Credit Reference agencies - How on earth can we trust them?

So, the other week, Standard & Poor, one of the largest credit reference agencies in the world, downgraded the outlook on US debt. What does that mean?

It, a private company, told the most powerful nation in the world to change its fiscal policy. I can guarantee that S&P making that statement will have more impact on US policy than any or all of the opposition to any US policy in the last 20 years.

Which must make it frustrating to be, for example, Hugo Chavez.



Above: He wishes he was a credit reference agency (Hugo, not the parrot)

The US isn't the first country to suffer from credit scrutiny. The Portuguese & Irish crises were exacerbated by ill-timed rating downgrades; the British government has been running scared from these agencies since 2007. Why are they so powerful? How many aircraft carriers do they have?

In 1996, Tom Friedman said "There are two superpowers in the world today in my opinion. There's the United States and there's Moody's Bond Rating Service. The United States can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful."

It wasn't always like this

At the start of the twentieth century John Moody, a former journalist with an entrepreneurial streak, saw a gap in the finance market. Investors too often bought on trust because they were in the dark about credit quality. Moody set about publishing information on stocks and bonds to help them.

The business grew but Moody’s maintained its founder’s hawkish devotion to accuracy and steadfast focus on investors’ long-term interests. It was renowned for erring on the side of caution when assessing risk and turned work down if it didn’t meet its lofty standards. If anything, the institution saw itself as a public servant.

Moody’s and Standard & Poor’s – among the handful of agencies approved by the American regulator – grew to dominate the bond rating market. By the 1970s the financial sector had become more complex, increasing the agencies’ costs, so they began charging issuers as well as investors for rating services. But this shift laid the foundations for the massive conflict of interest that would later undermine the rating agencies’ integrity.

The idea is, they provide investors with objective and trustworthy guidance. Perfectly above board. But there is a huge conflict of interest that results from the agencies being paid by the issuers of the debt

The fact that major financial institutions only trusted Moody’s and S&P to rate significant issues created a dangerous duopoly: most deals required two ratings. “We had no competition and a steady stream of work,” recalled a senior ex-Moody’s managing director. “It was perfect. I used to think to myself ‘there’s no way we can screw this up’.”

In the mid-1990s this duopoly was broken by the emergence of Fitch. An injection of private equity investment had propelled Fitch, previously a minor player, into becoming a serious rival.

Moody’s were still keeping to the judicious values of their founder. Under corporate chief Tom McGuire, an ex-Jesuit priest, Moody’s culture remained pure. Analysts didn't enter dialogue with bankers and certainly didn’t return calls from the people they were analysing.

But the entrance of Fitch had turned the market on its head. Keen to expand its market share, Fitch was happy to co-operate with issuers’ needs. This shift, in turn, encouraged S&P to be more accommodating. In contrast, issuers saw Moody’s as arrogant and inflexible and it began to lag behind the competition. In 1996, Fitch and S&P rated five times more commercial mortgage-backed securities’ deals than Moody’s.

Moody’s brought in a management consultant to try and fix its woes, and in the resultant shake-up, Tom McGuire departed along with other top people.

This created an opening for a clutch of senior players within Moody’s who argued it should pursue a more profit-focused direction. The company, they figured, possessed a first-rate brand and, in times of plenty, should cash in. The advocates for change argued that Moody’s should develop more amicable relations with Wall Street and increase the number of deals it rated.

The management of the company was gradually wrestled away from older staffers who clung to its former values; the new school’s victory was sealed in September 2000 when it took the company public. Being held by shareholders created yet another pressure - Moody’s now faced short-term pressures to demonstrate earnings growth.

Moody’s dialogue with Wall Street improved. But this exchange of information gradually became a negotiation as the last vestiges of Moody’s old culture were broken down. It became normal in structured finance deals for analysts to tell issuers what they needed to reach investment grade, and analysts grew accustomed to tweaking the requirements on a deal a little to keep a banker happy.

The banks began playing the rating agencies off one another and shopping around to see who would rate an issue more favourably. Former Moody’s Asia structured finance chief Ann Rutledge told me in 2008: “An analyst would help the banker that was issuing the debt by relaxing the constraints on the deal a tiny bit. But the impact on the rating could be huge.”

The effect, as the big three agencies fought to hold onto market share, was that thousands of deals were put together with costly levels of investor protection reduced. This corner cutting was exposed when the wheels came off the US housing market, sparking hundreds of billions of dollars’ worth of losses on under-collateralised debt.

How it all went wrong

Here's a good example of how the process went wrong: in the late-90s a Miami-based company freight company sought to borrow $140 million against 14 aeroplanes. Unfortunately the numbers didn’t work. The notes backed by the planes only rated as triple-C, or non-investment grade. This meant the deal could not fly.

To resurrect the transaction, the triple-C ratings would have to be raised to triple-B. “A leap, in order of magnitude, equivalent to turning a Robin Reliant into a BMW,” recalls a former Moody's analyst who worked on the deal.

To get around the problem, Moody’s extended the predicted useful life of the 14 planes from the normal 25 years to 100 years to generate more cash flow. Moody's simply redefined the longevity of an aeroplane to generate the right rating.

This shift in standards might have mattered little if it had only affected the shelf life of a few aeroplanes. But, from 2002 onwards, structured finance witnessed the rapid rise of the collateralised debt obligation. By 2006 CDO issues topped half a trillion dollars. CDOs’ opaque methodology took already sliced-up bonds and sliced them up further into new tranches based on risk and return. This meant certain tranches could be rated triple-A despite the fact that lots of sub-prime mortgages had been squeezed into the overall package.

And we all know how that turned out.

In the financial crisis, the three big credit reference agencies - Moody’s, Standard & Poor’s and Fitch - bungled the grading of hundreds of billions of dollars’ worth of debt with catastrophic results for the entire world's economy.

How can we trust them any more? Are they to blame for the credit crunch and the subsequent worldwide recession? The banks share some of the blame, obviously, as well as useless financial regulators - however, while equally culpable, the big three credit rating agencies seem to have gotten off scot-free, and are again on the rampage.

Following the 2007 disaster, the incoming administration in Washington vowed to address the ratings system. The EU meanwhile announced its intention to directly regulate ratings agencies for the first time. Other countries vowed to set up independent domestic agencies to reduce reliance on the big three. But this hasn't changed anything. Pressure from the ratings agencies has meant all that has come to naught.

Exactly the same underlying conflicts of interest that damned the CDO market are present in their ratings of sovereign debt; for example, in March Greek debt was downgraded. The cuts to the ratings help to push up the cost of borrowing for Greece on the international bond markets. That means all kinds of people increase their margins of profit - not least the reference agencies.

The truth is, the global financial system hinges on the accuracy of the credit rating agencies. As a result, these bodies are, it seems, totally unaccountable. And that can't be good for anyone. Even Hugo Chavez.

Breast of Lamb de Foret Bourlon - a 1930s recipe for an unrated cut of meat

Breast of lamb is a strange joint which is pretty nearly inedible.

Well, if you believe common wisdom, anyway!

It's a bit of the sheep most supermarket's won't sell because there's hardly any meat on it. It is a thin strip about 2 feet long and 6 inches wide and includes a big wedge of fat at the top and the lower part of the ribs back to the belly. The breast of lamb is the giveaway cut of the animal (in some butchers shops literally), yet most British cooks these days have probably never got to grips with one.

It can be delicious, if you cook it right.



This recipe was passed on to me by my grandma, and originally came from a letter to a newspaper - the original recipe contains wonderful moments like "It is very cheap - breast of English Lamb was 8d a pound in Harrods last Saturday - one often finds cheaper cuts of a better class in an upscale butcher than in a so-called cheap one - but beware, this is not a dish for the ten-minute cook."

This is still true, but trust me, it's worth the effort, if only to confound expectations.

Breast of lamb de Foret Bourlon

1 breast of lamb
2 carrots, sliced
2 onions, sliced
a glass of white wine
a glass of water
a sprig of rosemary, or thyme, or both
salt, fresh ground black pepper

to finish:
mustard
one egg, beaten
dried breadcrumbs
100g butter, melted

Dipping Sauce:

Harissa Aioli (Mayonnaise, mixed with Garlic & Harissa paste)

Recipe:

Place the breast of lamb in an oven-proof dish or casserole, cut into two halves if necessary to fit, with the carrots, onions and herbs scattered under and over it and the wine and water poured over. Season well with salt and pepper and cover the dish with foil (or its lid).

Bake in an oven preheated to 140ºC for two and half to three hours, removing the dish to turn and baste the breast two or three times, until the meat is completely tender.

As soon as the meat is cool enough to handle, slip the rib bones out of the meat by tugging gently with your fingers. Retain the bones to scare any young relatives and/or to convince your neighbours you are killing children.

Press the boneless breasts between two chopping boards, or two flat plates, with a weight on top (a few full jam jars or large tomato tins will do). Leave in the fridge for a couple of hours, or overnight.

To finish the dish, slice the cold, pressed breast meat into two-finger width, one-finger length slices. Brush the slices with a little mustard, dip in beaten egg, and press firmly into a bowl of breadcrumbs so they are well coated.

Arrange in a roasting tin, brush each with a little melted butter, and place in the centre of an oven pre-heated to 180º C. After 15 minutes, whack the oven up to maximum heat, to get them very crisp.

Serve on hot plates, to waiting guests, with a piquant sauce to dip them in, such as a harissa aioli (Sounds complex but is really just mayo added to harissa - mess around with it a bit to get it to taste).

To make this a meal, rather than a starter or snack, extend the accompaniments to a creamy mash and a salad.

AV - Why yes, & why no

As a media type interested in politics, I follow campaigning with both professional & personal interest.

The campaigns for Yes & No on AV have been absolutely abominable. The No to AV campaign, while slickly run, has focussed on total lies & distortions of the truth.

For example, have a look at this video by No to AV:



Amusing, yes. But all the facts suggest that AV will lead to less coalitions, not more. The No campaign, from this video to the "CUTE BABIES AND RUGGED SOLDIERS WILL DIE UNDER AV" has been lurching from one random scaremonger after another. It wouldn't last real, sustained intellectual challenge (but more on why that hasn't happened later).

In my opinion, there's plenty to not like about AV, without resorting to this sort of thing. I am voting yes (mostly because I want a real proportional system, not this half-arsed fudge) - but I am only voting yes because I don't want electoral reform to be buried for a generation.

AV is a shit system.

1.) It's not proportional. You can look at Australian outcomes to see that. Indeed, it's often more outrageous than FPTP (see analysis of Blair's 1997 election).

In about 1/3rd of seats, the safe Labour/Tory strongholds, you get a 50% majority without any 2nd prefs even being counted, as more than half the turnout will be for the sitting MP. Probably a real mandate, but a pisser for everyone in the other 49%.

So...it doesn't get rid of safe seats at all, one of the main reasons to supposedly support it.

2.) The system is far from transparent, and leads to enormous resentment as people can't understand why "their" candidate lost to someone less popular - see entire Labour party baffled by election of Ed Milliband, and in theory most of them understand the system.



The no campaign could literally run pictures of Ed Miliband marked "RESULT OF AV" and win on that alone.

3.) It also makes it harder for excellent but divisive people like Caroline Lucas or Douglas Carswell to get elected, as the "anyone but them" vote is bolstered tremendously by the stacking effect AV gives. For the record, Lucas was elected on 30% of the vote in Brighton; "Greens unlikely to win again" is hardly an advert for "AV helps small parties".

It also makes it all but impossible to elect the occasional oddball single issue MP like Martin Bell.

4.) The "50% mandate" is entirely illusory.I question whether the combo of say, liberal votes going to Labour represents a pro-labour mandate or an anti-tory mandate - and in my mind, there is a big difference, but not one reflected in policy.

5.) The most electorally representative seats - the third of seats that are three way marginals we'd all like to see more of - basically get abolished, and probably turn into Liberal/Labour swing seats, disenfranchising loads of people. And yes, if you want a Tory, could reasonably expect a Tory and are forced to have a liberal you are being disenfranchised by the new system.

Of course, with the ramping up of anti-libdem "traitor" rhetoric from Labour (my personal favourite of which was Mark Thomas saying this week that he "finds it astounding that Nick Clegg can wake up every morning, look in the mirror, and not put a gun in his mouth" - harsh), that may change, disadvantaging Labour.

6.) It effectively reintroduces plural voting - with some voters influencing the democratic process 4, 5, or 6 times, and others doing so only once. If you don't believe me, then wait until you see canvassers giving out australian style "preference cards" at the polling booth, telling you how best to vote to aid your chosen party. So, the claim that AV "eliminates tactical voting" is nonsense - it just means people will vote tactically in a different way.

The people who vote for small parties *are* influencing the democratic process more than once, because they are contributing to the elimination of a party during one round, and then having their vote reallocated the next.

So you can vote Green to try to make sure the BNP come last and are thus eliminated. You have then knocked out the BNP and prevented them gaining any more reallocated votes. Your vote can then be transfered to - say - Labour, and you then get to help them win the seat.

Another voter - who just plumps for Labour - does not get that ability to influence the democratic process more than once. You've thus had more voting power than someone else

I'm uncomfortable with the fact that the truly decisive votes - especially in seats where one candidate currently gets between 40 and 50 % - are the second/third/fourth/fifth preference votes of the most unpopular parties. We hand the casting votes in our system to the BNP voter - or alternatively to the ultimate tactical voters, gaming the system. Either is bad.

7.) BABIES WILL DIE, but I'd also like to point out that rugged soldiers will not get body armour or guns, as all the money will be poured into biro ink caused by the endless, endless, box checking.

Despite all of the "Kittens will die" rhetoric, the yes campaign has been even worse.

From it's total failure to connect with the public, squabbles over Nick Clegg "sharing platforms", airbrushing Benjamin Zephaniah out of its inner city leaflets , to failing to garner official spokespeople to do debates it has been probably the most shambolic political campaign in the last twenty years. As a media professional, it's actually embarrassing to watch.

On the other hand, as a Tory, watching a campaign mishandled so badly by Labour & the Libdems, is reassuring to watch. Letting enfeebled remanant of the Labour election team in the Millibunker dictate the campaign is akin raising Barbara Cartland from the grave and then putting her in charge of government make-up policy.

So, after that screed of "No to AV", why do I think we should vote yes?

1.)It's an incremental step to a better, fairer voting system - it will allow the democratic process to more accurately reflect the will of the people, to a greater degree than now at least.

2.) I think one or two elections under AV will produce a non-proportional result which will make the case for moving on to a better system stronger. I think AV moves toward entrenching the idea that proportionality is good, and it (a poor system) won't last that meme becoming established.

3.) I think a "no" vote will make the real opponents of proportionality (the rotten borough Labour MPs, especially in Scotland & the hunter-shooter racist homophobic shires Tories) dig in and say "the people voted no". It'll be 20 years before we even get something as half-arsed as AV on the table again.

4.) It will abolish *some* safe seats, which I see as a good thing. Safe seats often entrench the most awful people in political parties (Hazel Blears is a good example), and in many seats, the momentum of revulsion will carry off these loathsome toads. The best current example of this is that under AV, Ed Balls would almost certainly lose his ultra-marginal seat. Which leads me to...

5.) An important one for me - Labour will lose the most from the introduction of AV. I think the poll I linked to even understates the consequences - especially in Wales & Scotland, the "anyone but Labour" vote is very strong. If you're a Tory like me, and think a return to a Labour government would be a catastrophe, then hey, this isn't a bad thing. AV lead to almost 20 years of tories in Australia...

That said,

6.) Whatever the impact on the main parties in the short run, it will be dwarfed by changes in how we *do* politics over the next 50 years, and that is genuinely exciting. The real effect of these changes won't appear until 2020 at the earliest - and a radical overhaul of politics sounds like a good thing, even if it takes a while.

7.) The first-past-the-post system may work under a two-party system, but we no longer have one. In 1951, 97% of voters voted for Labour or the Conservatives, but this figure was reduced to 66% in 2010.

We should have a voting system that takes account of the new political pluralism. The days of red or blue are dead. Accordingly, politicians should need to cultivate support from outside their traditional bases if they are to have a mandate to represent them. While this will not happen that much under AV – one-third of seats in 2010 were won with over 50% of the vote in any case – it will happen more, and it will reflect that large amounts of people hate both Labour AND the Tories.

Hardly a ringing endorsement, I realise, but the truth is no-one really wants AV for itself (including all six members of the Yes to AV steering committee). I dislike AV, but I think I dislike the status quo more.

This referendum is a once-in-a-lifetime chance for us to have our say on the current system. We should probably take it.

AV Burgers - comparing & contrasting.

Many years ago, I was poor. Not, weepy oh-i'm-so-poor-I-can-only-afford-one-holiday-a-year-poor, but proper, on the dole-but-calling-myself-a-freelancer poor. I think this experience probably had a big impact on my politics. While I didn't stop being a Tory, it did make me realise just how dependent on benefits people on benefits are; just how much difference 50p here or 50p there can make.

While going through this period, I learned to cook tasty things on a budget. Not a "budget" like £10 a meal - a budget like £5 to feed me for a week. I feel it's about time I shared a few of those tips.

One of my persistent beliefs, as best exemplified by Jamie Oliver's excellent Ministry of Food series, is that the world would be a better place if we all cooked more. Especially among the poorest people, a better understanding of how to cook would leave them (and crucially, their children) with more money, and better lives.

Now, most of my friends (especially my most patronising socialist friends) usually tell me:

1.) Working people don't have the time.
2.) Cooking is too hard for the average person.
3.) Cooking from fresh ingredients is too expensive compared to processed food or fast food.
4.) You and Jamie Oliver are both massive twats.

Now, I disagree with everything but 4.

I think especially in comparison with processed &/or fast food, you can feed a family cheaper & better by home cooking. I'm going to compare a Burger King Whopper with the kind of homemade burgers I learned to make when properly hard up.

The Burger King Whopper

We're all familiar with it, but in case you've forgotten what the grim things look like, here it is in all it's glory.



The whopper costs, in a meal with fries and a drink, an astonishing £6.49. I reckon I can produce a better result, with far more food, for far less cost. It's something of an unfair test - I imagine very few of the drastically poor eat at Burger king.

But that said, there is evidence that the poorest people are eating at takeaways rather than cooking - a situation we haven't really seen in this country since the 1920s.

AV Burgers

Much like the alternative vote, this meal isn't perfect - it's probably high in fat and so on. But, it is delicious, and almost certainly better for you than the alternative.

Ingredients (these are representative of the cheap version - if cooking & not on a budget, feel free to, for example, substitute any kind of mince, use red onions, etc)

400g of Sainsburies Value mince (£1.00)
One loose onion (20p)
One box of eggs (£1.65)
4 rolls (£1.00)
Iceberg lettuce (69p)
Sainsburies value Tomatoes (45p)
Bag of potatoes (£1)
200ml bottle of Best-in Vegetable oil (35p)
(Cost - £6.34)

Prep time:
15 mins prep,
30 mins cooking.



Recipe - Burgers, chips & salads

1. Chop the onion, add in the beef and break two eggs into the mixture. Mulch together with your hands, until a satisfying paste is formed. (If not doing it on a budget, add a pinch of salt & pepper, a dash of tobasco, a squeeze of ketchup and a mix of strong, woody herbs - I recommend thyme).

2. Scoop the beef into four discrete patties. Don't worry too much about regularity & shape - you're not winning a prize for aesthetics.

3. Heat oven to 200C/fan 180C/gas 6. Peel the potatoes and cut them into long chip shapes - the thickness you do is entirely up to you, though the width of your finger is ideal.(Unless you have really fat fingers). Rinse under the cold tap and pat dry with a tea towel.

4.Spread the chips on a baking tray and toss with oil. Lie them flat in a single layer, then bang them in the oven. Roast for 25-30 mins, turning now and then. When cooked they should be golden brown and crisp with a light fluffy centre.

5. Make the salad by roughly chopping half the lettuce, roughly chopping the tomatoes, and then tossing them together. If not on a budget, make some kind of pleasant dressing!

6. About ten minutes before the chips are ready, heat the oil to a moderate heat in a frying pan. Add the burgers to the pan. Fry them slowly, regularly turning them. Make sure they are cooked through before serving.

7. Pop the rolls in the oven for the last couple of minutes of the chips; serve on one plate with the salad, chips and so-on.

Voila! A kid-friendly meal, reasonably nutritious meal for 4 on the same budget as a BK whopper. When researching the costs for this, the extent of food inflation did hit me; when I was skint in 2003, I could do it (and lots of other pared-down meals) on about £4.

I did this experiment in 2007 originally, and by then we were up to just under £5. The jump in the prices of staples, especially eggs & bread, is pretty shocking.

Back in the Kitchen

Remember me?

You probably don't.

I've commited the ultimate in blogging crimes, I stopped blogging. I know, I know, the laws of blogging says you should engage with the online community, write pithy and interesting content regularly and refrain from libelous content. Was never good at the last one:)

I've still been writing & cooking, just not on here. But that's going to change. Starting from next week, I'm going to brush the dust off and get this bitch back on the road. Starting Friday 15th April! Continuing!

Facebook & the Pope's visit

There has been a great deal of froth about that pope fellow hasn't there? Personally, despite being the kind of "aggressive atheist" that the Pope's advisers are worried about, I think far too much of it has been anti-religious and anti-catholic rather than anti-pope.

(Note - I mean anti-pope, not antipope!)

Just look down your facebook newsfeed, and I'm sure there will be at least a couple of people spouting bile about the Pope's visit. Just to cheer you all up, here's the best linking of Facebook & the pope I've seen:



I've tried to be moderate - but to be fair I had a pretty snarky facebook status for Hu Jintao & King Abdullah ibn Abdul Aziz too and b.) I'm fairly sure my (anti-pope rather than anti catholic) FB status is something that even if Herr Ratzinger saw, he's probably say something like, "ACH, JAH, ZE ENGLANDER IS GANZ CORREKT! ACHTUNG! ACHTUNG! SPITFEUER!!!"

Well, maybe not the last bit.

For a more erudite critique of the Pope's visit, I'd refer you to Hobbes' Leviathan:

.. from the time that the Bishop of Rome had gotten to be acknowledged for bishop universal, by pretence of succession to St. Peter, their whole hierarchy, or kingdom of darkness, may be compared not unfitly to the kingdom of fairies; that is, to the old wives' fables in England concerning ghosts and spirits, and the feats they play in the night. And if a man consider the original of this great ecclesiastical dominion, he will easily perceive that the papacy is no other than the ghost of the deceased Roman Empire, sitting crowned upon the grave thereof: for so did the papacy start up on a sudden out of the ruins of that heathen power.

The language also which they use, both in the churches and in their public acts, being Latin, which is not commonly used by any nation now in the world, what is it but the ghost of the old Roman language?

The fairies in what nation soever they converse have but one universal king, which some poets of ours call King Oberon; but the Scripture calls Beelzebub, prince of demons. The ecclesiastics likewise, in whose dominions soever they be found, acknowledge but one universal king, the Pope.

The ecclesiastics are spiritual men and ghostly fathers. The fairies are spirits and ghosts. Fairies and ghosts inhabit darkness, solitudes, and graves. The ecclesiastics walk in obscurity of doctrine, in monasteries, churches, and churchyards.

The ecclesiastics have their cathedral churches, which, in what town soever they be erected, by virtue of holy water, and certain charms called exorcisms, have the power to make those towns, cities, that is to say, seats of empire. The fairies also have their enchanted castles, and certain gigantic ghosts, that domineer over the regions round about them.

The fairies are not to be seized on, and brought to answer for the hurt they do. So also the ecclesiastics vanish away from the tribunals of civil justice.

The ecclesiastics take from young men the use of reason, by certain charms compounded of metaphysics, and miracles, and traditions, and abused Scripture, whereby they are good for nothing else but to execute what they command them. The fairies likewise are said to take young children out of their cradles, and to change them into natural fools, which common people do therefore call elves, and are apt to mischief.

In what shop or operatory the fairies make their enchantment, the old wives have not determined. But the operatories of the clergy are well enough known to be the universities, that received their discipline from authority pontifical.

When the fairies are displeased with anybody, they are said to send their elves to pinch them. The ecclesiastics, when they are displeased with any civil state, make also their elves, that is, superstitious, enchanted subjects, to pinch their princes, by preaching sedition; or one prince, enchanted with promises, to pinch another.

The fairies marry not; but there be amongst them incubi that have copulation with flesh and blood. The priests also marry not.

The ecclesiastics take the cream of the land, by donations of ignorant men that stand in awe of them, and by tithes: so also it is in the fable of fairies, that they enter into the dairies, and feast upon the cream, which they skim from the milk.

What kind of money is current in the kingdom of fairies is not recorded in the story. But the ecclesiastics in their receipts accept of the same money that we do; though when they are to make any payment, it is in canonizations, indulgences, and masses.

To this and such like resemblances between the papacy and the kingdom of fairies may be added this, that as the fairies have no existence but in the fancies of ignorant people, rising from the traditions of old wives or old poets: so the spiritual power of the Pope (without the bounds of his own civil dominion) consisteth only in the fear that seduced people stand in of their excommunications, upon hearing of false miracles, false traditions, and false interpretations of the Scripture.

It was not therefore a very difficult matter for Henry the Eighth by his exorcism; nor for Queen Elizabeth by hers, to cast them out. But who knows that this spirit of Rome, now gone out, and walking by missions through the dry places of China, Japan, and the Indies, that yield him little fruit, may not return; or rather, an assembly of spirits worse than he enter and inhabit this clean-swept house, and make the end thereof worse than the beginning? For it is not the Roman clergy only that pretends the kingdom of God to be of this world, and thereby to have a power therein, distinct from that of the civil state. And this is all I had a design to say, concerning the doctrine of the POLITICS. Which, when I have reviewed, I shall willingly expose it to the censure of my country.


The above is of course courtesy of eminent materialist philosopher Will Jones Thomas Hobbes.

See you all for the resumption of normal service on Friday!

The Financial Crisis 2 - now in 3d!

In many ways we've learned nothing from this financial crisis - or indeed from any previous one. As a victim of Bernie Madoff, I was particularly enraged to see loathsome sleazy two bit fraudster Azil Nadir crawl out from under his Cypriot rock last week.



Above: A sleazy old pervert.

The above Pervert (Asil Nadir) was a major player in the City in the 1980s and early 1990s. He took a small east London textile firm called Polly Peck, and through a series of takeovers and canny deals he turned it into a serious conglomerate. It owned a slice of the Del Monte fruit canning brand, a majority stake in Japanese electronics company Sansui, and also owned companies making colour televisions and Betamax video recorders.

Wait, Betamax? The man from delmonte, he say, bad investment.

Still, like shoulderpads, hairspray, and movies with volleyball & fighter jets, it was all very, very impressive in the 1980s.



Above: Some things that looked good in the eighties look less good now.

Shareholders flocked in, quicker than you could say "Asset Bubble". If you bought into Polly Peck early enough, say, in the year Top Gun came out, you could turn a £1,000 investment into £1m - a huge return even by the champagne-soaked Square Mile standards of the day.

But to cash in, you had to know when to sell.

The downturn started when Nadir tried, and failed, to take Polly Peck off the FTSE 100 and back into private ownership. The party was really over when the Serious Fraud Office raided the company that ran his family's financial affairs, called South Audley Management. Six weeks later, the administrators had been called in.

The UK authorities moved with their traditional speed, and it was just three short years later that Nadir was facing the prospect of 66 charges of theft and false accounting involving £34 million. Instead, he hopped on a flight to Paris, and was soon in Northern Cyprus - a territory with which Britain does not have an extradition treaty.

There he has stayed. Until last week.

He's now back.

Prosecution lawyers and Serious Fraud Office (SFO) investigators must now trace 183 witnesses, some of whom may have died since Nadir fled. Zillions of documents have to be recovered. In the meantime, he remains on conditional bail under curfew and, despite his lawyers' objections, electronically tagged.

A £250,000 bail security has been deposited with the City of London magistrates, and he must reside at his £20,000-a-month rented Mayfair home, where he is subject to a midnight to 6am curfew. He must report each week to Chelsea police station, and has already surrendered his Turkish and British passports.

I think this is ludicrous. He should be in a cell. Preferably sharing a bunk with a glue sniffing violent delusional transexual rapist. Well, that's not quite fair. And Michael Barrymore isn't in prison anyway.

But the truth is, we definitely shouldn't be letting Nadir keep his house, and generally lord it up while on remand.

Why?

Because fraud is a rational crime. It's not as though you turn around and steal £36 million through a complicated share swapping scheme in a moment of passion. Deterrence works well on rational criminals - especially ones in it for the money, who understand delayed gratification. If you think, well, "even if I get caught, I may only do seven or eight years in what amounts to a poor quality golf-club", then it's not nearly enough of a penalty to make them think twice.

On top of the deterrence factor, we treat white-collar criminals far too well - we as a society do not extract nearly enough retribution from them. The damage they wreak is enormous. The cost isn't in millions of pounds - it's in marriages broken up, houses lost, suicides, failed businesses, misery for thousands. The societal cost is at least as great as for acts like robbery - and robbery carries a minimum 20 year sentence.

Of course, this kind of white collar crime is going on all the time. No, really.

For example, recently JP Morgan won an award for providing the following service:

The process of rehypothecation allows institutions - in many cases hedge fund clients - to extract greater value from their collateral by reusing this collateral elsewhere in the market, increasing liquidity and reducing collateral costs.

Against this backdrop, JPMorgan's forward-thinking Rehypothecation Program stood out, directly addressing market misgivings regarding the practice while simultaneously allowing the practice to be safely extended to the benefit of clients. Winner of both this year's Chair's Choice and Innovation in Custody and Securities Services, JPMorgan Rehypothecation Program supports the multi-asset class, unlimited re-use of collateral.

Yes, unlimited re-use of collateral. Or, in other words, taking out as many loans as you can on a single asset. Disastrous? Short-Sighted? Of course. Sadly, they are unlikely to land up in jail - and lets face it, even if they do, they can probably evade justice as easily as Azil Nadir probably will.

Some people I know said to me recently that they didn't feel we didn't get enough concessions out of the banks during the financial crisis. To them I say, "don't worry - there'll be another one along in a minute".