The Great Debate UK

Hypocrisy piled on humbug

The row over bankers‘ pay and honours has presented the depressing spectacle of British public life at its nadir, with hypocrisy piled on humbug.

On the one hand, we hear bankers and their apologists arguing that their rewards are required to keep them from running off to sunnier climes, which prompts a number of questions. First, when bankers claim that they have to be paid a fortune in recognition of the size of the organizations they run, we may well ask: how many banks of this scale are there in the world today? How many are so hungry for skills like those of Britain’s bank bosses that they are willing and able to offer these sorts of rewards?

Three or four, maybe, at most – after all, several of the world’s largest banks are now owned by the Chinese Government, so they are unlikely to want a British boss any time soon, and the others do actually have a full management complement anyway. By definition, the number of vacancies at this level is extremely limited, so the danger of an exodus of top British bankers is much exaggerated.

In any case, does it really matter?

After all, even before the crash, there was quite a lot of sniping at high City payoffs and we were told at the time that the outrageous salaries and bonuses were needed to secure the services of people like (Sir) Fred Goodwin et al – and since then we have had ample opportunity to assess the true value of their high-price expertise.

from Global News Journal:

Hope and Fear at the World Bank

It was early March and Kristalina Georgieva, the European Commissioner of International Cooperation Humanitarian Aid and Crisis Response, was traveling in Asia. Her plan was to attend a 7.5 magnitude earthquake simulation that would hit Indonesia and generate a tsunami. A few things, however, changed in her itinerary: The destination turned out to be Japan, the earthquake was 9.0 and it not only generated a huge tsunami, but also a nuclear catastrophe. Plus, it was real.

“Usually our fears are bigger than reality. In this case our reality was worse than our fears,” Georgieva said recently at a World Bank panel on the climate, food and financial crises the world is facing today and the way they all intertwine. Georgieva’s strong Slavic optimism brightened the gloomy panel, but the data she threw in didn’t back up her positive view:

Will the euro survive Europe’s latest sovereign debt crisis?

IRELAND/Kathleen Brooks is research director at forex.com. The opinions expressed are her own.

Ireland’s banking crisis reached boiling point this week. The Irish authorities are still adamant the country doesn’t need a bailout and are trying to draw a distinction between a sovereign bailout (which Irish Prime Minister Brian Cowen, Finance Minister Brian Lenihan et al claim they don’t need) and banking sector support (which they most definitely do).

from Breakingviews:

Bush still shows blind eye for financial crisis

By James Ledbetter

During his presidency, George W. Bush was not known as an overly reflective man, or as someone with a powerful thirst for economic knowledge (despite being the only president with a Harvard MBA). It is thus unsurprising that his memoir is not overly reflective about the causes of the financial meltdown that closed out his presidency, nor even very generous with details about what it was like to preside over. Anyone who opens his new memoir, "Decision Points," intent on unearthing Bush's heretofore buried financial insights will be disappointed.

Still, there is some value in glimpsing how Bush perceives the crisis, in part because his economic perspective is so widely shared in the newly resurgent Republican Party. In the chapter devoted to the financial crisis, Bush paints an economic picture using almost exclusively his favorite primary color: tax cuts. Tax cuts, in his view, got America out of the recession that began shortly after he took office. Tax cuts provided another critical boost in 2007. Tax cuts are beautiful because they take money out of the government's hands and place it into citizens' hands; that is all Bush knows, and all he thinks he needs to know, about the economy.

from MacroScope:

The octopus and the economists

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What do an eight-legged creature in an aquarium in Germany and 74 economists have in common? The consensus view that Spain would claim the World Cup -- until the economists, as they so often do, changed their minds.

worldcup.jpgIf World Cup 2010 goes down as one of the most unpredictable and exciting competitions in recent history, bringing underdogs Holland and Spain to the final showdown, what was hopelessly routine was watching so-called expert opinion converge around the safest bet. At least among financial professionals, who have done so well of late predicting the future.

A history lesson for lenders

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GREECE

-Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.-

Anyone looking for a broader perspective on the events of the last three years could hardly do better than choose for bedtime reading “This Time is Different” by Carmen Reinhart and Kenneth Rogoff.

Financial Crisis Part II

- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

Hollywood would never allow a record-breaking disaster movie to go without a sequel. The same seems to be true of the 2008 banking crisis.

Greenspan and the curse of counterfactual

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Laurence_Copeland-150x150- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

Suppose that, instead of appeasing Nazi dictator Adolf Hitler at Munich in 1938, Neville Chamberlain had taken Britain to war, what would today’s history books say about the episode?

from Breakingviews:

Rabobank takes lead in bank capital revolution

(Refiles on October 19, 2010 to add disclaimer for author's personal investment. Neil Unmack owned Lloyds CoCos when he wrote this article.)

Ever since the financial crisis struck, regulators have argued for an overhaul of bank capital. Contingent capital, which can absorb losses while the bank remains in business, sounds like the solution. But until last week it had only been used by a few distressed lenders.

from Breakingviews:

Jamie Dimon needs an even better post-crisis

Jamie Dimon needs an even better post-crisis. The JPMorgan boss runs one of the only major U.S. banks not to post a quarterly loss during the crash. And he has maneuvered his firm into a strong position to grow as the economy rebounds. But investors don't yet seem persuaded.

The shares have been stuck trading around book value, or assets less liabilities, since last summer. Put in perspective, that's not all bad. They had tumbled to less than half that in the depths of the crisis. But to price the bank now at only a fraction more than break-up value seems overly cautious. Another crisis outperformer, Wells Fargo, by comparison, trades at 1.4 times book.

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