parties, led by David Cameron as the new prime minister, seems determined to address the country's most important problem -- the deficit. This is vital given that the euro zone debt crisis could still prove contagious. It should also be positive for sterling.

Some good ideas are also emerging on tax and spending. But other plans for tax and banks look odd -- and there are doubts about whether these bedfellows will be able to work together. After all, Britain has not had a coalition government since World War Two.

Some will be disappointed that George Osborne, who has not been impressive as the Tories' finance spokesman, will be Chancellor of the Exchequer. But the overall policy stance looks promising. The new government clearly sees dealing with the mess in the public finances as its top priority. The LibDems, led by Nick Clegg, have signed up to Cameron's plan to find 6 billion pounds in efficiency savings in the current financial year.

This is, of course, only a pin prick given that the deficit is expected to top 160 billion pounds, or 11 percent of GDP. But it is reinforced by several other measures: an as-yet vague promise to significantly accelerate action on borrowing; an emergency budget within 50 days; and plans to involve both the Bank of England and a new Office of Budget Responsibility in vetting budget plans. Asking a bunch of technocrats for advice could give the new government the necessary alibi to implement more savage cuts than the Tories indicated during the election campaign.

The specifics on tax -- insofar as they have been revealed -- are more mixed. On the positive side, there will be a move to equalise capital gains and income tax rates. That will both raise cash and prevent the tax arbitrage encouraged by the current system. The Tories have also downgraded a promise to increase inheritance tax thresholds.

Unfortunately, there are also several expensive tax promises. In the horse-trading over the coalition, the LibDems have won backing for their plan to raise the income tax threshold to 10,000 pounds. Meanwhile, the Tories are sticking to their plan to scrap the former government's decision to raise employers' national income contributions (NIC). The best thing that can be said about these plans is that the former will be phased in while the Tories are at least keeping the planned NIC increase for workers.

from UK News:

Clegg steps out of Cable’s shadow

Nick Clegg's assured performance in last week's leaders' debate has helped him step out from the shadow of Vince Cable, so much so that he did not even need his finance spokesman during a trip to Cardiff on Monday.

The Liberal Democrats, so reliant on Cable's well-publicised economic acumen during the past two years, has used him alongside Clegg for much of the campaign.

But despite being scheduled to attend together, Clegg took his recently found wow factor to the Welsh capital on his own.

It was put down to a logistical problem by the party's press machine, but as their candidate for Cardiff Central said -- they always knew they had a good potential finance minister, now they know they have a potential prime minister.

The LibDems are enjoying a level of popularity not seen since men wore top hats, thanks to Clegg's confident performance against the ruling Labour party's Gordon Brown and the Conservative leader David Cameron in Britain's first TV debate.

I went to see the man of the moment, first in a presentation of its green policies and then in a Q&A session with students at Cardiff University.

What was notable was Clegg's directness, in his use of non-political vocabulary.

from MacroScope:

‘Ken Clarke for Chancellor’ is no joke

Ken Clarke shouldn’t underestimate how strongly the city economists polled by Reuters last week want to see him serve as Britain’s finance minister next term.

The Conservative shadow business secretary and one time ex-Chancellor gleaned a few laughs from Thursday’s BBC Question Time audience when asked about the poll, saying: “There’s a limit to how much of a glutton for punishment you’re going to be.”

But economists would dearly like to see the 69-year-old’s appetite for punishment return soon. No-one came close in the Reuters poll to touching Clarke for popularity. Some 16 out of 29 economists picked him as their first choice for Chancellor.

This was more than twice the number of economists who want to install second-placed Vince Cable, the experienced Liberal Democrat treasury spokesman whose quick wit has made him a public favourite.

For Clarke to serve, Conservative leader David Cameron would first have to dump the party’s likely choice for finance minister George Osborne – a decision that would mean Cameron had gone “slightly off the rails”, according to Clarke.

On Question Time, Clarke was loyal and wholesome in his support for Osborne, who fared poorly in the Reuters poll. He finished fourth from the five choices on offer and behind the current Labour incumbent, Alistair Darling.

from The Great Debate UK:

Are the markets right to fear a hung parliament?

-David Kuo is director at The Motley Fool. The opinions expressed are his own -

There is a well-trodden saying that markets hate uncertainty. Elections are inevitably uncertain, so until the votes in the next election are counted we cannot be certain which party will govern the UK.

Currently, there are suggestions that no single party may get sufficient votes to form the next government outright. It is true that the Conservatives have a strong lead over its rivals. However, with a first-past-the post voting system, it only takes a small swing away from the Conservatives to change the complexion of the next parliament.

But let’s look at the problem facing the next government, whatever its colour. It may be blue, it may be red or it may be some combination of red and yellow or blue and yellow. That said, no government can ignore the budget deficit of £175 billion and the national debt of some £800 billion.

Politicians may like to stick their finger in their ears or bury their heads in the sand and pretend the problem does not exist until the election is over. But creditors won’t forget. Following the election, the next government knows that there will be howls of anguish and squeaking of pips when taxes are increased and public spending is slashed.

No government, a hung parliament or otherwise, can afford to ignore its creditors. The alternative is an even heftier annual interest bill. The current annual interest payment is already a whopping £40 billion and could rise further.

from UK News:

Too big to fail? Guerrilla central banking and the last resort

Deciding it was safe to come clean because banks are now on a more even keel and the worst of the credit crisis is behind us, the Bank of England has told the nation that at the height of the turmoil it secretly lent Royal Bank of Scotland and HBOS a colossal £62 billion, which is more than the entire British defence budget.

Both banks faced the imminent closure of high street cash machines and the curtailment of normal banking operations across the country.

The Bank said "this was a dire emergency" and Downing Street called the secret lending of taxpayers' money in the Autumn of 2008 "a powerful reminder of how close the banking system came to near collapse."

In Westminster, some MPs were flabbergasted, even though the loans have now been repaid.

"It is astonishing that this was kept secret for over a year," said Vince Cable, finance spokesman for the Liberal Democrats. "The government has treated taxpayers like children while expecting them to foot the bill."

John McFall, Treasury Committe chairman, said the sum caused "a little bit of an intake of breath thinking how many universities, how many colleges, how many jobs you could support with this."

"It's Enought to Make Anyone Feel Queasy," was Ian King's headline in The Times. "Any More £62 bn Loans You Haven't mentioned, Merv?" asked the Daily Mirror, addressing itself to Bank of England Governor Mervyn King.

from The Great Debate UK:

Too big to fail? Guerrilla central banking and the last resort

[CROSSPOST blog: 19 post: 5004]

Original Post Text: Deciding it was safe to come clean because banks are now on a more even keel and the worst of the credit crisis is behind us, the Bank of England has told the nation that at the height of the turmoil it secretly lent Royal Bank of Scotland and HBOS a colossal £62 billion, which is more than the entire British defence budget.

Both banks faced the imminent closure of high street cash machines and the curtailment of normal banking operations across the country.

The Bank said "this was a dire emergency" and Downing Street called the secret lending of taxpayers' money in the Autumn of 2008 "a powerful reminder of how close the banking system came to near collapse."

In Westminster, some MPs were flabbergasted, even though the loans have now been repaid.

"It is astonishing that this was kept secret for over a year," said Vince Cable, finance spokesman for the Liberal Democrats. "The government has treated taxpayers like children while expecting them to foot the bill."

John McFall, Treasury Committe chairman, said the sum caused "a little bit of an intake of breath thinking how many universities, how many colleges, how many jobs you could support with this."

from Funds Hub:

Great expectations

It was the outcome most commentators were expecting.

Even Roger Lawson of the UK Shareholders' Association, which represented 150,000 small investors, admitted it was "not totally unexpected".

But the defeat for hedge funds RAB Capital and SRM Global and other former shareholders claiming damages for the loss of their holdings in Northern Rock when it was nationalised last year is nevertheless a hard blow to bear.

The former shareholders may appeal, but a valuation of the equity at zero or close to zero is now looking entirely possible.

As if that wasn't painful enough, Liberal Democrats economic spokesman Vince Cable, according to the BBC, said today that SRM and RAB "deserve to lose their shirts" and that "we should not reward such cynical and reckless speculation".

Like many investors trying to catch the proverbial falling knife and pick up stocks on the cheap after the onset of the credit crisis, the Northern Rock situation turned out far worse than RAB or SRM expected.

At some point there will come a time when assets -- be they equities, bonds, property or anything else -- will present historic buying opportunities. But as many hedge funds have found out, being early can be far more painful than missing out on some of those tempting bargains.

from The Great Debate UK:

Pound’s fall a symptom of crisis, not a problem in itself

--Vincent Cable is Deputy Leader of Britain's Liberal Democrats. He is a former economist who is also the party's spokesman on economics and finance. The views expressed are his own. --

Most of Britain’s moments of high economic drama in the 20th century centred on sterling: the Gold Standard in the inter war period; the various balance of payments crises of 1949 and 1967; Black Monday and the ERM.  It is perhaps understandable that commentators should reach for these folk memories and attach the word “crisis” to the current fall of sterling against the main trading currencies particularly the Euro.  Understandable; but wrong.

Britain certainly faces very deep and painful economic problems  which may prove as serious as any since the second world war: a sharp contraction in output; high unemployment; perhaps, for the first time since the 1930’s, sustained price deflation; serious depressed asset markets, as for equities and housing; and, not least, a virtual collapse of the banking system.

It may well be that the sharp fall in sterling reflects market perceptions that Britain is exceptionally vulnerable even in a major global recession because of its exposure to financial shocks through the City and an extreme ‘bubble’ in house prices and personal debt preceding the crisis.  Markets can clearly see that the Bank of England has been forced to cut interest rates more aggressively than the Eurozone.  Sterling’s fall is a symptom of this vulnerability rather than a problem in itself.

Since the ejection of Sterling from the ERM, Sterling has been allowed to float.  When the independence of the Bank of England was institutionalised in 1997, with the Monetary Policy Committee setting interest rates, it was made explicit that the exchange rate was not a policy objective.  Interest rates were to be used to meet the inflation target, not an exchange rate objective.

For most of the last decade the consequence of monetary policy has been a strong exchange rate in real effective terms – that is taking account of relative inflation and the exchange rates of different trading partners.  One (apparent) benefit was lower inflation, in sterling for imported goods, enabling the Bank of England to cut interest rates (but helping to fuel the disastrous bubble in house prices).  The cost was a severe squeeze on manufacturing industry which suffered a major loss of competitiveness and shed one and a half million jobs in 10 years.