A short lesson in economics for bankers

The expression "those bankers just don’t get it" is becoming exhausted through repetition, but their capacity for self delusion still amazes.

It has become fashionable to suggest that they (along with regulators, governments and the rest of us) had got stuck in belief in an economic paradigm based on the supremacy of rationalism.

Recent events, however suggest that they’re not very hot at applying even this old style economics.

The argument that bonuses still have to be paid (e.g. by RBS) to prevent staff migration (e.g. to Barcap) surely flies in the face of traditional economics. Why?

1. The banking sector employs twice as many people internationally as it did 15 years ago.

2. In London that ratio is 3 to 1.

3. The demand for banking services will now shrink as the depression continues, and banks will be shedding staff in the tens of thousands.

4. It’s anyone’s guess but we might assume that two in three wholesale, investment or forex bankers will become redundant.

5. In a buyers’ market the price bankers can charge for their labour will therefore plummet,

6. and they’ll be lucky to have a job at all, let alone a bonus.

But I suggest that there is one area where performance related pay is now badly needed, the Cabinet.

How about making Ministers’ take home pay dependent on the delivery of the pledges in the manifesto and the achievement of all the targets they spray around like a tom cat sprays wee?

That might concentrate the buggers’ minds.

[Ed: I apologise for GOM's use of offensive language; he does get carried away sometimes]

Beyond satire

Satirists might just as well pack their bags at the moment.

No sooner has one had a Swiftean moment than we read that the government has implemented it.

This weekend revealed that the FSA is to award itself £10m of bonuses.

And we have just heard that Tessa Jowell is attempting to remove gender differences from the Olympics by, for example, allowing women to compete in heavyweight wrestling.

I’d be tempted to suggest that the Secretary of State for Health has announced that men will soon be able to have babies, but there’s no point.

It’s probably already in the pipeline.

Not select enough

One of the inquisitors on this morning’s Treasury Select Committee meeting revealed his lamentable ignorance by referring to "siren calls from risk managers", meaning siren as in claxon or fire alarm. And everybody else adopted the solecism without any indication of irony.

So now we know why Bankers and Parliamentarians have so let us down; it’s very simply their lack of a classical education.

Funny how much clearer life gets as one gets older.

Or as my old friend Catullus used to say "Totum ut te facient, Fabule, nasum"

Antilogisms

Years ago the witty chaps in The Times’ PHS column coined a new term, "antilogism", for a word or expression that means the opposite of what you’d expect. Not quite the same as an oxymoron, but more like a thumping great one or two word porky.

The term never caught on, and you won’t find it in the dictionary, but the financial crisis has brought the concept back out of the closet. We need that word again.

How else would you describe the following?

A security = something that is spectacularly insecure

Wealth management = the destruction of your savings

Investment management = the incompetent and spendthrift loss of your investment

Savings product = structured theft

Managed risk = unmanaged risk

Financial planning advice = guesswork on fees

Typical 10 year return = the same number with a negative sign in front of it

Personal pension provision = throwing your own savings away

Private sector occupational pension scheme = conspiring with your employer to throw your and their savings away

Defined benefit scheme = undefined benefit scheme

Public sector pensions provision = a charge on current tax payers, an increasing number of whom are private sector pensioners

Financial Service Authority = a body that isn’t an authority on either finance or service

Department of Work and Pensions = a group of civil servants overseeing the annihilation of both

Royal Bank of Scotland = an institution that is neither Royal nor Scottish

Bradford & Bingley = Whitehall & Madrid

Equitable Life = unfairness whichever way you look at it.

But the crisis is throwing up some terms that have a ring of truth: vulture funds do prey on the weak, and as more and more of our finance houses are nationalised the Bank of England is becoming exactly that.

A solution for your problem

Grumpy Old Man does not aim to provide advice on remedies for personal complaints or conditions.

However we have had drawn to our attention a new and unique product which we believe will meet the needs of many of our readers.

Another roll of the dice

If we were to throw a die to forecast our future we might, like Luke Rheinhart’s Dice Man, load the odds so that one face predicts rapid recovery, four faces offer progressively increasing degrees of gloom ranging from a one-year recession to four-year deflation, and the sixth face suggests something very more radically threatening.

It is probably not too pessimistic to suggest that within a year or so the sixth face of the economic die will give us a scenario in which our bankrupt liberal democratic (and as it happens, capitalist) nation states will have no choice but to accept bail-outs from countries whose politics we abhor.

In this scenario our economic survival becomes dependent on Saudi Arabia, China or Russia and its old ’Stans. None of these are remotely liberal or democratic by our standards, nor are they strictly capitalist in our terms, in the sense of a diversified, decentralised economy.

Will this dependency come without demands? I suspect not.

For decades "our" IMF has bailed out third world countries only so long as they promise to adopt developed world capitalist economic management principles. I think we can be reasonably certain that financial support from the purveyors of sovereign wealth such as China will carry similar or more stringent obligations.

What is therefore at risk is not just our economic viability but the very freedom we have fought for over centuries to run our societies as we wish.

The supposed destructive threat of Al Qaeda will have materialised, but it will have been delivered not from Islam but by the free market capitalist fundamentalists that have infested our economy, out-manoeuvred our regulators and seduced their political masters.

The axis of evil will have triumphed but that axis will emerge to be not the barbarian at the gate but the enemy within.

Mince pie futures

In these challenging times Grumpy Old Man has been relentlessly searching for undiscovered value and potential arbitrage opportunities.

We believe mince pies have been overlooked as a potential store of value. No longer is your average mince pie the product of an industrial stamping process somewhere in the Black Country

Quite conversely, we believe mince pies could now offer considerable upside potential.

Grumpy Old Man has been subjecting a range of these unique confections to a rigorous and scientific bench-testing process supported by selective and controlled use of microwave radiation.

He offers here some tasting notes to guide future investment decisions.

Sainsbury’s Deep Filled Mince Pies
Tall rather than deep-filled; filling rather bitter; pastry-style case, not very buttery; explodes after 40 seconds on high power
23p per pie

Sainsbury’s Taste the Difference
Light, buttery pastry which became somewhat floppy and chewy after 30 seconds in the microwave; filling offers fat raisins and plenty of brandy-type flavours
34p per pie

Sainsbury’s Connoisseur
Mincemeat of super-prime quality
53p per pie

Konditor & Cook
Well-structured, with some evidence that a rolling pin has been applied to the pastry; variable dimensions and slightly inconsistent sizing offer a good impression of artisanal provenance; available individually or in boxed tranches of six or a dozen
89p per pie

Gregg’s at the top end of Leather Lane
A rather volatile proposition, excessively sugary and highly liquid; suspiciously handmade; pastry somewhat limp and insufficiently acquainted with heat; cloying sweet mincemeat attempts to hide some sub-prime, Alt-A rated ingredients with emerging evidence of default or impairment.
27p per pie

In current market conditions we recommend eating fewer of the more expensive pies.