Feb 12

Heaven : No Volcker, No Vickers

Syria , the jobless and the banks

Heaven is a long mountain slope of perfect powder snow and a sky of an intense blue only found in the Austrian Alps. Amid the brightness and the swishing sound of my skis drawing perfect curves in the snow, a Norfolk terrier scampers around, capturing the prey that always eludes him, while an eleven year old boy relishes the lack of carrots and broccoli.

This exemplifies heaven for me, my son and his dog. Or I can describe heaven by quoting the Book of Revelation which says it is a cube of 12,000 furlongs and which author Terry Pratchett reveals is less than 500,000,000,000,000,000,000 cubic feet.

Numbers rarely illustrate; they often disguise. This is all the more true of statistics, as summed up in an oft-used quote attributed to British Prime Minister Benjamin Disraeli: “There are three kinds of lies: lies, damned lies and statistics.”

Thus statistics on unemployment draw a numerical veil over despair and misery. Angel Gurria, Secretary-General of the OECD, calls the jobless the “human face” of the economic and financial crisis.
Three meals over a twenty four hour period in a recent visit to Spain encapsulated the principal problem of our time:

I had lunch with the chairman of a state entity in the transport sector, who knew he was to be made redundant by the end of the week as part of the changeover upon the arrival of the new Spanish government of Prime Minister Mariano Rajoy.

That evening, I had dinner with friends. The husband, who is well over 50 years old, has not been able to find a job in the last two years. He will probably never work again.

Meanwhile, breakfast the next morning with the head of an investment bank was slightly delayed. My host, on apologising for the hold up, confessed it was because he was making a whole department redundant.

In the OECD area what is as worrying as a record unemployment rate of 17.4% for the young and 7% for adults, is the fact that this is becoming entrenched. Even in the US, the number of those unemployed for more than a year has tripled to a record of over 30%. Without the country’s labour market flexibility, these numbers would be even worse.

On a more positive note, the crisis is forcing countries to wrestle with the unions, which have been much too intent on safeguarding the rights of existing workers at the expense of the unemployed. It is driving governments to tackle rigid, job-destroying laws which set the cost of employing and firing workers at so high a level that hiring them becomes prohibitive.

A cartoon in Italy’s Corriere della Serra a few days ago took the Pope’s recent appointment of 22 new cardinals and added in the theme of our times. Pope Benedict XVI is shown naming the new cardinals while a lay bystander says to his friend ,”At least those are permanent jobs!”

We always learn the lessons of the last war and misapply them to the next. After the First World War, generals prepared for trench warfare. The Nazi Blitzkrieg proved them wrong. The debacle in Vietnam stopped the US from involving its troops in foreign wars for many years. The successful repulsion of the Iraqi conquest of Kuwait then took precedence in US minds. This was followed by the mire of Afghanistan. Success in Libya is clearly leading towards involvement in Syria. One can hear it plainly in government rhetoric, which is being subtly modified as the weeks progress and the massacres escalate.

I fear this misapplied lesson. For starters, Libya has a population of only 6.7 million compared to Syria’s 22.5 million. Unlike Libya, it has substantial minorities. And it is geopolitically infinitely more awkward than Libya, with Iraq, Israel, Jordan, Lebanon and Turkey bordering it, plus a host of more complicated issues involved. Additionally, the focus of our diminished capabilities may well need to be Iran.

Despite my disapproval of our budding involvement, an email from a Libyan friend in Tripoli tugs at the heart strings and makes one think that surely Syrians deserve the same sort of hope:

“During the conflict, Tripoli was like one huge prison; we could barely breathe, scared to speak on the telephone, scared to even listen/watch banned channels…people being arrested left, right and centre for just coming out of a mosque where there were rebel sympathisers…The only moments of joy we had were the sweet sounds of NATO bombing…yes, we were so desperate that we would celebrate every bomb dropped like a punch in Gaddafi’s gut…

Every family in Libya has had a loved on imprisoned, tortured, killed. We are still a nation deep in mourning but one that can finally breathe. After the liberation in Tripoli, it’s in a mess, people are armed everywhere, graffiti on the walls, rubbish all over the place, but somehow it’s all beautiful as we have our freedom and we have our hope. It is going to take ages to get where we want after the destruction of G’s 42 years but we will make it!”

Heaven is also a place where diatribes would not only be allowed, but be actively encouraged. Hence the following couple of paragraphs.

In a Financial Times column decrying the Volcker Rule, which aims to separate out most proprietary trading from banks, Chancellor George Osborne and Japanese Finance Minister Jun Azumi warned that it risked reducing liquidity in all sovereign bonds except for US ones. This is an incipient disaster considering government financing needs over the next few years.

They stated that “all countries need to be alert to the unintended consequences of financial reforms.” Quite. Dare I point out that the Vickers Report, an equally well-meaning piece of financial reform which is set to separate investment banking from retail banking in UK banks, will undoubtedly also have “unintended consequences?” I look forward to an FT comment from former Federal Reserve Chairman Paul Volcker and US Treasury Secretary Tim Geithner warning on this in the not too distant future.

Tags: , , , , , , , , , ,

Comments are closed.