Fragrant harbour

February 1, 2011

I make it five times that Stanley Ho has changed his mind over his inheritance… in the last week. It was ‘You can have it’, ‘No you can’t’, ‘Yes you can’, ‘No you can’t’, and yesterday, 31 January 2011, ‘Oh go on, take it and just leave me alone with my dogs.’ Today, glancing at the headlines, it seems he may have changed his mind again but, frankly, I can’t be bothered.

Instead, here is a bit of commentary on the three videos that have been released on YouTube by Stan’s lawyer (I have used the link posted by David Webb). Let’s meet Stanley at home:

Video 1. Stan opens with: ‘We must get back Lanceford [the holding company he held all his big stuff through]’, speaking like and doing a great facial imitation of the bad guy at the start of an episode of Flash Gordon. Then the lawyer, more on him anon, asks Stan about some further comment for the press to which Stan replies he’s game as ‘I want to make it [the story] very big.’ Stan is already laying into Pansy, the daughter who is seen as both the most capable in business and about whom the most malicious and serious gossip circulates (perhaps these two things go naturally together). Then comes the now-famous: ‘It is something like robbery’ quote. Stanley says he wants to go ahead with legal action. Note the furnishing of Stan’s time-warp mansion on the south-side of HK island. To the left you can just catch a glimpse of a hideous mock-baroque table. The staff, family and nurses sneaking by the camera are also good value. In the foreground is the mandatory Chinese tea flask (must admit I have been caught on film with one of those myself) and a glass of hot water. ‘I want a fair division among my family,’ says Stan, before appearing to be pained by some inconvenient fact inside his head (like he never organised a fair division?).   At around three-and-a-half minutes you get a look at the always-on television, the electronic tombstone of the fading godfather. Stan’s ex partner Henry Fok was a big soccer fan, so at least with him you would get to take in the football. Another of Hong Kong’s octogenarian big boys is a closet Arsenal fan, and even has comfy sofas. Many are the mysteries of Confucianism… At the end Stan thanks the lawyer for having ‘blown up’ the whole affair in the space of a few days. The lawyer jokes about a huge fee to come. Or let’s say he laughs while talking about the huge fee to come; it may just be coincidence.

Video 2. Here Stan is trying to explain why he just withdrew legal proceedings and announced he had fired the lawyer. ‘The problem is Pansy,’ he starts. At this point I begin to become more interested in the lawyer than in Stanley. For one thing, you might argue that the lawyer is leading his client at the point at which he responds to Stanley: ‘To which I say: “So what?”’ The lawyer, Gordon Oldham, has a faded (south) Irish accent, though his profoundly undetailed official biography says only that he arrived ‘from the UK’ in Hong Kong 30 years ago. After Stan says Pansy is the problem, a woman, who for me has a stronger Irish accent, says off-camera: ‘But he [Stanley] is not afraid of her.’ What is going on here? My wildly speculative first thought is that there has long been a wee Irish mafia connected with the dogs and the horse-racing in Macau, but this is indeed wildly speculative. I must check further. The only thing I learn quickly from someone who knows Oldham quite well is that he is ‘a clever fellow’. Meanwhile in the video it is subsequently, I think, the Irish-accented woman off camera who butts in again to say to Stan: ‘Gordon will still represent you, ok?’ I think this is right, but then an ethnic Chinese woman I do not know moves across camera right to left saying ‘They made him, they made him [Stanley sign documents against his will]’. Stanley says he was forced during his television appearance to read ‘the plaque’ [cue card] organised by Pansy and Daisy. The video ends with the lawyer saying: ‘Are you telling me that I can now go ahead with filing and getting back your interests in Lanceford?’ To which Stan responds: ‘I suppose so…That’s what I want.’ The lawyer gesticulates everything to Stan as if he is an idiot. But Stan isn’t an idiot, even at the age of 89. After all, he is the one looking at the silly gweilo. Upshot of video 2. I think the lawyer has definitely got some questions to answer. I find it creepy the way he refers to Stan as Dr. Ho, using the title he never earned. Stan’s slaves, like Henry Fok’s (‘Dr. Ho’s office’, ‘Dr. Fok’s office’!) have long done this, but a self-respecting lawyer does not need to. I would also like to see the written consent from Stan to post this stuff to YouTube; it should have been put up with the postings.

Video 3. Roll on to January 30. Stan says Pansy says he can have his shares back, but it is ‘only words’. Third ‘wife’ Ina, who’s got a bunch of stock, doesn’t want to meet. (Ina was the ailing first wife’s nurse when Stanley got the hots for her. If you have ever seen the UK sit-com Are You Being Served you’ll have a picture in your head at this point.) Note that Stan here is saying he wants to get all the share scrip back and ‘then decide what to do’; do you remember the fair division promised in video 1, Stanley? Not much of interest here. It ends with Stan pointing out what a stand-up guy he has been.

Video 4. (Not yet released). Stan sits in his favourite cardigan looking into a full-length mirror intoning the mantra: ‘Mirror, mirror on the wall, who has shagged the most among us all?’ From a pair of old speakers the voice of Michael Jackson responds: ‘You have Stanley, you have’, followed by a trademark yelp. At length Stanely picks up a hand-held mirror and quizzes it: ‘Mirror mirror in my hand, who’s the foxiest in the land?’. From another pair of speakers, the double-deep voice of Errol Brown (per his legendary BabyCham add)  replies: ‘You da one, you da one Stan…’ This continues indefinitely.

A note on the lawyer, February 2:

The verdict from various people who know Gordon Oldham, personally and professionally, is that he is by no means the most amoral lawyer in Hong Kong (a warm breeze wafts across the Big Lychee as Ron Arculli, Stephen Cheong, Charles Lee and pals breathe a collective sigh of relief). Perhaps the mid-point of the opinions is one that calls him ‘aggressive and innovative and he doesn’t give a fuck about anything’. The others range from ‘decent guy’ to ‘slipperier than a donkey’s dick’ (the last, I would stress, is from a journalist who has only seen Oldham’s press performances). Anyhow, there does seem to be some consensus that posting Stan to YouTube without publishing his written consent and a full explanation of what is being done begs various question; as — and several people have said this pointedly — does the posting of edited interviews. You will notice there are plenty of cuts in the tapes. Can we have the full tapes please?

Mr Oldham has not responded to an email to the contact address given on his firm’s site yesterday. I will send another one.

Other points of interest: it seems that Oldham has not acted for Stan on other cases (at least ones I know about). Of course Stan, being a godfather, has almost as many lawyers as girlfriends, and so this is hardly surprising. But it does maintain one’s interest in knowing how Oldham got on the roster for this job. Finally, one who knows Oldham claims the accent is northern Irish, tho it sounded poshed up southern to me.

As to Stan’s choice of lawyer, I think it is good. There is an illustrious history of godfathers using gweilos to front for them when they need to do something very public. Remember all KS Li’s public relations problems at Hutchison in the 80s when he paid himelf a huge special dividend he had said he would not take? That was when he hired Simon Murray. Isn’t it great that everyone trusts white people? I think it’s fan-bloody-tastic.

Obama versus Osborne

January 27, 2011

If you would like a bit more compare and contrast (in the wake of Perugia versus Bristol, try Barack Obama and George Osborne in the sphere of economics. The former just gave a State of the Union speech (video or text in which he made a forthright case for America to expand fiscal expenditure in order to invest in infrastructure, in new commercial technology and in education. He grounded the case in the context of a rising geopolitical challenge from China (following the recent visit of Thunderbirds cameo Hu Jintao) and a US unemployment rate of 10 percent. He indicated the requisite funds ought to come from (in relative international terms) a less absurd fiscal subsidy for US oil companies and reduced tax breaks for the distinctly rich (following 40 years of decisions in their favour). Perhaps most important, he said all of this in the country which already has the world’s most competitive large industrial companies.

Over to Blighty. George Osborne, our to-the-manor-born Chancellor of the Exchequer, this week greeted the news that the British economy shrank in the fourth quarter with a promise not to entertain any expansion of investment. Instead, George’s plan for economic rejuvenation and job creation is to suck a boiled sweet and see what happens. Britain has fearfully few world-beating corporations outside of finance and legal and accountancy services (which largely serve the finance sector), but George can’t see a case for investment to nurture more of them. New world-beating corporations will arise from the vapours, according to the 101 neoclassical economics that George was spoon-fed at school and university. He says the Q4 shrinking economy was the result of bad weather, and one assumes he thinks the unemployment rate is the result of indolence and immobility among the lower classes.

Still, methinks it won’t much matter that George understands little about the world. The British government does need to cut recurrent expenditure after the excesses of Blair’s champagne socialism. Meanwhile, my bet is that George’s failure to make strategic investments in infrastructure and technology will be remedied later this year when Britain follows in Obama’s wake and increases capital spending. Where America leads, we follow. When was the last time that Britain influenced US policy? Keynes?

Worth reading: Robert Reich makes some good points about the pieces of the puzzle that Obama did not address in his SOTU speech in the FT (subscription likely needed):  Reich, who was part of a government that as I remember did sfa, is a little too harsh: Obama did touch (lightly) on the income distribution question.

After writing this, I see that in the FT Martin Wolf seems to have reached the same conclusions about George.

Perugia versus Bristol

January 27, 2011

Sorry to keep banging this drum… It occurs that the recent high-profile murder case in Bristol (a British city I know well having been an undergraduate there) points up the differences between British institutional behaviour since important reforms of the 1970s and1980s, and the wholly unreformed conduct of the police and judiciary in Italy.

The Bristol case involves the brutal murder of a young woman who lived in Clifton, the posh part of town. Joanna Yeates’s landlord, a retired teacher called Chris Jefferies, was interviewed (like many people) and changed his story about what he saw on the day of the murder. Jefferies is eccentric (a friend he taught many years ago provides independent corroboration of this) and he sports a classic mad professor hair-do. Police arrest him. They are constrained by the system to interview him in the presence of a lawyer and to tape record the interview. He does not admit to murder and they do not have the evidence to charge him. They release him on bail — suggesting they still think he is pretty weird — but there is nothing they can do. The police continue their work. More than a month after the murder, a completely different man, a 32-year-old neighbour, is arrested for the murder and on 25 January 2011 is remanded in custody. The police and judiciary reveal no further details and remind a frenzied and all too often irresponsbile press of the Contempt of Court Act and the fact that the publishing further details could prejudice the court case to come.

Compare Perugia. Here the issue is also the brutal murder of a young woman. Here there are also people around the case who appear suspicious — in this case the marijuana puffing students Amanda Knox and Raffaele Sollecito. The police get suspicious. But while the system in theory requires them to provide access to a lawyer and tape record interviews, in practice the accepted standards of the day are such that they interrogate Knox all night without either a lawyer or a tape recorder. They and the investigating magistrates (who join in the illegal interrogation) force a confession. At this point, the police and the magistrates stop doing their jobs and start leaking their case to the press, which fills acres of newsprint with lurid details about a weirdo murder conspiracy. Since there is no independent state prosecution service, the case is immediately ready for court. When the trial comes, the process is already thoroughly polluted, and only becomes more so in a system where jurors are not sequestered and where judges are present in camera to ‘assist‘ the jury as it decides a verdict.

My view is that England was almost this bad in the 1970s. Add another 10 years for the almost, and the Italian judicial system today is half a century behind England (which still has plenty of faults of its own).

Separately, on a totally unrelated but spooky note, thieves have stolen the decomposing body of Mike Bongiorno, about whom I blogged at his passing It is front page news  in the Corriere della Sera (they have even translated some of it into English). When I raised the grave-snatching issue with a couple of locals in our preferred bar, the nonchalant response was that ‘It’s happened before’, with two specific cases cited. ‘The straightforward explanation is they’re looking for a ransom,’ said a middle-aged lady who wasn’t drinking alcohol. ‘Of course you can’t count anything out.’ Am I getting older, or is kidnapping stiffs something we should be less relaxed about?

 

Addendum, 24 February 2011. Here is another famous UK miscarriage of justice case from the 1970s — a complex, bitter-sweet one — that is back in the news.

150 years of not quite growing up

January 20, 2011

This year, 2011, is the 150th anniversary of the unification of Italy. Expect a lot of excuses. The most obvious and already well-used is: ‘We are a young country.’ Up north, where the Germans are presently pondering whether to bail Italy and more junior members of the Olive Belt back into the Euro, voters might be forgiven for wondering: ‘But wasn’t our unification 10 years after Italy’s?’ Truth be told, Italy today is one of the hardest countries in the world to defend: rich, established, and perennially juvenile. It is like your school friend who never grew up. When we were 15, the guy seemed like an interesting maverick. Today he’s just a bit of a tit, and one who still lives with his mother.

It may also be that 2011, this great anniversary, heaps an unprecedented level of bad publicity on Italy. There is likely to be a general election — which Berlusconi will win. What can you say? ‘Aging, plastic-surgery deformed teen-worrier romps home as housewives make lunch with increaingly limited resources.’? Meanwhile, it is ever more likely that the murder case in Perugia, about which I have blogged repeatedly (look under the Italy to Avoid tab), will fall apart in a manner that exposes Italy’s nastiest demons. No one comes up smiling from this one. The police, the magistrates, the press: all, I suspect, are set to be exposed for a congenital lack of professionalism. I am as happy as the next man if mamma makes good pasta, but if your pasta enjoyment bites into your professional life such that you are willing to see two innocent kids go down for 25 years, then the retrogusto is just not good.

The first appeal of Knox and Sollecito has started on a different footing to the original trial. After the cringe-making final statement to the court made by Knox first time around, in which she thanked ‘the system’ for its hard work (I gave my verdict here), she was sent out by a new legal team to deliver a dose of reality just before Christmas. The Guardian reported that the [what pass in this system for] jurors were ‘riveted’ when reminded by Knox in a 14-minute set-piece speech that their country is not among the G8’s leaders in institutional standards and efficiency. The new tone, for me, is the right one: show a hopeful respect to the court, but at the same time remind it that the world is watching. This is an uncomfortable position to be in for anyone who believes in the rule of law, but in an institutionally deficient country I have yet to see a better approach. Certainly it is an approach that everyone I know in China who deals with the monstrous Chinese justice system agrees on. In Perugia, Knox and Sollecito have been granted a review of DNA evidence by the appeal judge.

Apart from being white, reasonably attractive and middle-class, Knox and Sollecito are also beginning to enjoy other kinds of luck. Early reports in the past couple of weeks said that a key witness who placed them, rather weakly, at the scene of the crime on the day of the murder, had been arrested for drug dealing. I figured a bit of marijuana and wondered how this could really undermine the (albeit marginal) testimony. Now a report in the UK tabloid Daily Mirror claims heroin dealing and that Curatolo has ‘testified’ in two other murder cases. One awaits more concrete information than you find in a Red Top, but the discrediting of this witiness, given the weakness of the other evidence, would have the potential to carry the case quickly into the arena of farce. At least for those who don’t think it is there already.

The great revelation for me in recent weeks has been the oped in The Independent written by a British doctor who now lives in Umbria and who was formerly caught up in a great miscarriage of justice in England. David C. Anderson likens that 35-year-old story to what is going on in Italy today. I remember the case myself, not least because it occurred close to where I was born. Anderson recalls how police sent down Stefan Ivan Kiszko for the murder of an 11-year-old child. A future Conservative Home Secretary of the 1980s (and capital punishment supporter), David Waddington was the defending barrister. A future Lord Chief Justice was the prosecuting barrister. The police and the justice system, seeking a swift reckoning for a brutal killing, decided Kiszko was the guilty party and fabricated evidence to make sure he was condemned. They were grotesquely unprofessional. Kiszko spent 16 years in prison and then died 6 months after the miscarriage of justice was acknowledged. He was one of the reasons behind the 1985 Police and Criminal Evidence Act (PACE) which meant the police finally had to do things like tape record interviews.

That was the 1970s and Kiszko was a fat unmarried man in possession of a few pornographic magazines who had been falsely accused by teenage girls of exposing himself. In cases which I dealt with as a young journalist in 1990, the falsely convicted ‘IRA bombers’ known as the Guildford Four and the Birmingham Six had been working class Irish men with Nationalist sympathies when they were jailed in the 1970s. But here, in Italy, today, in 2011, 26 years after the PACE was passed into law in the UK, they are still locking up middle-class white kids for murder on the basis that they were acting a bit weird and so might be part of a ritual Satanistic plot. It’s like a cross between The Crucible and Mediaset. No, it is a cross between The Crucible and Mediaset.

Anderson’s oped in The Independent also contains a hypothetical suggestion that seems to me explosive. Since the beginning of this case I have had no doubt about the professional incompetence of the police, the forensics team and the magistrates (though I would stress that I do not regard this as universal, merely common, in Italy). But I have always been troubled as to why Knox named the black bar owner Patrick Lumumba in her illegally extracted testimony during an all-night interrogation by 12 police officers without a lawyer. I can see the police brutality, the girl’s fear, and so on. But what I could not see is how a black bar owner would be offered up as the murderer by some liberal, west coast American girl with a vibrator. Anderson offers a potential explanation: he says that the police, conducting their illegal interview of Knox five days after the murder, must have already known that a black man was involved. It seems to me this would mean they had some early lead from the forensic investigation (Ivorian-born Rudy Guede’s blood, semen, DNA and more were all over the crime scene). So the police would have heard from the ‘scientists‘ that there was a black man involved, at the same time as what they had in their hand was two young whities they believed were behaving strangely. By leaning on Knox in the middle of the night, they could connect up the dots via a story about a black bar owner who Amanda Knox knew well. Knox, Sollecito and Lumumba end up together in a motiveless ritual Satanic murder plot. Except that then the police realised that what they really had was hard forensic evidence on Rudy Guede. So the prosecuting team needed to switch to Knox, Sollecito and Guede in a motiveless ritual Satanic murder plot. Anything else would require the capacity to say you were wrong. This is of course a hypothesis. But unlike Mr Mignini’s, it is plausible.

Separately, after much to-ing and fro-ing with lawyers and libel specialists, I will soon be able to bring you the full and bizarre story of my own legal entanglements in Italy. Although the accusations are frivolous by Perugia standards, you will note a striking pattern of behaviour by police and magistrates. This, for me, is the most important good thing that can come out of the Knox-Sollecito miscarriage of justice: that people accept that there is a systemic pattern of failure in Italian justice. It is not about the people, it is about the structure they are using.

Meanwhile, look at these:

The chief investigator boasts on television that physical evidence was unnecessary in the Perugia investigation because the Italian police’s psychological interrogation techniques are so advanced. You really could not make this stuff up. Please send it viral. There are 5,000 hits so far.

http://www.youtube.com/watch?v=sWkZPWRS3N0

This site I had not seen before. It looks, at first blush, to be carefully and sensibly done, though it places, for me, too much emphasis on Mignini and too little on the systemic failings of the Italian justice apparatus.

http://www.injusticeinperugia.org/

They have translated a small amount of the above site into Italian, though I have not yet had time to look:

http://www.amandaknox.it/

Yo, Lloyd!

January 14, 2011

Sebastian Mallaby, author of More Money Than God: Hedge Funds and the Making of a New Elite, has written an oped in the FT (subsciption likely needed) highlighting the exquisitely self-interested spinelessness of Goldman, Sachs, which has just published a hippy-shit manifesto of promises to love its clients more after paying out a bunch of money to the SEC rather than defend its conduct and business model in court. Particularly righteous is Mallaby’s defence of hedge funds, which have taken such media stick in the past couple of years when it was really the money pigs of the investment banking establishment who deserved the spanking. I don’t go a bundle on either group as a species, but the Wall St. investment bankers are so obviously more malign.

All you actually need to read of Mallaby’s piece is the last two pars, so here they are:

‘The truth is that investment banks are rife with potential conflicts – first between their trading and that of their clients, and second between various classes of customer, whom banks may serve as advisers, market-makers, underwriters or as a fiduciary. No amount of yogic incantation can harmonise these split personae; the solution is to break banks into functional units, so that merger experts, marketmakers and proprietary traders no longer cohabit. A refashioned Wall Street of specialist boutiques would be healthier for customers. And since the boutiques would be smaller than today’s megabanks, they might be small enough to fail.

Of course, this has long been evident to anyone who cared to look. An army of specialist advisory firms and hedge funds – ignorantly attacked as “shadowy” because they lack publicists and friends in Washington – has sprung up on the principle that focused private partnerships are preferable to conflicted behemoths. But for years policymakers have shrunk from challenging the big investment banks, comforting themselves with the thought that if the customers did not like them they would vote with their wallets. The customers, for their part, have been either awed or ignorant. Perhaps Goldman’s pieties will encourage them to wake up.’

I am not sure the very last bit is quite right: that customers have gone with the investment banks only because of awe and ignorance — though there is plenty of both about. Customers have also gone with big investment banks because the regulatory structure hasn’t given them options. You can’t go to a hedge fund for an IPO or working capital. The politicians are therefore doubly to blame. And who has put more of its people into senior US political jobs in the past 20 years than any other big bank? Goldman. One day I will blog about my bizarre encounter with Hank Paulson in a West Virginia toilet.

Tidings

January 12, 2011

The last working week before Christmas is spent in Jakarta. Outside the five-star hotels where the elite congregate, the doormen and cab-boys are under a collective instruction to don Santa Claus hats. They do look quaint. But in a country where Islamic terrorists’ preferred bombing site is the five-star hotel, I wonder if this is not a tad provocative and lacking in concern for employee welfare.

At the end of the trip, in my role as billionaire agony aunt, I spend half a Sunday listening to one of the richest men in Indonesia lament the condition of his country. The China-driven commodity boom, he says, masks a qualitative economic slide back into the ranks of Third Worldism. Or, as he puts it: ‘The real value-added here is practically nil… You cannot just keep digging from the ground.’ We stare morosely at his 50-metre swimming pool as liveried retainers refill our coffee cups. Coming from a guy who, personally, cleaned up roughly two thousand million dollars on mineral investments in the past few years, his testimony is striking. And the point is simple: the asset trading game which passes for economic activity may yield a billion bucks for each of 15 or 20 people, but it is facile, puerile and beneath the dignity of a nation of more than 200 million people. Indonesia no longer has any industrial policy, any manufacturing ambition beyond luring multi-nationals’ processing ops, any sense of developmental destiny.

I heard exactly the same story from another billionaire in Malaysia in the summer. But since he has been down a few quid in recent years, I suspected the tale might be sour grapes. Not so. Even those who have made out like bandits of late say that south-east Asia is going down the tubes. Philippines, Thailand, Malaysia, Indonesia is the presently apparent order of keeling over. In sum, the region has decided, for want of a better expression (I have watched more than one series of The Wire of late), that the best it can hope for is to be China’s bitch. The interesting geo-political takeaway is that these countries in recent decades set themselves up as rather slavish US allies and they are failing. Meanwhile the state which is challenging the US in an increasingly aggressive and frightening manner — China — looks relatively rather successful. They told us in school that economic development was a win-win game, but I think this may have been a simplification. ‘Please Miss.’

Pity for the rich

October 20, 2010

It has been a very long break while I write the first part of a new book. When you are spending all day working on writing, the idea of writing a blog as well becomes rather less attractive. Nonetheless, with all the fun things going on in the world, I am going to see if I can get back into it after the summer break.

Joe Stiglitz (you will need a subscription) has come out swinging with an attack on what has been dubbed ‘QE2’ or a second round of quantitative easing of the US money supply. What is best about his analysis is that it points out the fallacy that monetary interventions are costless (whereas fiscal interventions raise public debt, as we all know). Stiglitz points out that QE1, which involved the purchase of around US$1 trillion of US government bonds and mortgage securities will have a cost down the line as US bond prices fall (or, put another way, as interest rates rise to more normal historic levels). With QE2 set to be of the order of as much as US$2 trillion, the quantitative easing expected to be confirmed in November will involve long term public costs of an even greater magnitude.

Stiglitz points out that fiscal interventions (can) have clear benefits. Of course there is the money you throw down in welfare benefits to those who lose their jobs. But over and above this, you build schools, railways, new energy infrastructure, etc, etc, which has a long term benefit to society. Things may not be the same with the long-run public cost of unconventional monetary policy.

What Stiglitz doesn’t do is to say where the gain from quantitative easing investment is likely to end up. The answer, surely, is that much of it will end up in the hands of the rich. The expectation of QE2 is already driving a big rally in the US stock market. Where QE1 probably prevented rigor mortis in the banking system during the initial shock, QE2 is mainly telling the financial system that stock prices are likely to rise, if only for ‘liquidity’ reasons. From a bullish stock market, the rich benefit disproportionately. The poor see little or no benefit, consistent with a 40-year trend in the US to make the rich richer relative to the poor.

The real gainers from QE2, I think, are going to be the decidedly rich and the super-rich. This is because, unlike the loose monetary policy after 2001 which fed housing bubbles, this time the liquidity is going to drive asset bubbles and stock market bubbles in developing country markets in which ordinary people do not much play. A flood of cheap dollars, passing through the hands of hedge funds which serve the rich, is headed for the stock markets of Thailand and Indonesia, condo purchases in Hong Kong and Singapore, Latin American local currency government bonds, and so on. The financial managers of the already-rich know how to trade these markets, ordinary Europeans and Americans do not.

There was an Asian stock market bubble in 1991-4 during the last great Euro-US recession. But that was largely based on ‘discovery of Asia‘ overexcitement. The emerging markets bubble we should expect next year will be based much more on domestic US monetary policy (remember that interest rates were high in the early 90s). It may serve, indirectly, to force some warranted currency realignments by pushing up the value of currencies that have been artificially held down by government interventions in east Asia. But above all, within the US, the experience is likely to see a large transfer of wealth from the taxpayer to the already opulent.

It’s all wrong

April 13, 2010

I have written nothing on this blog for over a month while I try to think through the logic of financial sector reform in the wake of the global financial crisis. Frankly, I haven’t got very far. I am not sufficiently knowledgeable about the detailed systemic workings of contemporary banks and ‘shadow banks’ (the bits, like brokers and pension funds, that cause bank-like problems without being banks) to be able to offer a clear blueprint.

Today, however, I was reading some of the now declassified material surrounding a policy choice by the United States government that was clear, decisive and hugely beneficial to tens of millions of people. This was the decision at the end of the Second World War to confiscate all rented farmland in defeated Japan, and to redistribute it to actual cultivators. Reading the original memorandum that led to the policy, one is struck by the extraordinary simplicity and clarity of the thinking: here are the lesser interventions we could attempt – most obviously tenancy reform – and here is why, though such interventions seem superficially tempting and easier, they will either change nothing or make the situation worse. Here is the case for a radical intervention (expropriation). Here is how it can be achieved and the valuation mechanism that will make the process affordable to the Japanese government (offering some small compensation to landlords). And that, of course, is what the US and the new post-war Japanese government did. They changed the institutional terms under which Japanese agriculture, and half the country’s population, operated, setting the stage for the most remarkable developmental story the world has seen (more remarkable than anything we have yet observed in China).

I mention this because reading a memorandum about an effective policy intervention reminds me that I can state a case about financial reform without spelling out every detail. The logic is the same as with the Japanese example for no other reason than that the case for radical change in finance is now just as compelling, and the likelihood that lesser interventions will achieve nothing or worse is just as great. In essence, financial reform requires its own act of expropriation: we have to take away from bankers, shadow bankers, and other speculators all money which they can play with in the current financial system but do not stand to lose because of explicit and implicit government guarantees.

Martin Wolf in The Financial Times (here and here and here, though possibly not if you do not have a subscription) thinks this is impossible because the financial system is too complex. His colleague at The FT, John Kay, thinks that it is possible if you hive off the most core ‘core’ of finance – the so-called ‘payments system’ – and restrict that bit of banking to buying only government securities with the retail deposits it takes in. This of course leaves huge chunks of finance – including things like mortgages – outside of what Kay and others call ‘narrow banking’, the little bit that under Kay’s proposals government would explicitly guarantee.

Japanese land reform makes me think that one should be able to do something more practical and far-reaching than what Kay proposes, given the political will. The counter to Wolf’s arguments is simply that finance is whatever politicians make it; they can rewrite the rules as they like. This, though we have forgotten it, is why we have politicians. And this means that the objective of separating speculative from non-speculative money is feasible.

In the UK, where the government already owns most of the retail banking sector, I would force all core banks to become mutuals (building societies), owned by their members. This is the appropriate form of ownership for the core, boring, low-cost bank activities, which should serve the needs of customers rather than third-party investors. These mutuals would take in government-guaranteed deposits which they would use as the float we employ to make regular payments, to finance mortgages on first homes, to provide working capital to business, and to purchase government securities — all within bands set by the Bank of England. The central bank would hence have a somewhat expanded mandate, giving core banks modestly changing limits for the amount of treasuries they could hold, the minimum business lending they had to do, and their mortgage lending range. This would not be finance by bureaucratic dictat because the Bank of England would be acting within its own limits and because the core mutuals would not provide all mortgages, all business finance, or buy all government debt. But people would use the mutuals because their deposits were guaranteed and credit would tend to be cheaper because the assets and guarantees behind it would tend to be better than outside the mutuals.

In effect, individual citizens would have a certain amount of core mutual ‘entitlement’ and would be encouraged, through voting, to set the agenda and objectives of their mutual. One role of the mutual part of the financial system would be to address the welfare needs which private bankers claim have been supported by private sector bank deregulation – they mean by this access to more mortgage lending for poorer people. Government would probably mandate the Bank of England to force the mutuals to lend a certain amount of their money to poorer people who maintain long-term exclusive accounts and (in a financial sense) behave themselves, such that they could borrow in excess of normal loan multiples to buy first properties. Separately, the mutuals would probably also offer some forms of ‘plain vanilla’, low(er) yield pension products that might be given capital guarantees – contraversial – or some other advantage, say preference in the allocation of government debt or legally-mandated first dibs on private sector initial public offerings (IPOs).

None of this would reduce risk outside the core banking field, indeed it might well increase it. Not to worry: more frequent, more limited collapses among non-guaranteed financial institutions would almost certainly be a good thing. When a crisis occurred, it would – unlike today – be possible to bankrupt the institution in question and send a clear message to people about the risk associated with investing in ‘the real world’. This would be possible, of course, because there finally would be a real world, instead of the unified Never-Never Land that global finance has become since the demise of clear regulation, beginning in the early 1970s. We would all have our building society account, and our other uninsured investments, and no one could be in any doubt about which was which. The system, I suspect, would also be fantastic for competition because it would allow lighter-touch regulation of uninsured financial institutions. My feeling is that politicians are far too keen at present to put the boot into hedge fund managers, who are a real font of new ideas (compared with bankers), because it is so much easier than changing an economy’s overarching ‘financial architecture’.

None of the above will happen, because it would need another World War with 50 million dead to make it happen (which brings us back to Japanese land reform). But it would still, I think, be the right thing to do and hence is worth discussing. Of course there are lots of problems with what I have outlined, not least finding a new, workable balance between the mutual and uninsured financial sectors.  Any thoughts on how to address such issues would be gratefully received.

Related items of note:

Paul Krugman suggests that the financial reform package in the US is likely to be so lame that it is best to boycott it.

http://www.nytimes.com/2010/03/01/opinion/01krugman.html

Roger Alcaly, in the NYRB, reminds us that a lot of hedge fund managers (like him) are much nicer and more intelligent than a lot of bankers, with the best review of the mechanics of the crisis I have seen.

http://www.nybooks.com/articles/archives/2010/mar/25/how-they-killed-the-economy/

The manifesto of the British Conservative party for the 6 May 2010 election is full of bluster about mutual-style organisations, as are other party proposals. But no one I am aware of is proposing that a core banking system be restricted to mutuals, which would be a significant policy.

http://www.guardian.co.uk/politics/2010/apr/12/conservative-manifesto-cameron-power-people

We should not forget the fiscal travesty in our financial system – the fact that interest on debt is tax deductible for business where dividends on equity are not. In essence, this provides a fiscal/legal guarantee of acute over-indebtedness at some point in every economic cycle. Various people have mentioned the fiscal issue in the past year (Martin Wolf, Clive Crook, someone at The Economist, me on this blog, me in a Mr. Angry letter to The FT). Unfortunately the tendency among the journalists is to drop the point down to the eighth paragraph (hard to avoid when no politician will even speak about the question). Still, the fiscal thing ought to be written about in its own right.

Fade away and radiate

February 21, 2010

To San Martino di Castrozza for what northern Italians call una settimana bianca or ‘a white week’. In fact, this is the white week, the week of carnevale when northern Italian schools shut for a ski break and everyone grabs the three official days of public holiday and adds to them the inevitable ponte of two more days which takes them to the weekend, allowing for nine consecutive workless days. At the lift where ski school meets, we overhear a woman asking her friend if her husband is working this week. The response is as if the dumbest question in the history of the world has been asked: ‘But of course not, this is white week.’ Even if Italy sinks back into the Third World, its holiday arrangements will remain forever sacrosanct.

I have to leave white week early to give a talk in Florida. But this isn’t so bad because I already had three Sundays skiing at our local Umbrian mini-mountain, Monte Nerone. Despite living 45 minutes away for eight years, this is the first year we have been. There is just a single button lift, but it is quite long and gives access to two good pistes of about 800 metres. Better still, the place is run by very nice people. My son was initially undone by a pair of skis from the sales that are almost twice as long as the ones he used the year before. I could do little to help him because, as part of my ongoing mid-life crisis, I started using a snowboard when I hit 40. So one of the young lift operators put on his skis and spent two hours teaching Luca. Not the kind of thing that happens in your average ski resort. And, after all that, there is a decent enough rifugio at the bottom of the pistes which serves pasta at Euro7 a plate. Given that there is a web camera overlooking the bottom of the pistes which allows you to see exactly how much snow there is in real time, and given that you can wake up and arrive after a fresh snowfall to find there are only 10 other skiers at 10am, it is a pretty good deal. Adults pay Euro18 per day, children Euro10; the lift is only open on weekends when there is sufficient, natural snow. Amazingly enough, the place has been operating since 1969.

Florida is not quite like Umbria. I arrive via New York, which is very deep in snow and very white and beautiful from the air. Florida is unseasonably cold too. Landing in America there is the usual double-take at the number of very fat people. And then arriving in Orlando, there is the supplemental double-take at the number of old people and the number of trousers with elasticated waistbands. Ten minutes in Orlando and you begin to think that Italians have found the Holy Grail itself with their determination to maintain an attractive outward appearance. I take a cab to the 750-rooom hotel with its obligatory man-made lakes, two golf courses, jogging trails and written warnings not to ‘jog alone’. Reckless as ever, I complete a run on my own and live to tell the tale.

The talk I have to give is to a group of people who definitely do not originate in Florida – steel producers and traders, the kind of Americans who still smoke and drink large quantities of beer. They want to hear about China and are friendly. Given that I have to address them at 8am and they were out drinking the night before, I write up a short note about the four points I told them to bear in mind when thinking about China in the next few years.

That done, I am looking for something to occupy me on a Saturday night in Orlando when I notice a poster of an aging blond woman who looks strangely familiar. The haggard, too-much-Prozac look makes me think of a kindly Delta Airlines stewardess who served me coffee on the flight in. But no. On close inspection I realise that what I am looking at is the current incarnation of Debbie Harry, lead singer of the eponymous band Blondie. A quick web search reveals that she was born in Florida, before being adopted by shopkeepers in New Jersey. As if this isn’t compulsion enough, while I am on my rebellious lone jog, my i-pod randomly shuffles Union City Blues to the top of the playlist – a song I have not heard for a long time. It is obvious that I am destined to attend a Blondie concert at the Universal Studios theme park in Orlando. Will it be better than the theme park gig in This is Spinal Tap, where the rockers open for a puppet show?

We must support the aged. I take back what I said about Ms Harry’s appearance on realising that she – singer of one of the first singles I ever bought, aged about 10 – is now 65 years old. We must respect the aged because it will not be long before we dwell among their number.

On which subject, it is worth mentioning that a major golden oldie, one who has been to crack hell and back, has just brought out an album that may be rather good. After many disappointing later-life recordings, Gil Scott Heron has released an album with a slick, modern sound that may be what the poet-singer has been looking for for so long. I saw him in London, years ago, in the midst of quest for something new and good and he was rubbish. But in this album there reside flashes of the tortured genius of his youth. You can have a listen here.

And so what of Debbie Harry and crew in concert in a theme park? Well, let’s just say I may have seen the future and it ain’t entirely pretty. Debbie darling, if you are reading: you cannot wear a bondage girdle and have a tea mug on stage. There has to be a choice.

 

More:

Oh, when we were young.

Book Review: The Dark Heart of Italy

January 29, 2010

Much of my life (because it is part of my work) is spent reading books, but so far on this blog I have not attempted a book review. Somehow it seems apt to begin with a book about Italy, and one which has aroused extreme passions.

The Dark Heart of Italy is not an original book. It fits into a post-Second World War tradition of informed foreigners deconstructing Italy at a national, political level (think of Banfield, Ginsborg, Stille, Lane). Sometimes this goes from the local and particular to the general (Banfield); more often, it is top down.

So The Dark Heart of Italy is not so much a book in its own right as another iteration of a genre. Myself, I find this genre to be a serious one characterised by serious authors. None of those mentioned thus far is a flippant or publicity-seeking writer. (Think of the opposite tradition, typified by Frances Mayes’ romantic fantasy, Under the Tuscan Sun). The Italy deconstruction is a serious business. This applies equally to the Italians who have practised the craft: Levi, Sciascia, Pirandello, Lampedusa… Indeed, it is striking how seriously non-fiction authors treat Italy, a country that could easily be handled in critical books in the way it is in the UK and American tabloid press.

At least as interesting as the content of The Dark Heart of Italy is an attempt to understand why it elicits extreme responses. A quick read of 46 reviews on Amazon’s UK site shows the book to have 20 five-star and nine one-star verdicts. In other words, the great majority of reviewers say this is either a very good book or a very bad book.

First, however, to the content. The Dark Heart of Italy flits in an out of personal experiences of the author while he was living four years in Parma. But its narrative drive comes from a potted history of post-Second World War communist and fascist terrorism and Italy’s failed attempts to attribute responsibility for this, most particularly through the legal system.

Intellectually, Jones’ approach follows your archetypcal northern European, post-Englightenment logic: if I do enough work, and think very carefully, I will arrive at plausible, rational explanations. Needless to say, this does not happen, and much of the book details the endless paper trail that the author follows to nowhere.

Along the way, there are astute observations. On the nature of the legal system: ‘What is important is not the principle, but the points of law. Codify, recodify, encrypt. Quod not est in actis non est in mundo: anything not written down, documented, simply doesn’t exist.’ On the failure to reach decisions: ‘No one is ever entirely guilty, no one is ever simply innocent. It’s part of the rewiring process of living in Italy that you can never say, even about the most crooked criminal, that they are factually, legally guilty: there’s always the qualifier that they’re “both innocent and guilty”. Sooner or later the accusation will be dropped anyway, because the deadline for a judicial decision has been superseded.’ On the politicisation of the judiciary: ‘If you point out that the Italian parliament (of 650 senators or deputies) currently has fifty politicians inquisiti (under investigation), people simply shrug: “the magistrates must be out to get them, that’s all.”’ On the reality of a political class that changes affiliations but not personnel: ‘in 1960… of the 64 first-class provincial prefects, all but two had served under Fascism, as had all 241 deputy prefects, and 135 questori (provincial chiefs of the state police). As late as 1973, 95% of all civil servants had been appointed to the service before the fall of Mussolini.’ On the concurrent presence of political extremism: ‘”There must be a reason,” an Italian academic wrote recently, “why it was Italy which was the fatherland of Fascism and of the largest Communist party in the western world.”’ On conspiracy theories: ‘Surrounding any crime or political event, there is always confusion, suspicion and “the bacillus of secrecy”. So much so that dietrologia has become a sort of national pastime. It means literally “behindology”, or the attempt to trump even the most fanciful and contorted conspiracy theory.’ (The recent Sollecito-Knox case in Perugia, about which I blogged in February 2009 and in December 2009, bears some of these hallmarks.)

On the contrast between the beauty you see around you and the cultural condition of contemporary Italy, Jones quotes a friend: ‘What you don’t realise, what none of you British realise, is that Italy is a cultural desert. You come here to gawp at buildings and chipped statues from 500 years ago, and imagine that we’re still in that level of cultural production. Which is, of course, absolute balls: Italy’s now, culturally, completely arid. If I were you I would go back to the 50s and 60s. Switch off the television and watch some old films instead…’

And there is a good description of the celebrated Sofri case, which led to a highly questionable 22-year term for a stubborn and principled political activist for, as one journalist put it, ‘not having doffed his cap to the bureaucratic cast of the judiciary’. There is a long interview with Sofri in which the jailed man observes of the judicial system: ‘Dietrologia is the air that you breathe in Italy. It’s the result of paranoia and jealousy, and it simply exalts an intricate intelligence. It’s like Othello and Desdemona’s handkerchief: one innocent object can spark off endless suspicions. It’s a game off endless suspicions. It’s a game which people play, almost to show off. I prefer not to see a conspiracy which exists than to see one where it doesn’t.’

Finally, there is a useful outline of the origins, the playing out and the undermining of the Mani Pulite anti-corruption movement in the early 1990s. Craxi is pelted with coins outside the hotel Raphael in Rome and soon flees into exile, the public sprays town walls with exultant graffiti about the defeat of dark forces, and Silvio Berlusconi creates a new political party named after a football chant, inviting top anti-corruption judge Antonio di Pietro to be his Minister for Justice. ‘His [di Pietro’s] moralising anxiety,’ declared Berlusconi, ‘belongs to everyone.’ Today that remark seems even funnier than it did 16 years ago. Di Pietro turned him down, but Berlusconi convinced at least one other Clean Hands magistrate to join Forza Italia.

The problem with the book, I think, is that it does not clearly separate institutions from people. The realisation that Jones comes to is of the low institutional quality of Italy. But because this is bound up with the individual stories of politicians, journalists, lawyers and others, the tale becomes an unduly general one of a failed society. There is a tendency to see failed institutions as the product of a failed people. On the contrary, I think it is more accurate to see failed individuals – terrorists, corrupt politicians, egomaniacal magistrates – as symptoms of institutional weakness rather than proof of societal failure. This leaves open the possibility – to me a certainty – that in Italy’s atomised, localised and family-centric sociology there are not only people who are unsullied by institutional weakness, there are also those who react against it by becoming ‘super-moral’ contributors to society. The biggest challenge of a deconstruction of Italy, which is always drawn to critique its institutions, is not to explain why there are so many crooks, but rather why there are not more.

In addition, one has to give a nod – which Jones does not – to odd areas of institutional strength. On many trains, and in many schools and hospitals in Italy – to give a few examples – my experience is that the attitude and morale of the ‘public servants’ one encounters is often better that what I see in the UK (though I have less recent experience there). The school system has an institutional integrity that comes from not being ghettoised between state and private provision like the UK one, even if more and more people are lamenting the condition of secondary education. There are clear benefits to the less centralised institutional structure of the country, something that all major political parties in the (super-centralised) UK have been talking up in recent years. And town centres in Italy are maintained with a loving care and pride that is much rarer in the UK. These points, and others, don’t wipe out the sins of Italy’s vampiric state-linked professional classes, but the points are nonetheless valid.

And so to those wildly divergent Amazon reviews. It is notable that among those who give The Dark Heart of Italy five stars and particularly rousing praise are Italians who have moved to the UK. Among the one-star reviews, meanwhile, are slightly hysterical Italians living in Italy and English women married to Italian men.

 

The book deserves ratings in the middle, and this is where the more thoughtful comments are found. One that is hard to disagree with is the observation that Jones could, of course, ‘write a book called the Dark Heart of Great Britain. Where we all live in this hellish society trapped in houses by rain, where everybody is overworked, bank holidays and Sundays are spent in the shopping centre and our only escape is through the good people on the TV who will find us a new life somewhere in Tuscany, Spain or France.’ Myself, I am giving the book four stars, which is above the current average of 3.6. (It is notable on Amazon that it is very hard to get a high score for a non-fiction book on Italy.)