Archive of selected extracts from my Triple Crunch log
Academy set up that encourages teenagers to leave school to try and become tycoons
10 May 2009: Dragon’s Den judge and entrepreneur Peter Jones funds a National Enterprise Academy (jointly with government), with a pilot intake of 28 teenagers. He originally wanted to call it the “Tycoon’s Academy,” rather suggesting that the values will be those portrayed on The Dragon’s Deen and The Apprentice. He plans to bring “tycoon teaching” to thousands via a qualification he has devised with Edexcel the exam group, to be taught at further education colleges around the country.
My view: It doesn’t help that the youth of Britain, and whoever else is watching, sees the values of the dysfunctional capitalism that has so failed us pushed on prime time. There is no mention of anything vaguely to do with social mission, corporate responsibility, or a common sense of economic security.
Gillian Tett’s book describes the effort made by the banking elite at “idealogical domination”
25 April 2009: Elites do this to maintain power, the trained social anthropologist, now FT star journalist, argues in her book. They decide what is talked about and what is not. There was a major “social silence” of this kind around the epidemic growth of derivatives, and so the practitioners began to view themselves as detached from society, like the inhabitants of Plato’s cave. The crisis was foreseen by a few, including Tett. A veteran financier, Felix Rohatyn,[8] warned back in the early 1990s that derivatives were “financial hydrogen bombs built on personal computers by 26-year-olds with MBAs.” In a review in the FT, Howard Davies describes Tett’s thesis as a small group of “quants” at J. P. Morgan inventing credit derivatives – CDOs, CLOs and so on – but greedy people in other banks who then misunderstood and misused them, leading to the disaster.
My view: It’s the same in the oil and gas industry and its supporting institutions. There is a very big “social silence” about peak oil.
15 April 2009: In the years running up to the crisis, there was a “quiet coup”, akin to the stranglehold often achieved by business elites in emerging countries. Simon Johnson, writing in Atlantic Monthly, is now a professor at the Sloan School. Says the FT’s Martin Wolf, the US is “caught between the elite’s fear of bankruptcy and the public’s loathing of bailouts.” Decisive restructuring is needed, he says: core financial institutions must be rendered credibly solvent, and none can remain too big to fail. “That is not capitalism, that is socialism.”
My view: Socialism for the rich, that is. The rest of us are forced to live under the current version of capitalism.
Many banks still don’t know the extent of their most toxic “assets”
2 April 2009: Default rates on credit card and car debt are bound to soar as the job losses work through the system. So too will corporate defaults. How can banks know the value of these assets when the mathematical model they used for valuation in recent years has proven to be flawed (the Copula model: it is based on data from the credit bubble, and masks risk), and when there is now no trading, no market worth speaking of? Take RBS and Lloyds, who have a collective £585bn of assets insured by the government. Credit Suisse estimates they face £105bn of losses. Around the world, banks have so far written down assets totalling around $1tn. The IMF estimates the final writedown will be $2.2tn. This means that banks are still routinely valued optimistically.
My view: The Big Four accounting houses should be asked some very serious questions about all the accounts they signed off through the crisis, and now continue to sign off, notwithstanding fears about the next wave of defaults. Yet I read no reports in the papers that this is happening.
At the annual World Economic Forum, “Davos Man” is humbled
29 January 2009: In 2007, the air was full of optimism. In 2008, business leaders worried about inflation. This year, gloom is pervasive. Wen Jiabao and Vladimir Putin mock western leaders. Wen rails against the “blind pursuit of profit.” Putin reminds them that last year they talked of the US economy’s “fundamental stability and cloudless prospects.” Meanwhile, trust in business is now at 38% in the US, down from 58% the previous year, a survey finds. It also shows that only 49% of Americans think the free market should be allowed to function independently. With very few exceptions, bankers stay away from Davos this year.
My view: From this start to year, we ought to be able expect sweeping reforms by government. There should be huge opportunity for strong political leaders to lever through change for the better.
