The Great Debate UK
Punish the bankers, not the banks
By Laurence Copeland. The opinions expressed are his own.
Another day, another banking scandal. Last week, it was a software glitch so serious that some people were left homeless and scrabbling around for money to pay the rent. This week, a new scandal over mis-selling of interest rate swaps has so far been buried under the furore over manipulation of LIBOR by Barclays (and apparently other banks). They could at least stagger the scandals a bit – say, one a month – we need time to absorb the last one before we start on the next.
The London Interbank Offered Rate is a hypothetical indicator of the cost of money, based on the answers given each day by a panel of banks to the question: how much would you have to pay to borrow in the interbank market today? It was introduced as part of the Big Bang deregulation of the City in order to provide a benchmark interest rate for pricing the new financial instruments being developed: swaps, options, futures and forwards.
Before long it was being used as a reference rate for all sorts of loans, including mortgages and credit card loans, not only in Britain but across the world, making it by far the most important index in global finance, one of the first numbers we look at in taking the pulse of the world economy, alongside the Dollar/Euro exchange rate and the yield on U.S. Treasury debt. In fact, it is estimated that LIBOR is the pricing fulcrum for instruments totalling a mind-boggling $350 trillion, or several times world GDP.
The cost of allowing LIBOR to be distorted is incalculable at this stage, but potentially huge, because it means that, when the rate was artificially high, millions of borrowers with loans tied to LIBOR were overcharged and conversely, when it was too low, depositors were short-changed. But don’t be surprised if ordinary folk get no recompense for their losses. By contrast, you can expect the heavy hitters in the money markets to demand compensation for their losses on derivative contracts priced off LIBOR, a process which will involve vast legal expenses and wrangles dragging on for years to come, especially in the American courts. Blessed are the lawyers, for they shall inherit the earth.
from The Great Debate:
Leadership by the book
This piece originally appeared in Reuters Magazine
Every year publishers release dozens, if not hundreds, of books about leadership. These books range from how-to books written by tenured professors of management theory at Harvard Business School to inspirational tracts generated by motivational speakers and longtime high school football coaches. While it’s evident that an eager audience exists for leadership books, how useful could they actually be? After all, if it were possible to become an effective leader simply by reading a stack of books, then presumably there would be a lot more good leaders in the world.
Assuming it’s possible to learn leadership lessons from a book, it seems even more likely that one could glean authoritative wisdom from reading biographies of great leaders, people who were not only influential but who actually succeeded in changing the world. Biographies, moreover, have the advantage of being real stories and, unlike leadership self-help books, are often composed by excellent writers. They appeal to a much broader class of reader, including the kind of people who might once have read epic poems or romances, tales of gods and heroes and their mysterious ways. If it’s true that biographies of great leaders constitute a higher form of leadership literature, several questions remain: How do the biographers deal with the subject? Do they take lessons from leadership books or leadership theory? And do they agree—as many of the how-to books maintain—that leadership lessons can be distilled and presented independently of the leaders themselves, and transferred from one field of accomplishment to another? Seeking instruction, I turned to three distinguished biographers for guidance. Here are a few lessons I learned about leadership lessons.
from The Great Debate:
Running al Qaeda
This piece originally appeared in Reuters Magazine.
We now have the first public release of goodies from Osama bin Laden’s redoubt at Abbottabad: 17 letters to and from bin Laden and his crew that spell out vision, plans and tactics for the global jihad. The letters span a decade and outline the dimensions of a would-be caliphate – a truly global theater of war conceived, plotted and executed by bin Laden. They also reveal bin Laden to be a highly accomplished orchestrator of a global network struggling with the challenges of collaboration. Three issues consume him, and they happen to be the classic political tasks in the management of collaboration.
First, and most important: keeping everyone on track. For bin Laden, the primary management task was clearly holding everyone to a solitary vision, staying true to values (Islamic law, as he read it), and aligning deeds with words. Across his network bin Laden had little command or control over who operates in the name of Allah or even al Qaeda. As a result, nothing bugged him more than dummies among al Qaeda’s formal franchisees, loose affiliates or allies getting distracted from killing Americans; or butchering innocent Muslims; or blowing chances for alliances he sorely wanted to create. Bin Laden’s advisers were astounded, for example, when al Qaeda in Iraq attacked Catholics in an attempt to pressure Coptic Christians into releasing prisoners. It’s as if, one wrote, someone took Sunnis hostage to pressure Shias – “Does this satisfy any sane person?” The sheer horror of the geopolitical and historical error left bin Laden’s deputies shaking their heads.
from The Great Debate:
Silent Spring’s 50th anniversary: What would Rachel Carson say now?
When I was a graduate student at the University of Kansas, the pesticide DDT was very much on my mind. My assistantship in 1953 involved research on the evolution of DDT-resistance in fruit flies. It quickly became clear to all of us in this research group that the broadcast use of pesticides was a losing and dangerous game. When I attempted to raise butterflies in New Jersey in the 1940s, bringing food plants in from nature usually resulted in the caterpillars dying. In those days, widespread spraying of DDT to control mosquitoes coated much of the countryside with poison. In the lab it was easy to use selection to make flies impervious to DDT in some 10 generations, or, in contrast, so susceptible that they would drop dead at a whisper of that “miracle” chemical’s name. Evolution of resistance tended to make continuous use of any pesticide inefficient. The usual response of the chemical industry was to recommend increasing the dose or to substitute more toxic compounds, making pest control even more expensive and dangerous.
That was well understood by evolutionists early on, but it took a marine biologist and talented writer, Rachel Carson, to bring the pesticide problem to public attention and, incidentally, to launch the modern environmental movement. Silent Spring, published in September, 1962, was a brilliant book, but also one that appeared when the time clearly was ripe. The public seemingly had been primed by publicity about radioactive fallout, fears of pesticide residues on cranberries and the thalidomide scandal, the latter enhanced by pictures of infants born with distorted limbs. Carson suffered from the drawbacks of being a female scientist before science’s gender gap began to dissolve, and from lacking a PhD and a professorial position. Despite those “handicaps,” she had the science about as right as it could be at the time.
from The Great Debate:
Training a generation of citizen-journalists
Two years ago, frustrated by the powerlessness citizens expressed to me about the political process, moved by their transpartisan worries about the state of U.S. democracy, I began an experiment on Facebook: I sought to train “ordinary” people from all walks of life as reporters and opinion writers.
The community grew fast, to a reach of over 10 million and between 100,000 and 250,000 users a week. People joined from 23 countries. There was clearly an appetite for this kind of training and the material it produced.
A practical way to save Europe
By Kathleen Brooks. The opinions expressed are her own.
The bulk of reporting and analysis on the current state of the euro zone sovereign debt crisis has focused on the structural changes that Europe needs to make to survive. Closer fiscal ties, euro bonds, pooled tax revenues and a centralised spending authority have been bandied about.
A lot of people think that these changes are the only way to bring down credit risk and pull Spain and Italy back from the cliff edge they currently find themselves on.
from The Great Debate:
Yes, there are things the Rio summit can accomplish
The 1992 Earth Summit in Rio was marked by optimism and hope, but much of the buzz about the upcoming Rio+20 meeting is skeptical and cynical. Critics say the Rio process has been unduly bureaucratic and hasn’t lived up to its goals. They are branding Rio+20 as a failure before it has even begun. President Obama and Prime Minister Cameron are sitting it out. Some even say that in the radically decentralized Internet Age, the days when government leaders or U.N. bodies can set global agendas by fiat are long gone.
True, the Rio process itself has sensibly evolved away from government decree and turned toward the private sector to build a green economy that can implement sustainability on a global scale. But that doesn’t mean there aren’t important things governments can do to make Rio’s goals a reality.
Press, police, politicians and public in race to the bottom
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
Listening to the interminable Leveson Inquiry hearings, it is impossible not to feel revulsion at some of the antics of the hacks. How could anyone be heartless enough to hack into the phone of a murder victim, let alone to tamper with the voice messages she left behind? How could they invent stories to try to incriminate parents who have been through the nightmare that the McCanns have faced since their toddler disappeared? And, having behaved with such heartlessness, how could they present the stories they invented in such a self-righteous tone? There is nothing the tabloids like more than posing as crusaders for decency in a wicked world, yet their own behaviour was beneath contempt.
Capitalism in the West and other myths…
The West’s claim to be a capitalist society has been eroded throughout the European sovereign debt crisis. If we were truly capitalist then the markets wouldn’t expect Germany to step in to solve the euro zone’s problems or to eradicate the excess debts of Europe’s periphery. The prospect of this safety cushion provided by Berlin has kept the euro propped up even though Spanish bond yields are hovering around 7%, even after it received the go-ahead to get a bailout for its banks.
The same is true the other side of the pond. Since the financial crisis, the central bank in the U.S. has stepped in to prop up stock markets and other asset classes with quantitative easing when volatility has spiked. Some people in the markets now just expect officials to step in and save investors when the going gets tough.
from The Great Debate:
Decisive euro action is needed at the G20 summit
The European crisis is no longer a European crisis. It is now everyone's. Unless Monday’s G20 summit in Mexico coordinates a concerted global action plan right now, we face a global slowdown that will also have a deep impact on the U.S. presidential election and even on China’s transition to a new leadership. This is the last chance.
The standard, but often empty, language of summit communiqués will simply not do when the euro area is finally approaching its own day of reckoning. Whichever way the Greeks vote in Sunday's election, a chaotic exit from the euro is becoming more likely: Its tax revenues are collapsing, not rising as promised. Unable to regain access to markets, Portugal and Ireland will soon have to ask for their second IMF programs. Sadly Italy – and potentially even France – may soon follow Spain in needing finance as the European recession deepens. Even German banks, which are some of the most highly leveraged, are not immune from needing more capital.
