Banking tales from Colorado
As I cast my line into the deep pool, amid the blazing sunshine in the Colorado Rocky Mountains, the gillie reassured this amateur fisherwoman that the trout were “stupid” at this time of year due to the spawning season. Rather like rutting deer in the fall, he added. Or like board members who allow themselves to be distracted by new mistresses in the midst of company crises.
Choosing the right person for the job is crucial.
With key FSA powers now being incorporated into the Bank of England, questions are being raised about the stance of the ever more powerful Mervyn King, an academic economist. The Governor of the Bank of England does not believe it is a good thing to have multibillion dollar banks headquartered in the UK due to the bail-out cost in troubled times.
It is extremely difficult to argue with this thesis after the latest debacle. However, the UK’s unique selling point is the City – pace Lord Mandelson and his late conversion to the merits of manufacturing, responsible for 12% of GDP. This is not a piddly amount by any means, but it stands little chance of major growth.
The UK’s real USP is services. Responsible for 76% of GDP, it ranges from famous hairdressers to the City’s world class lawyers, bankers and insurance brokers. The chairman of an international bank told me recently that its European headquarters would stay in London. But, he added, the toxic mix of high taxes, a regulatory regime perceived as unfriendly, immigration caps and a low-growth economy, meant recruitment and expansion was happening elsewhere.
Although there is a view that some members of the new administration’s economic team have been “captured” by Governor King, a top government figure recently, and convincingly, gave me a different view:
International competitiveness hasn’t dropped off the agenda but ther is a difficult balancing act for the UK.
- We are increasingly subject to European regulations, but only one member state is home to a global financial centre.
- We need to ensure that the right structure is in place to maintain financial and economic stability in the UK.
The US is of course imposing new regulations but not necessarily in the same areas where we are acting.
- Asian nations seem to be doing very little!
Working out what to do to maintain international competitiveness and who we should be benchmarking against is not straightforward!”
The fabulous ranch in Colorado where we holidayed (www.vistaverde.com) also had its very own horse whisperer. Terry Wegener, an elf-like creature who has been training horses for 30 years, hosted clinics where aspirant cowboys were taught about rubbing their horses’ chestnuts (the obtrusions on their forelegs), blowing into their nostrils and scratching their hindquarters near the tail, where mares nuzzle their foals.
This was part of an ongoing dialogue aimed at creating a durable partnership. Rather like that which is developing, in fits and starts, between government and the City. A very necessary conversation, not least because the capital markets are not functioning properly and until they do, growth will prove elusive. A top regulator believes it won’t happen until Fannie Mae and Freddie Mac are sorted out. “Securitisation” needs to be separated from its accompanying word, “toxic.”
I wanted to return to London with my horse for the week, Ruthless, whose name belied her gentle nature. It was fantasy, pure fantasy. Rather like some government ministers in Europe and the US might dream about announcing these gorgeous economic figures:
Nearly 20 years of uninterrupted growth
Unemployment at 5.3%
A banking system that avoided toxic debt and a housing collapse
Two-way trade with China rising 30% in 2009
A budget surplus going into the crisis which will reappear in 2012
Debt forecast to peak at a hardly visible 6% of GDP in 2013
The lucky country is Australia. Blessed in many ways, as the joke below (heavily edited for political correctness) encapsulates.
The English are feeling the pinch in relation to recent terrorist threats and have raised their security level from "Miffed" to "Peeved." Soon, though, security levels may be raised yet again to "Irritated" or even "A Bit Cross." The English have not been "A Bit Cross" since the blitz in 1940 when tea supplies all but ran out. Terrorists have been re-categorized from "Tiresome" to a "Bloody Nuisance." The last time the British issued a "Bloody Nuisance" warning level was in 1588 when threatened by the Armada.
The Scots raised their threat level from "Pissed Off" to "Let’s get the Bastards." They don’t have any other levels. This is the reason they have been used on the front line of the British army for the last 300 years.
Belgians, on the other hand, are all on holiday as usual, and the only threat they are worried about is NATO pulling out of Brussels.
The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.
Americans meanwhile and as usual are carrying out pre-emptive strikes on all their allies ‘just in case’.
And in the southern hemisphere …
New Zealand has also raised its security levels – from "baaa" to "BAAAA". Due to continuing defence cutbacks (the airforce being a squadron of spotty teenagers flying paper aeroplanes and the navy some toy boats in the Prime Minister’s bath), New Zealand only has one more level of escalation, which is "I hope Australia will come and rescue us".
Australia , meanwhile, has raised its security level from "No worries" to "She’ll be al’right, mate". Three more escalation levels remain: "Crikey!’, "I think we’ll need to cancel the barbie this weekend" and "The barbie is cancelled". So far no situation has ever warranted use of the final escalation level.
Tags: Australia, Bank of England, Fannie Mae, Freddie Mac, FSA, Mervyn King, Vista Verde
Has everybody noticed how the stock market plunges whenever Mervyn King makes an appearance? I used to find this useful in teaching my Corporate Finance students about the limitations of the Efficient Markets Theory. Clearly, I thought this to be a good and topical example of how markets can behave irrationally. Then one of my students argued that the market’s despair on the slightest glimpse of the Governor may well be a rational reaction.