HeadsShouldRoll

There is a wonderful expression, American I believe, called, Passing the Buck. It means when you blame someone else for your own mistakes. We now have the results of this behavior in the banks of the world. Led by the UK they are now being re-capitalized to a huge degree and, in many places, being effectively nationalized.

The biggest banks in the UK overstretched themselves to a massive degree over the last decade in which they went on a merger and acquisition rampage and leveraged themselves hugely to do so. The same is true around the globe.

It is now apparent that there were many, even within the British banks own management structures, who simply didn’t understand some of the details of how the more sophisticated banking deals were being done, organized or paid for. It seems self evident that the same is true in most, if not all of the banks around the world.

We should not be fooled into a quick look at the banks and naively think that by simply sacking a few senior managers and executive and indulging in some ritual blood-letting we will do enough to satisfy either the blood lust of the media on behalf of the nation or do what’s necessary to stop this type of lunacy happening again.

There is someone else who it is much more pertinent to look at in this regard and that is the Financial Services Authority. It is pertinent to see how the FSA describe themselves in their own web site;

“We are an independent body that regulates the financial services industry in the UK.

We have been given a wide range of rule making, investigatory and enforcement powers in order to meet our four statutory objectives. In meeting these, we are also obliged to have regard to the Principles of Good Regulation.

We summarize our Statutory Objectives and Principles of Good Regulation in three Strategic Aims:

* Promoting efficient, orderly and fair markets;
* Helping retail consumers achieve a fair deal; and
* Improving our business capability and effectiveness”

The Financial Services Authority (FSA) is an independent organization responsible for regulating financial services in the UK.

The FSA's aim is to promote efficient, orderly and fair financial markets and help retail financial service consumers get a fair deal.

The FSA was set up by government. The government is responsible for the overall scope of the FSA’s regulatory activities and for its powers.

The FSA regulates most financial services markets, exchanges and firms. It sets the standards that they must meet and can take action against firms if they fail to meet the required standards”.

The FSA Chief Executive has now joined the general accusations being made against the banks, the speculators and the bankers themselves. But Principle 4 of the FSA's own 13 Principles for market conduct states that firms are compelled to maintain adequate financial resources, including capital and liquidity.

This is the essence of the regulator's pay policy and the club it can swing. In the FSA's view, there are many firms that have followed pay policies which were inconsistent with sound risk management – or put another way, compromised Principle 4. So the FSA should be made to look closely at their defects in a mirror.

A great deal of financial pain and chaos would have been avoided if the FSA had done their job better and had they been tougher in enforcing their rules over the last few years. Ironically they force organizations to spend time and money out of all proportion to its usefulness on minor matters and seemed to totally miss the big targets to utterly alarming effect.

Now the question is whether this regulator with a blind spot about its own inadequacies will now actually wield its collection of shiny new weapons rather than continue to pose and clout the little guys and leave the big guys to do just what they want. Right now it looks like the boys in the bad suits from the FSA are bolting the door very carefully, well after the horse has bolted.

The draft guidelines for good remuneration practice is probably now going to serve as the guide, and there's more than a fair chance that it will. The guidelines make clear that pay will be based on profits rather than revenue; performance should be assessed on a moving average, in order that a significant part of a package is deferred; and that compensation schemes will be contractually enforced and not waived or ignored to suit the occasion.

And finally, when all things are considered it is fair and appropriate that we ask who is going to carry responsibility and resign from among the politicians and FSA chiefs because they are just as responsible for the financial debacle as the bankers who have already been forced to carry the can.

GettingFactsStraight

I received a comment from the son of one of the people I listed as having filed for bankruptcy. This stated simply that they were not aware of their father, now deceased, having ever been bankrupt. I apologized for my listing Harry Saltzman as it is apparently in error.

I remember someone saying the same, in error, about my late father, and I remember being upset about it as he had never been bankrupt, but had wound up one of his companies, after he had personally paid all the individuals owed money by that company from his personal account.

So this is a genuine apology as I was trying to point to the bravery of the people listed, not cast negatives in their direction.

More relevant still is the fact that I was broke in my fairly distant past, and it was very rough but I am living proof that you can come through it and do well in the future. I have a relative in the States who I think was bust two or three times and is now worth several hundred million dollars. I am very positive about people who get knocked down but get up and do it all better the next time around.

That's what I hope is going to happen for our countries who are also flat on their bums right now, but if I am any judge are going to crawl off of the canvas and get up better than ever. But I do mean to get my facts right, so I apologize any time I don't!

FamousBankrupts

I am seeking to do something a little different today because so many people are going to face financial problems due to global economic problems that will echo in a million homes.

They should not be alone in these circumstances. I therefore reprint an article I first published on another of my blogs in July.

All the high profile people I mention below could be considered both rich and famous, yet, at one time or other, filed for bankruptcy.

If someone that well off can get into financial trouble it can happen to anyone.

If you’re experiencing financial difficulties seek advice now. Don’t ignore the problem, deal with your creditors, don’t stick the unpaid bills in a drawer and try and forget about it. You need not be as alone as you think you are right now.

Try to remember there will be a tomorrow and it will be different. It was for almost everyone on this list of famous bankrupts.

Abraham Lincoln - 16th President of the United States
P.T. Barnum - The Great American circus owner
John Barrymore - Actor; Romeo & Juliet
Lionel Bart - British composer - lyricist - playwright (1972)
Kim Basinger - Oscar - winning actress (1993)
Frank Baum - Wizard of Oz author
Barbara Bel Geddes - Actor; Miss Ellie on Dallas
George Best - Manchester United soccer star
Jay Black - rock star, lead member of "Jay and the Americans" (1986)
Peter Bogdanovich - American Filmographer
Bjorn Borg -Pro tennis player
Toni Braxton - rock star (1998)
Lenny Bruce - Comic; Multiply obscene comic
Miguel de Cervantes - Novelist; Don Quixote
Natalie Cole -singer
John Connally - Former Texas Governor, wounded in 1963 Kennedy assassination in Dallas (1987)
Francis Ford Coppola - Oscar - winning film writer - director - producer (1999)
Daniel Defoe - Author; Robinson Crusoe
Dino De Laurentis - Oscar - winning film producer (1988)
John DeLorean - Automobile designer and entrepreneur
Walt Disney - Oscar - winning film producer, animation & theme park pioneer (1923)

Henry Dunant - Red Cross founder
William C. Durant -Founder of General Motors
Chris Eubank -Former World Champion Boxer (2005)
Eddie Fisher -Singer; crooner dumped by Liz Taylor
Mick Fleetwood - rock star, lead member of "Fleetwood Mac" (1984)
Henry Ford -Automobile manufacturer
William Fox - Co-Founder of 20th Century Fox Film Corporation (1936)
Red Foxx -actor – entertainer
Zsa Zsa Gabor - Cop-slapping Gabor sister
Marvin Gaye -singer (1970s)
Andy Gibb - rock star (1987)
Ulysses S. Grant 18th US President; Civil War general, best-selling American Author, face is pictured on the US fifty dollar bill (1884 after leaving office)
Paulo Gucci 1993
Bob Guccione - publisher and founder of Penthouse magazine (2003)
M.C. Hammer - rock star (1996)
George Frideric Handel -Messiah composer
Richard Harris -Oscar-nominated actor-producer-director
Isaac Hayes -Oscar-winning songwriter - composer - musician -singer
H.J. Heinz - Founder of Heinz Ketchup
Milton Snavely Hershey - founder of Hershey’s chocolate
Ron Isley - Rhythm-and blues singer (mid late 1990s)
La Toya Jackson - rock star (1995)
Don Johnson -actor-producer
Grace Jones Singer -Entertainer 1992
Chaka Kahn - rock star
Buster Keaton

Margot Kidder - Lois Lane in Superman movie
Larry King -talk-show host, best selling American author (1978)
Veronica Lake -actress (1951)
Cyndi Lauper - rock star (1983)
Stan Lee - Comic book industry pioneer, co-creator "Spider Man," "The Incredible Hulk," "The X-Men" etc (2001)
Jerry Lewis -comic
Jerry Lee Lewis -famous Rock n’ Roll star
Meat Loaf - rock star (1983)
Joe Louis -Boxer 1956
Jackie Mason -comedian – entertainer
George McGovern -politician 1991
William McKinley -25th US President 1897-1901
Marvin Mitchelson -celebrity divorce lawyer
John Nash -British Regency architect
Willie Nelson - singer-songwriter-actor, American Author (1990)
Wayne Newton - singer-actor - entertainer (1992)
Harry Nilsson -singer/songwriter; Me and My Arrow
Immanuel Nobel - father of manufacturers - philanthropist Alfred Nobel , who founded the Nobel Prize (twice - 1833/year Alfred was born, 1856/ when Alfred was 23)
Ted Nugent -Rock Star
Tom Petty - rock star (1979)
Randy Quaid - actor
Lynn Redgrave -actress
Rembrandt -painter
Burt Reynolds - Oscar-nominated actor - director, American Author (1995)

Debbie Reynolds - Oscar nominated actress-singer, American Author (1997)
Mickey Rooney - Oscar nominated actor, American Author (1962)
Run DMC -Rap Group in 1993
Ray Sawyer - rock star, member of "Dr. Hook and the Medicine Show" (1973)
Oskar Schindler -activist who saved over 1000 Jews from the Nazis
Leon Spinks -boxer
Donald Trump -billionaire entrepreneur
Mark Twain -Huckleberry Finn author
Mike Tyson - boxer (2003)
Oscar Wilde - acclaimed poet and author
Tammy Wynette - country music star (1988)
Florenz Ziegfeld

There is no shame to having tried and failed, but not having tried, that’s a sin!

Tremendous talent and the ability to get up and try again sets almost all of these famous bankrupts apart from the no-hopers who never dared to dream.

Almost every person on our list has triumphed in the historical context; we all remember them.

ChangingTheRules

Some of you who have followed my articles in the past might find this one a bit odd. I have always argued for international cooperation and cross border freedom and today I am urging some of the opposite.

During this financial crisis there is the danger that well funded opportunists will raid across international borders to pick up bargains. Britain’s own Sir Philip Greene is apparently attempting to exploit Iceland’s own economic collapse to see if he can pillage that country’s international retail operations.

In light of the fact that Britain’s main commercial retail banks are worth about a tenth of their market capitalization last year this fate could soon befall them if they are not protected by the state.

Similarly, if the country suffers another week like the last one the industrial landscape will offer an environment of bargains the like of which have never been available before. This will be so tempting that the national identity of the UK economy will go from being acceptably international to totally foreign in a matter of weeks.

The same scenario could unfold all over the western world, particularly in the USA and Western Europe. It is essential that we don’t let short-term opportunism turn into the end of the free market for the host countries.

There is a big plus side if the major economic powers can work together for the common good and this will be achieved if they think longer term when they take agreed short-term tactical decisions. If countries break ranks in bodies like the European Union it would spell disaster for the institution.

In a few hours there will be coordinated announcements of the proposed actions to be taken internationally by each government, acting in concert, to steady the economic ship. It is beyond doubt that these moves are essential, and their success will only be evident if the pandemonium and panic selling eases with the opening of the markets. Another week of losses of the magnitude of recent weeks is simply too frightening to contemplate.

AvoidingDanger

The meeting of the finance ministers of the G7 countries in the USA this weekend seems to have been long on rhetoric and short on deeds.

Although the summary given by President Bush promised a comprehensive and coordinated plan of action there appeared to be no specifics on what the plan is.

Of course they could have a plan in which the details are complex but the details haven’t been worked out yet. Or, and this is considerably more worrying, perhaps they have not been able to agree an overall plan.

On the positive side let’s remember that earlier in the week the big players did come together to lower the interest rates by .5% and no one had forecast such a well-coordinated and decisive action.

My bet is that they do have some specifics worked out and it is the minutiae that are yet to be resolved and rolled out in public over the coming weeks. It needs to be or the world is facing escalating economic chaos.

However this small speech by President Bush was the 27th. by him designed to show the public that he is on top of the situation and to reassure the markets. Unfortunately so many public utterances in which he doesn’t actually say anything specific is probably becoming both soporific and counter productive.

There is grave political danger inherent in this terrifying financial spiral because people become irrational in a financial crisis and aggression follows and this provokes equal and opposite reactions.
It is quite possible that there will be leaders of countries who will use this financial meltdown, as an excuse to impose draconian legislation and new dictatorships could emerge, not all of them benevolent. It is already becoming almost unpatriotic to question any measure being taken to bolster a nation’s economy.

In these circumstances, both actual and potential, it is the duty of us all to question, probe and protest when necessary. In the UK’s Parliament we have what we call Her Majesty’s Loyal Opposition. It is an antiquated term for exactly what our situation demands. Of course in every country everyone back logical, well-considered policies and actions that our leaders propose and take but although we should be loyal we sometimes have a duty to oppose and must always question.

NeatTrickGordon

Have you noticed in all the financial mayhem that one guy is walking the walk and talking the talk, has a jaunty air, a smile on his face and a glint in his eye? I talk of the UK’s esteemed leader, step forward the Right Honorable Gordon Brown.

Our man at Number 10 Downing Street has rediscovered himself during the present crisis. This is turning into, he hopes, his Falklands War. If he can steer us through the financial and economic super storm raging all around us he will go down in history as one of the great leaders of our history. You can see him sniffing the air, scenting the battle and relishing the challenge. The man clearly believes that history has ordained it is his destiny to be here now, at this precise moment.

He is clearly picking fights that he can win, for example with the economic basket case, which goes under the name of the country of Iceland. That cursed place has imploded and is in real difficulty. All three of their main banking institutions have either gone belly up or been nationalized totally. The results are now becoming obvious to British individuals, businesses and local government areas. We stand to lose billions of pounds because the Icelandic government has frozen the pay back of any of their deposits whilst maintaining a guarantee for their own people. In anger driven revenge Gordon, now attired in his Batman suit, used the terrorism laws to freeze all Icelandic assets in the UK. He has threatened the Prime Minister of Iceland that if the British assets are not repaid then he will repay these to the British people affected using the Icelandic assets he has seized to do so.

Like the Icelandic Prime Minister I have to question the use of the anti terrorism laws to seize another country’s non-associated assets in the UK.

Brown claims that Iceland acted illegally by not honoring their bank guarantees, so how can Britain justify breaking international law by way of retribution?

These are very murky issues as is much that is happening across the world. For example, how is the British bank bail out actually going to work?

It looks like the government, on the behalf of all the citizens of the UK is supporting these banks, one way or another up to a figure of £500,000,000,000, 000 (Five hundred billion pounds or about $.85 trillion) of our money. That is one third, approximately, of our annual gross domestic product. That is a lot of money!

The neat trick is that Gordo has also announced that there will not be any reduction of public spending, and has hinted that there will also not be any tax increases. The latter supposition I am prone to believe as there will be an election some time next year and the costs of all this palaver will start to become clear after the next regime is in power. One thing is for sure; we shall all be paying for this long into our future.

Even more perverse is the fact that this money, which we, the great British public are lending to the banks, without any choice on our part, is in turn going to be lent back to us, as individuals and businesses. We will, no doubt, be charged the going rate of interest.

So, if we are lucky enough to be considered credit worthy after our money has been forcibly removed from our wallets we will be able to borrow this same money back. Is this where we are surprised as the man jumps out from behind the wall and says, “Smile you’re on candid camera!”?

No wonder Gordon Brown predicts that the country won’t lose by this transaction. It isn’t his money, or the country’s money at risk; it is my money, and your money. It will be the citizens of the country who will be losing.

Of course this is made even more tragic and unbearable in that Mr. Brown is right to do what he’s doing, and the rest of the world could do a great deal worse than emulate his actions which are likely to prove far more effective than the American and others global efforts so far. But there is a sad and underlying truth to be told; despite everyone’s efforts the market is continuing to panic, and while that holds true all bets are off and it will all continue to unravel in an increasingly fast paced crash.

Personally I think we all need a time out, perhaps one week with all the markets closed down so that everyone can catch their collective breath during which the great economic powers can construct an agreed series of actions to bring these potentially terrible economic events to an end before the human costs become unbearable.

Gordon, in the meantime forgive me for doubting that you are a magician, I thought I caught you smiling and laughing yesterday, you looked almost boyish. I’m beginning to believe you should have a new name, from here on let’s call you the master of mayhem. I’ll write anything if you can help lead the world back from the brink, you big adorable Scotsman. Here, do you want another £5; I think I still have a fiver left over.

PopsTheEconomist

My grandfather Gershon was not an economist, he was a tailor’s presser, not far up the food chain in terms of macro economic theory, but he possessed more common sense in one of his strong fingers than our present government leaders have in their entire bodies.

Poppa used to whistle and sing little foreign songs as he skipped up and down his pressing table lifting the impossibly heavy iron for hours without end. Whilst he did this he dispensed little pearls of homespun wisdom that have stayed with me.

One of these was a favorite, and you need to imagine it being said with a strong East European accent, “If you owe the bank one pound you have a problem, if you owe the bank one million pounds then they have a problem!”

This from a man who never borrowed a pound from anyone was quite a theoretical leap, but it seemed clever and true to me. So how does it work when you’re the bank and you owe hundreds of billions of pounds; who has the problem then?

The answer is obvious; we will all have the problem. And we need to remember that this is the gift that will keep on giving. The bad smell from this gift is going to be with us, like an anchor on our longer-term aspirations for generations to come.

I wrote several months ago that we are living through the last days of the golden age of our society and that soon it would draw to a close. I feel like calling myself a seer, but then again it was so obvious to me I was surprised that many other columnists were not making the same predictions. Our society was creating a fair facsimile of the South Sea Bubble, and like all bubbles it had to burst.

This morning the UK leaders followed their peers in many other countries in creating a supply of capital liquidity to our banks so that they were propped up against imminent and possible total collapse. We would all prefer not to be where we are, but we have to start rectifying the situation and this was an obvious if somewhat belated step. The time to start taking such decisions was when the run on Northern Rock started instead the management of this crisis has been piecemeal and tactical instead of what we needed, which was bold, decisive and strategic decisions.

The USA and the rest of the world is suffering from the almost identical problems, and it was refreshing and very positive that the central banks and governments acted together today to reduce their interest rates by .5%. As I’ve said before we must act together for survival or sink separately.

It is democratic and correct that the US Presidential debates and election goes on throughout this period. It validates our system of democracy and confirms that it will survive this crisis. However, it would be even more encouraging if both the candidates stated that whoever won the election would be happy to work in a government of national unity until this situation was resolved and it could go back to business as usual. The same applies in the UK and elsewhere. This problem is economic but so profound that it could have the same impact as a major war or natural national catastrophe and we must use anyone with talent and ability to help sort the problems out.

The single biggest problem of this British government is that its leaders are OK with plenty of time to think but not great when the bullets are flying and they need to be diving for cover and firing back. Gordon Brown doesn’t do quick or slick. There is no other choice but to back all of our governments through this crisis as it is the only hope of getting through the debacle with as little damage as possible. The time for recrimination is later; right now we need steady nerves.

We are all going to suffer some damage resulting from this crisis. Some might gain financially but will see friends and family lose. This is going to hurt our society and the extent of this damage could change perceptions. Remember the hyperinflation suffered by the Weimar Republic led directly on to Hitler. We must remain vigilant against extreme thoughts and actions.

Perhaps the best place to be right now is in front of the mirror whilst we consider whether we should use this problem as a pause in which we re-evaluate our lives?

Tonight and tomorrow is the Jewish religion’s Day of Atonement, otherwise known as Yom Kippur. There will be no blog posted (or much eating!) by me until Friday. In my own inadequate way I shall pray for forgiveness for the sins of us all. Let’s hope that when we resume work there is better news for us all.