Losing the plot

So it is now official: the British Government is back with the Tories.

Yes, I know the Prime Minister and his cohort declare themselves to be Labour and - to be frank - the rhetoric and tax & spend attitude is that of a true left-leaning bunch, but, let's face it, the Tories now have just to announce policies (not even pledge to implement them) that Labour scrambles to implement them without even a hint of embarassment.

It may well be that it is truly because they are marvellous and wondrous policies that appeal to the left as they do the right.

Me, being the cynic that I am (no, Mr Blair, being a cynic is not so bad and, in fact, beats being a liar anytime) I tend to believe that they do it because (a) they run around like headless chicken chasing the latest opinion poll and (b) because they are now so ideologically lost in space that they have to wait for someone else to come up with something, anything, they can copy.

What a sad state of affair...

The true mark of a bureacrat

I've always felt that Mr Brown would have been more at ease in some obscure office somewhere deep in the bowels of Public Sector-landia - and, indeed, how so much better would have been for Country and wallet!

And now he has finally revealed the true mark of the bureaucrat - that is, that innate, congenital, irrational fear of accountability: the dread of coming to terms with one's acts, assuming responsibilities for all the deeds (or, indeed, the mishaps) one has committed whilst in office.

Hence, no election - the English people has been denied the right to make its voice heard.

It occurs to me that England is that most strange of places, where an unelected official can climb to the chair of Prime Ministership without ever having to stand to the English people's scrutiny: because, lest we forget, it is a bunch of few Scots, who, for want of better alternatives, one would assume, have chosen Mr Brown as their elected representative.

Those same Scots, lest we forget, who have kicked out Labour from their own Country's Government, whilst at the same time inflicting the tax & spend scourge upon us all.

What a joke - they must be laughing their socks off, North of the border!

The Land of Incompetence

Came back the other day from the US and was immediately confronted with the usual rain and gloomy weather that one should expect from the UK in October.

That, in general, fails to "rattle my cage" and I was not terribly upset by it - all after all, if it was sun what I was after, I could have as well stayed put in Italy and enjoy long, laid back days at the beach eating pasta and sipping Chianti...

What really depresses me is that, after more ten years of failed public sector projects and ideas, a bungled (and messy) tax credit system, the display of complete incompetence during the recent banking crisis, and, lest we forget, the Iraqi catastrophe, still Labour (and, of all people, "tax-&-spend" Gordon) still enjoys a lead in the polls.

Really - what on Earth possess the British public?

Can the vast majority of Englishmen and women be so totally blind to the astonishing incompetence that permeates now all walk of the Public Sector?
Can the youths be all so busy getting drunk and getting laid that they are ready to forgive a Government that lied to the Country and allowed hundreds of thousand of lives to be lost?
Can the elderly have all gone so hopelessly senile that they have completely missed how their health is being jeopardised by the awful mess the NHS is in?

I will accept that Cameron's Conservatives can hardly lay claim to competence and infallibility (what in the name of God are the Tory right-wingers up to? giving Labour another ten years in government?) but it would be extremely difficult (I'd say impossible) to beat Labour on incompetence, failed Public Sector projects and generally wasting taxpayers' money on a grandiose scale.

Lest we forget:

• Metronet - the poster-child of the PFI, the very creature of Mr Brown's warped economics - going bust, after sucking (and wasting) £11bn of public money, leaving London's Tube modernisation programme in total disarray;
• the IT upgrade of the Benefits Department, that had to be abandoned after spending hundreds of £'m, and getting absolutely nothing;
• the Dome (need I say anything?)
• the Olympics budget - nearly quadrupled (and we are still 5 years away) with very little to show for it;
• the complete failure to modernise the NHS, which, after £'bn of investment, still boasts the worst rate of cancer survival in Europe and the worst record in fighting infections (MRSA, anyone?);
• the tens of £'m wasted on the ID cards project, with realistic estimates of the costs at more than 10 times the Government's estimates (and it hasn't even started yet...)
• tax credits for working families (as if the others are sitting idle...): quite apart from the absurd complexity of the scheme (another brainchild of Mr Brown) it has resulted in hundreds of £'m lost in "overpayments that cannot realistically be recovered, ever" (even by the Inland Revenue's own admission);
• the Home Office - a sick joke of incompetence, waste and complete lack of accountability: now multiplied by two, with the likely duplication of most office functions with the creation of the Ministry of Justice (as it's obvious to anyone, but the self-serving politicians, by multiplying the number of bureacrats one only multiplies the level of incompetence and waste);
• and on and on and on...

But then, maybe, it is quite possible that after ten years of bureacratic incompetence people have become so used to it to consider it an acceptable norm - no longer to be outraged by officials wasting, literally, billions of pounds on ill-conceived, and worse-executed, initiatives and projects.

The Land of Incompetence, indeed.

Saving the banks

So, last week, to save Northern Rock from a devastating "run" (that would have, as panic runs go, naturally have ended with the bank running out of cash and being declared insolvent) the Chancellor -- with enthusiastic support of the FSA and the Bank of England -- stepped in and, essentially, said that taxpayers' money was at hand to guarantee all depositors' moneys.


Nothing wrong with it, surely?
These are, for the most part, ordinary people, like you and I, and deserve to be protected by the nasty consequences of global finance markets turmoils, and the greed and incompetence of the 'fat cats' bankers. Do they not?

Well, yes, in a sense, but the real question is, at what price?
The immediate consequence is that the 'run' has ended, Northern Rock has been spared more dire consequences, other banks (C&G and Alliance & Leicester were rumoured to be next) have escaped unharmed, and ordinary folks are safe in the knowledge their hard-earned money will be there when they need it.

An unqualified success for all involved, then?

A well-known concept in economics is that of 'moral hazard': that is, investors and bankers are more likely to take greater risks than would be rational (sub-prime lending, anyone?) if they know that someone with big pockets (the State) will step in and save them if things go horribly wrong (as they do, almost invariably).

In other words, we have witnessed today that some banks and institutions are "too big to fail" and that the Government, for political expediency, is well prepared to squander taxpayers' money to protect the above-mentioned 'fat cats'.

These bankers, in fact, by investing large sums in riskier assets have indeed generated excess returns in good times, and pocketed large bonuses (the last 3-4 years have seen monumental increases in City bonuses, usually paid around Christmas' time) - but, when the time came to pay for the deed -- that is when these 'riskier' assets prove to be, well, riskier, and the most foolish were exposed, big Nanny State intervened to save their necks.

it is only too easy to predict that, next time round, the bets will be bigger, the risks greater and the heights from where to fall higher - but, no matter, our Tax monies will be there to save and protect City bankers, no matter how greedy, incompetent or foolish.

Well done, Mr Brown - indeed a worthy achievement for a Labour PM.

Tides and waves in the financial market

...it just occurred to me whilst reading the Economist about recent turmoils in the financial market: one could paraphrase Mr Buffet of Hathawy Berkley (aka "the sage of Omaha") and say: "it's when the tide goes out that one can tell the boats from the turds"

Rude, I know ;-)

Tax & Spend (& Kill)

Yet again Labour is at work to raise taxes, no doubt to plunge yet more money into hapless public sector projects.

This time round, it's Capital Gains tax (CGT) that's under scrutiny: according to the FT.com, Alistair Darling "is considering an increase from 10 to 20 per cent in the base rate of capital gains tax for investments classed as business assets, such as holdings in unlisted companies or shares owned by employees." (FT.com, 16 Aug.)

Although to the clueless (and I freely include in this category the entirety of Labour party) this would be a way to tax the "fat cats" of private equity, it will, instead, have the usual "uninted consequence" of dampening even more the ability of small start-ups to attract and retain talented people, and, ultimately, to drive away venture capital investment from the UK.

The reality of the matter (which clearly escapes our erstwhile ministers) is that the very people this tightening of tax rules should affect (the super-rich, mega-millionaires who drive multi-£bn deals) have no "UK domicile" for tax purposes (or can easily obtain that, if the tax burden becomes too much).

The ones affectes are the likes of you and I: ordinary folk, working in excess of 16 hours a day on a business idea, whose only reward (uncertain, and at some point in the future) is in the value of stock options. We are quite unlikely to get domiciled in the Bahamas, and even less likely to afford to hire expensive lawyers and accountants to tell us how to dodge the tax bullet.

Because of the risk, uncertainty of outcome and time delay, the final reward attached to stock options must necessarily be quite high to compare favourable with today's "loss of earnings:" by using the universally accepted Discounted Cash Flow - DCF - to arrive at a Net Present Value - NPV - that one uses to compare a certain outcome today (say, a defined monthly salary and a pension at 60 years of age in the Public Sector and the certainty of not being fired, irrespective of how badly one can screw up) with an expected, but uncertain, outcome some years in the future.

The "unintended consequence" of those tax changes then will be to drive even less people into starting new businesses, driving innovation, and into making Britain an (even) less attractive place to invest into - driving up at the same time the cost of hiring talented people (the lower the value of stock options tomorrow, the higher the salary I want today).
Additionally, VCs and their ilk, when deprived of the kind of returns they expect (given the risk profile attached to their investments) will be even less likely to bother with smaller enterprise (the ones needing between £500k and £2m).

They won't care anyway - they can easily invest in China, India, US, Ireland, or wherever takes their fancy: away from tax-crazy Britain.

Why is it that our politician are so myopic they can't even see across the Irish Sea: there, a significant reduction in the level of taxation has driven the economy onwards and upwards, making Ireland one of the most attractive places in Europe (and the world) to invest and work, and the Irish people have moved from one of the poorest in Europe to being among the wealthiest and happiest (if only the weather would co-operate, we would all move there, wouldn't we?)

And, guess what? The Irish Government has never had it so good, raking in tax revenues at a record rate, and expanding the expenditure in public services at a much greater rate that even our rapacious Gordon "tax-and-spend" Brown, can only dream of.

But, oh, no - Labour still lives in this 70's zero-sum game mentality: if you have success in life it surely must be at someone else's expenses, so "they'll squeeze till you squeak."

Blair Legacy

In little over a month's time, Mr Blair will step down from being UK's Prime Minister, handing over power to Labour's "incoronated" new leader, Mr Brown.

Personally, I am unsure whether to be jubilant for seeing the former go, or appalled to see the latter take over; but that's probably an issue best left for another day.

What I'd like insted to do here would be to publicly express my personal thanks (yes, you've read it correctly: thanks) to Mr Blair, for proving, irrefutably and irrevocably, one of my most fundamental beliefs: one cannot make Public Sector service work by throwing more money at them.

It is, indeed, regrettable that this had to be achieved by wasting several hundred billion pounds - money that we, the taxpayers, could have more efficiently and enjoyably spent on goods and services that matter to us, instead of being poured down the drain chasing "targets" that only matter to policy wonks and to obscure civil servants; but, then again, it was probably inevitable that this had to be done, as, at least once in a generation, this point has to be (expensively) proved again and again, to an uneducated and forgetful voting public.

In fact, a very similar lavish waste of taxpayers' money on irrelevant and apathetic public workers and services had already been undertaken by Labour in the 70's (and elsewhere in the world: the Democrats in the US, various left-wingers across the globe and, surprisingly enough for those who don't know better, by endless centrist governments in Italy) to little or no effect on their efficiency and/or effectiveness.

Thankfully, a brief surge in this kind of waste (and the subsequent abismal display of incompentence and general useleness) was sufficient to wake up voters to reality and swing them back to more sane, market-oriented policies.

Not so this time - partly due to a particularly benign global economic environment, partly due to Mr Blair's quasi-hypnotic power of persuasion, but mostly due to the pathetic state of the Conservative party, it has taken the best part of ten years for the British public to start asking questions about the sanity of showering tens and hundreds of billions on unreformed, inefficient and largely useless public sector services.

I still remember being infuriated, at the time, by all the talk about public sector being "underfunded" - this was mostly from people who failed to realise that the use of "under-" (or "over-," for that matter) requires a standard comparison metric to be meaningful: a service, or business, is under- or over- funded only relative to its stated goals, and a generally accepted industry best practice.

But this was, rather conveniently, lost in election speeches and on the tabloid-reading electorate who lapped up New Labour's New Truth.

Well, all this is history now: we all now know (even Sun readers) that it is not for want of money that public sector is incapable of delivering half-decent services, with anything approaching a minimum level of respect for its users.
All the extra investment has been gobbled up in ill-thought (and worse implemented) titanic IT projects (most of which have either floundered in spectacular fiascos or are running several billions over budget, years behind), equally titanic (and equally over-budget and years late) construction projects and, naturally, in inflated pay rises for public sector workers.

Who have not, as any sane private sector employer would have done, been asked to work harder, longer or, simply, using a bit more common sense: they were just gifted with pay rises, without any regard for individuals' competence and merits.

And as we all in the private sector, running our businesses, well know there is nothing like this to sap the dedication and motivation of the best workers, and reinforce the worst ones' conviction that working hardes is for fools.