I have decided to move this blog over to a new home due to various features available via the Wordpress platform.
Sunday, November 15, 2009
Why am I publicising this fact? Because the convicted murderer in question (his name, remember, is Wolfgang Werle) is trying to sue Wikipedia to get references to his murder of Walter Sedlmeyer removed:
It seems to me the appropriate response to such insanity is to publicise the offending material as widely as possible.
Wikipedia is under a censorship attack by a convicted murderer who is invoking Germany’s privacy laws in a bid to remove references to his killing of a Bavarian actor in 1990.
Lawyers for Wolfgang Werle, of Erding, Germany, sent a cease-and-desist letter demanding removal of Werle’s name from the Wikipedia entry on actor Walter Sedlmayr. The lawyers cite German court rulings that “have held that our client’s name and likeness cannot be used anymore in publication regarding Mr. Sedlmayr’s death.”
German media have already ceased using Werle’s full name regarding the attack. Jennifer Granick, an attorney with the Electronic Frontier Foundation, says German publications must also alter their online archives in a bid to comport with laws designed to provide offenders an avenue to “reintegrate back into society.”
“It’s not just censorship going forward. It’s asking outlets to go back and change what is already being written,” Granick said in a telephone interview.
Sunday, October 25, 2009
See Magna Carta Plus News for details on how entirely peaceful, legal protest and merely attending political meetings could get your details recorded on databases of "domestic extremists"...
YouTube - David Cameron - Repealing The Identity Cards Act
This is unequivocal!
Friday, October 23, 2009
Sunday, October 18, 2009
Tuesday, June 09, 2009
2 interesting articles are linked to below, the first on the views of those who voted for the BNP in the European elections and the second looking at the BNP's performance in perspective.
Who voted BNP and why? - Channel 4 News:
``Yet the feeling is widespread that white Britons get a raw deal. Seventy seven per cent of BNP voters think white people suffer unfair discrimination these days. But that is also the views of 40 per cent of the public as a whole.
The average British voter is more likely to think that discrimination afflicts white people than Muslim or non-white people. And only seven per cent of the public think white people benefit from unfair advantages, while more than one in three think Muslim and non-white people receive unfair help.
Thus the BNP is tapping into some very widely held views, such as the desire to stop all immigration, and the belief that local councils "normally allow immigrant families to jump the queue in allocating council homes" (87 per cent of BNP voters think this, but so does 56 per cent of the public as a whole).
Yet, depending on how the term "racist" is precisely defined, our survey suggests that the label applies to only around a half of BNP voters. On their own, these votes would not have been enough to give the BNP either of the seats they won last night.
There are two telling pieces of evidence that suggest wider causes of disenchantment. Seven out of 10 BNP voters (and almost as many Green and Ukip voters) think that "there is no real difference these between Britain’s three main parties".
But perhaps the most startling finding came when we tested anecdotal reports that many BNP voters were old Labour sympathisers who felt that the party no longer speaks up for them. It turns out to be true. As many as 59 per cent of BNP voters think that Labour "used to care about the concerns of people like me but doesn’t nowadays".
What is more worrying for Labour is that this sentiment is shared by millions of voters, way beyond the ranks of BNP voters. Overall, 63 per cent of the British public think Labour used to care about their concerns – and only 19 per cent think it does today.''
(bold emphasis added)
The myth of the far right surge - Spiked Online
``The BNP’s share of the Euro-vote is certainly up - but not by much, from 4.9 per cent in 2004 to 6.2 per cent in 2009. In this election, everything was reportedly in the BNP’s favour: a recession, a political crisis, a voting system that favours smaller parties, an election that is routinely used to deliver protest votes because it is not taken seriously, and the kudos of being the one vote that was sure to get up the noses of the political establishment. Yet the BNP still barely registers in British political life except as a bogeyman to be employed by the big parties to scare us down to the polling booths. In fact, the number of votes the BNP received actually fell in the two regions where it won seats compared with the 2004 Euro elections: by almost 3,000 votes in the north-west and by around 6,000 in Yorkshire and Humber. It was the collapse of the Labour vote that allowed the BNP to win seats.
While there is little to suggest that the BNP can make a major impact on political life more generally, the fact that such a pariah party can have any success at all is indicative of the increasing isolation of the mainstream parties. As the Conservative shadow defence spokesman Liam Fox put it, ‘all politicians should be asking themselves “How did we allow this to happen?”’. The answer is that all the mainstream parties can offer is a managerial approach to solving society’s problems. There is so little difference of principle between them that they spend an inordinate amount of time jockeying for position in the febrile atmosphere of the ‘Westminster Village’ in an effort to differentiate themselves. It is no surprise that voters have chosen to give the political elite a kicking at the ballot box, if they could summon up enough enthusiasm to vote at all.
It is this loss of legitimacy - not the highly unlikely prospect of neo-fascist electoral success - which is central to the handwringing. The only way that Nick Griffin and friends will gain more support is if bankrupt mainstream politicians continue to have nothing more to offer than ‘at least we’re not the BNP’.''
(bold emphasis added)
Monday, June 08, 2009
The BBC summarises the results here. The main headline results are of course that UKIP pushed Labour into 3rd place, the BNP won 2 seats and Labour was pushed into 2nd place in Wales by the Tories. The last time Labour failed to be the most popular party in Wales, David Lloyd George was the Prime Minister.
Certainly this is a truly dire result for Labour, an encouraging result for UKIP and a worrying boost for the BNP, but it seems to me there is more going on than that.
Consider the votes for the "established" parties. The Tories, Lib Dems, Labour and, (in Scotland and Wales) the SNP and Plaid Cymru, collectively got 60% of the vote.
40% has gone to UKIP, the Greens, the BNP and a myriad of small parties and independents. In 2004 (summary here), the "established" parties collectively got 66.6% of the vote. If you take just Labour + Tories + Lib Dems the percentage of the vote in 2009 was 57.1% vs 64.2% in 2004. Clearly people have become a lot less inclined to vote for the established parties in these elections.
Also, if we sum the votes for the parties that advocate withdrawal from the EU, that is UKIP + the BNP + NO2EU + the English Democrats + the Socialist Labour Party + United Kingdom First, the total is 27.1%, almost as much as the Tories achieved. Add the Tories' votes, and you have a clear majority (54.8%) voting for parties that are either EU sceptic or outright anti-EU.
Now, consider the Tory vote itself. The Tories will of course be glad to have "won" this election and to have pushed Labour into 2nd place in Wales. However, they polled fewer votes than they did in 2004. The Labour vote has collapsed, with many voters just staying at home and the rest migrating to fringe parties. This election is thus more a rejection of Labour than it is an endorsement of the Tories. The Tories clearly have some way to go to gaining the electorate's trust, though at least they can say their vote has held up well compared to Labour and the Lib Dems as the electorate sidle off to non-mainstream parties.
However, a word of caution must be raised, since the turnout, at 34.2% is very low, lower than the 38% achieved in 2004 and lower than the turnouts for general elections. Indeed this is the prime reason for the BNP's success - in both the regions where it won seats, it polled slightly fewer votes than in 2004, but the lower turnout enabled them to obtain seats as their percentage share was boosted. A high turnout might well have prevented the BNP from gaining any seats. A general election in Britain would clearly see a different picture, more like the picture in the local elections, where Labour were hammered and the Tories obtained 38% of the vote and the Lib Dems held steady.
Wednesday, May 06, 2009
Recent research has estimated the number of MPs in the UK as at least 646, causing many to worry that political activity could be happening on their doorsteps.And:
Campaign leader Michael Carlisle explained ‘These people are by nature devious and evasive. They will never give a straight answer to a question; they mislead the public, claim inflated expenses, send malicious emails and very rarely show any sense of remorse. We need protecting from these people, if you can call them that. The public has a right to know if one is living in the middle of their community.’
Another possibility being considered is thought to be a watered down version of the scheme whereby individuals can check the register to see if prospective partners are MPs before moving in with them. One man, who wanted to remain anonymous, agreed ‘I’d never have moved in with my partner if I’d known she was a politician, or at least I’d have made sure I didn’t claim for porn on her expense account.’
Sunday, March 29, 2009
LORD MYNERS, the minister in charge of the government’s assault on tax havens, has used a blind trust to conceal £250,000 of his own money in an offshore shelter.
Details of the secret holding have been obtained by The Sunday Times as G20 leaders gather in London pledging to stamp out tax abuses.
Myners transferred 500,000 of his own shares in the Ermitage hedge fund, based in Jersey, into a blind trust when he became a minister in October.
MPs described the holding as “blatant hypocrisy” and said it would undermine the credibility of Gordon Brown’s offensive on tax avoidance.
Myners will come under further pressure this week over his role in signing off a £16.9m pension pot for Sir Fred Goodwin, the disgraced former chief executive of Royal Bank of Scotland. Sir Tom McKillop, the former RBS chairman, will hand in a statement to MPs challenging Myners’s version of events.
Company documents obtained by The Sunday Times show Myners held his Ermitage shares as recently as January this year. He concealed the holding from public scrutiny by placing it in a ministerial blind trust. Ministers are not required to disclose publicly the investments transferred to such trusts. He owned the shares while overseeing price-sensitive policy decisions. During this time he met Jersey officials who now say they have “nothing to fear” from any tax haven crackdown.
Last Thursday Myners pledged tough penalties against tax havens. Downing Street officials say a key plank of the G20 summit in London this week will be to impose higher taxes on companies which do business with firms offshore.
Sunday, March 22, 2009
THE government minister in charge of stamping out corporate tax avoidance has himself set up a business in the tax haven of Bermuda. Lord Myners, already under fire for approving Sir Fred Goodwin’s massive pension from Royal Bank of Scotland (RBS), was part-time chairman of an offshore company which avoided more than £100m a year in taxes.
Details of Myners’s involvement in Aspen Insurance Holdings (AIH) have emerged as Gordon Brown seeks to win the backing of heads of government to prise open tax havens at a meeting of the G20 in London on April 2.
Myners, who earned nearly £200,000 from AIH in one year, is also facing questions over share options he accrued during five years as chairman of the Bermuda-based company. Accounts for AIH show that at the end of 2007 Myners held 318,338 share options. On Friday the shares, which are listed on the New York Stock Exchange, closed at $21.64, which would value that stake at £4.8m.
Saturday, March 21, 2009
Exclusive Carbon quango The Energy Saving Trust has come up with a new reason for Britons to save energy in the home. Our power stations will soon close, and you'll need to do your bit.
That's what one Reg reader discovered, after enquiring about the Trust's calculations on the effectiveness of new low-energy bulbs.
"A reduction in electricity consumption will be essential over the coming decade as a large number of power stations are being withdrawn from service, and as a result there is a gap looming between supply and demand," Graham Crocker was told. "More efficient lighting (which accounts for nearly 20 per cent of domestic electricity consumption) will go some way to alleviating these demand pressures." The answer came from Alex Stuart, assistant manager of services of development at the quango.
"This is the first time anybody has acknowledged that new power capacity will not be delivered on time to replace existing capacity," Peter Lilley MP told us.
There's no doubt that Britain faces a looming energy crisis. CapGemini estimates that a quarter of the UK's energy plant capacity will close by 2015. The nation will also see declining oil and gas output from the North Sea. But new, replacement power generation will not arrive in time.
Friday, March 20, 2009
Wednesday, March 18, 2009
It thus appears that anyone who has worked for the EU Commission risks their pension if they dare criticise it.
Lord Mandelson is entitled to the cash because he was the EU's trade commissioner from November 2004 to the middle of last year.
Under the terms of the deal, he will receive an index-linked pension of £31,000 a year when he turns 65. The cost of buying such a deal on the private market would be £550,000.
This is in addition to more than £234,000 of "top-up" salary payments and a £15,000 resettlement fee which he will receive over the next three years.
However, European Union rules show that if he speaks out against Europe as a former Commissioner he could be stripped of his pension altogether.
Documents seen by campaigners show that Lord Mandelson and other Commissioners have to abide by certain obligations "both during and after their term of office".
One of these obligations as a staff member of the Commission is to maintain a "duty of loyalty to the Communities".
The rules also note that "an official has the right to freedom of expression, with due respect to the principles of loyalty and impartiality".
If they fail to demonstrate loyalty to the EU, Lord Mandelson can be "deprived of his right to a pension or other benefits", the rules say.
The TaxPayers' Alliance, the campaign group that has uncovered the threat to his pension, said Lord Mandelson had to resolve this "conflict of interest".
Sunday, March 01, 2009
At the Convention on Modern Liberty, I launched NO2ID's request that everyone at the convention – and around the UK – tells their MP right now that they refuse their consent to having their information shared under any "information sharing order", a power currently being slipped onto the statute books in clause 152 of the coroners and justice bill .I've done it, I urge anyone concerned about this measure to do it.
Please tell yours too. It's important, and urgent – and something that only YOU can do. If you never have before, now's the time to write to your MP – in a letter, or via www.WriteToThem.com.
Jack Straw has been making noises that could signal a 'compromise', but the only acceptable action is to remove clause 152 entirely from the bill. It is not linked to any other clause, despite being sandwiched between other powers and so-called safeguards offered to the information commissioner. It cannot be improved, and Straw can't be allowed to merely "dilute" it. Clause 152 just has to go.
It's imperative that in coming days every MP hears from his or her constituents. Please tell them you refuse consent to having your information, taken for one purpose, arbitrarily used for any other purpose. And ask them to vote clause 152 off the bill.
Sunday, February 15, 2009
The source of this information is Centrica, owner of British Gas, which says that, on present trends, its main reserve will be totally depleted in a little over three weeks. And though extra gas can be imported from Norway and the Netherlands to make up any shortfall, serious breakdowns have hit pipelines from both countries in the past week.
Thus we are told that the crisis reveals an extraordinary failure to plan for the future as supplies of gas from the North Sea have run down, turning Britain into an importer of the fuel. Though now dependent on overseas supplies, it keeps only about a quarter as much gas in reserves as France, Germany and Italy, making it uniquely vulnerable to shortages and price hikes.
As we have observed, though, this is only half the story. The underlying problem is the excessive reliance on gas for electricity generation, a problem that is set to get considerably worse as generators build new gas-generation capacity to fill the gap caused by the lack of a coherent energy policy and the insane emphasis on renewables.
The scale of the current problem though is quite daunting. Three-quarters of the country's reserves are stored by Centrica in an old North Sea gas field, called Rough, some 9,000ft below the seabed off the East Yorkshire coast.
This year – thanks largely to
global warmingthe cold weather – its gas has been pumped at record rates. It is now 24 percent lower than at this time last year, and 49 percent less than the year before. Everything depends on the weather and the Met Office expects the cold back by the beginning of March. On past form, that means we should be alright, but you never know. The Met Office could break the habit of a lifetime and get it right.
So amid all the doom-mongering and recanting, I have an assertion to make. The market has not failed. The present collapse is evidence that the market is working. Confidence bubbles are an inherent feature of a free market system. Panics — confidence vacuums — are an inherent feature too. The test of the theory of market capitalism is whether the system provides from within itself the means to prick both.
It does. The first — a confidence bubble — has been pricked. We are now sucking ourselves the other way: into a confidence vacuum. In time this too will be pricked. The market will steady.
The bubble that has just burst was based, worldwide, on financial services. Financial services are a product. It is true they are a product critical to the efficient functioning of the market (so is electricity, so is oil) but that just makes them an unusually important product. From time to time products fail in any market. They may fail through force majeure — droughts, floods, pestilence. They may fail due to inherent flaws — airships, Thalidomide, blue asbestos. Or they may fail through ignorance, trickery or the credulity of human beings — Madoff, the property bubble, the repackaging of sub-prime debt.
The present financial crash has been precipitated by product failure of the third kind. Trade in financial instruments too opaque for even those who traded in them to assess them properly, and bonus incentive schemes that acted against the interests of the companies offering them, fuelled a banking bubble that has now burst.
But ask: what pricked it? Did politicians rumble the trade? Did governments, or international forums or symposiums, provide the sharp instrument? Did academic research and expertise expose the dodgy product? Did statutory regulators apply the pin? No, the free market wised up and pricked this bubble. Politicians and finance ministers (if they had had the power) would have tried to keep it inflated. The market puffed itself up, and then, without intervention — despite intervention — the market let itself down. The speed with which this has happened has been awful, but however inconvenient for many or catastrophic for a few, correction is not a failure of the market, but a success.
10 Privacy Settings Every Facebook User Should Know is an informative look at how you can tailor your Facebook settings to protect your privacy. There's more to those Facebook settings than you might realise.
Saturday, February 07, 2009
The minimum amount of money that employers must pay staff they make redundant is set to be increased by the Government, The Independent has learnt. In another attempt to ease the pain of those worst affected by the recession, ministers have launched a review of the minimum payments to which people are entitled by law when they lose their job. With around 1,500 posts being axed each week, unemployment will soon pass the two million mark and could eventually rise to more than three million.Certainly, for those made redundant, an increased redundancy payment will help them get through their period of unemployment. However, as Guy Herbert points out, this is not the only impact such a measure has.
The plan emerged on the day that the Bank of England reduced interest rates to 1 per cent, the lowest in its315-year history, and warned of a "severe and synchronised downturn" in the global economy.
At present, statutory redundancy pay is based on a week's pay for each full year's service between the ages of 22 and 41, and one-and-a-half week's pay for older workers. Total payouts are capped at £7,000 and £10,500 respectively because wages above £350 a week and service of more than 20 years are ignored. Some 46 per cent of the workforce earns more than £350 a week. But Lord Mandelson, the Business Secretary, plans to propose a more generous scheme in his submission to the Chancellor Alistair Darling ahead of the Budget this spring.
Although no decision has been made, a big one-off rise in the £350-a-week limit is under consideration.
Other options include lowering the qualifying period for redundancy payments from two years' service to one year, and raising the tax-free limit for more generous pay-offs. Since 1988 the first £30,000 has not been subject to tax, but the TUC wants it raised to £50,000. However, ministers may decide to focus any help on lower-paid workers by boosting minimum payments.
MPs and unions have launched a campaign for higher payoffs because the maximum pay figure used in the formula has declined from 203 per cent of average weekly earnings when the scheme was launched in 1965 to 56 per cent today. They want the limit linked to earnings rather than inflation in future. But employers are warning that at a time when many firms are desperate to keep costs down, bigger payouts could result in more job cuts.
There are several negative effects from such a move:
- If a firm is considering making redundancies in order to cut costs, then an increased redundancy payout will encourage them to lay people off earlier than they otherwise would - if they were to employ the person for a longer they have to pay them their wages plus the redundancy payout. In marginal cases, this can make the difference between an employer holding onto a worker during the recession and letting him go. E.g. employers who try to hold onto someone until business picks up will find it more risky to do so - the cost of holding on to someone only to let them go if things don't go as well as expected will have gone up.
- The measure effectively increases the cost of labour by increasing the overheads associated with employing someone. It will thus make employers more averse to hiring people in the first place.
- By increasing the costs businesses incur, they also increase the risk of the business failing completely and being unable to make redundancy payments.
The only people to benefit from this are those who would have been made redundant anyway, and even there, by making employers more averse to hiring, this benefit may be offset by prolonging the period of unemployment.
A further point: By announcing that minimum redundancy payment increases are being considered, the government is encouraging any company considering making people redundant to do so before any such changes are made.
I wonder if the government consider such issues before pronouncing on something.
There is a saying that 85% percent of statistics are made up on the spot. The EU Referendum blog has noted 300,000 is a common figure occurring in official or political announcements. The aforementioned saying couldn't possibly explain this pattern could it?
Saturday, January 31, 2009
From "The Crunch", by Alex Brummer, pages 42-43:
To get an idea of how all this worked in practice, and to understand why it was built on such shaky foundations, take the fictional example of Mr and Mrs Jerome Smith of downtown Cleveland. They are persuaded by Fast Talking Mortgage Brokers Inc. (FTMB) to buy their shabby clapboard property with a $100,000 mortgage. The interest rate of 10 per cent is being waived for the first two years. In fact, interest has not been forgiven but is being rolled up with the original mortgage, increasing the debt to $120,000. FTMB, having taken an arrangement free from the Smiths, then sells on the mortgage to Grasping Investment Bank (GIB) of New York, which pays the broker a commission for the mortgage. GIB wraps up the Smiths' loan with dozens of other loans to other Smiths from poor neighbourhoods around the country and renames it Smith Mortgage Obligation (SMO), and then pays its favourite credit rating company, Stamped & Correct, to certify the SMO as good quality debt. The attraction of this SMO is its 10 per cent return at a time when government bonds are getting between 2 and 3 per cent.Thus not only are mortgages given to people who are likely to find it difficult to pay them, but they are rated on a dubious basis, responsibility for them is diffused amongst several players, proper accounting of the debt is obscured by creating the special purpose vehicle and extra borrowing from banks is used to facilitate the whole process. It seems to me this process was bound to hide the riskiness of the mortgages from the investors.
But rather than selling SMO directly to clients, GIB takes another route. It creates a new company --- a special purpose vehicle called GIB Capital --- and this borrows from other banks cheaply and uses the money to buy Smith Mortgage Obligation. GIB then offers shares in GIB Capital, now the proud owner of SMO, to clients, who lap up the shares because of the high return.
Grasping Investment Bank benefits from the process in several ways. It has collected profits and commission on the sale of the SMO and also benefits from leverage (borrowing) because it is using someone else's money. GIB has also cleverly placed the SMO off its balance sheet in the special purpose vehicle, which it does not have to disclose on its accounts as a liability. It can stretch its capital further and will not have the regulator on its back.
Note that SMO in this scenario is an example of a collateralized debt obligation.
Wednesday, January 21, 2009
[Update: Details of the Blogger's Summit are now up at the Convention website]
Sunny Hundal, blogging at Liberal Conspiracy, has posted his own take on the Convention on Modern Liberty. In particular he highlights the panel discussion for bloggers:
So, what does this mean for you?In my view the Convention has the potential to be a turning point leading to the halting and reversal of the erosion of civil liberties over the past 10 to 15 years in the UK. If people think hard about what needs to come out of the Convention, as Sunny suggests here, it will help to ensure that the Convention will become such a turning point.
openDemocracy have been kind enough to offer a special panel discussion for bloggers, which will be organised by Liberal Conspiracy. I would like to give an activist feel, not just a space for a calm talking-heads discussion with people coming out more frustrated than they went in.
Over the coming weeks, we need to ask:
- how we should look at privacy differently;
- how different powers affect our liberties, uniting football fans, clubbers, Muslims and even technologists.
- what can be done about it.
Ideally, I’d like to see a situation where, by the time we get to the event, we are looking to get organised and move forward, not just reiterate the issues that could have been discussed online anyway.
[Thanks to Guy Aitchison for alerting me to Sunny's article.]
Saturday, January 17, 2009
I posted earlier about the Convention on Modern Liberty on the 28th February 2009.
The venue and draft programme of the Glasgow Convention are now up. The venue is: Institute of Advanced Studies, University of Strathclyde, James Weir Building, 75 Montrose Street, Glasgow G1 1XJ.
Details of the Belfast Convention are also up now.
Sunday, January 11, 2009
Guido Fawkes' blog spotted this last year. The offending section of the Banking Bill states:
The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet – a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 which originally granted the Bank the sole right to print UK money.
The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.
However, some have warned that it means: "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."
Section 6 of the Bank Charter Act 1844 states:
Section 6 of the Bank Charter Act 1844 (Bank to produce weekly account) shall cease to have effect.
It's clear that the Banking Bill does remove the obligation to produce a weekly report on how much money the Bank of England issues. It therefore enables this information to be legally withheld from scrutiny, and thus enables the BoE to issue money covertly (at least until any other required reporting mechanisms come into play). The question then is:
6. An account of the amount of Bank of England notes issued by the issue department of the Bank of England, and of gold coin and of gold and silver bullion respectively, and of securities, in the said issue department, and also an account of the capital stock, and the deposits, and of the money and securities belonging to the said governor and company in the banking department of the Bank of England, on some day in every week to be fixed by the [F1 commissioners of inland revenue], shall be transmitted by the said governor and company weekly to the said commissioners, in the form prescribed in the schedule hereto annexed marked (A.), and shall be published by the said commissioners, in the next succeeding London Gazette in which the same may be conveniently inserted.
Why would the bill include such a measure if they didn't at least want the option to be available?
Saturday, January 10, 2009
Virginia Postrel, writing for the Atlantic magazine, discusses experiments some economists have been running that seek to provide insight into the behaviour of financial markets.
The basic idea is simple. You offer the subjects investments which provide 15 regular dividends of $0.24 during the course of the experiment (alternatively you offer a range of possible payments that average $0.24). The subjects then trade those investments with each other. There are 60 rounds of trading, with dividends paid every fourth round.
In theory, no one should pay more than the expected value of the investment at each round of trading, namely the amount of money that is still left on that dividend. At the start, this is $3.60. After the first payment, it falls to $3.36 and so on. This is not what happens. Postrel writes:
Here, finally, is a security with security—no doubt about its true value, no hidden risks, no crazy ups and downs, no bubbles and panics. The trading price should stick close to the expected value.
At least that’s what economists would have thought before Vernon Smith, who won a 2002 Nobel Prize for developing experimental economics, first ran the test in the mid-1980s. But that’s not what happens. Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, Noussair emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time.
So much for security.
Why should this be? Postrel suggests:
Why can't I do the same thing with non-financial goods and services?
Experimental bubbles are particularly surprising because in laboratory markets that mimic the production of goods and services, prices rise and fall as economic theory predicts, reaching a neat equilibrium where supply meets demand. But like real-world purchasers of haircuts or refrigerators, buyers in those markets need to know only how much they themselves value the good. If the price is less than the value to you, you buy. If not, you don’t, and vice versa for sellers.
Financial assets, whether in the lab or the real world, are trickier to judge: Can I flip this security to a buyer who will pay more than I think it’s worth?
My suggestion is as follows. Obviously, for some cases, it is simply not possible (I cannot sell my haircut onto someone else!). In most cases people will buy something in order to use it (rather than to sell it on) and what they will pay for a good limits what anyone else will pay for the good in order to sell it on. In markets where people regularly sell things second hand (books, computers, cars, etc) they do not expect to get the price they got for the new product.
In these cases a used product has less value than an unused product - it may be less shiny, it may have developed some faults, and its lifetime will be shorter than for a new product. The same cannot be said of financial products such as shares or futures. The fact that someone owned a share before I did does not, by itself, devalue the share.
Thus bubbles seem to be an inherent feature of financial markets. Those who profit most buy early and sell midway through the bubble:
In an experimental market, where the value of the security is clearly specified, “worth” shouldn’t vary with taste, cash needs, or risk calculations. Based on future dividends, you know for sure that the security’s current value is, say, $3.12. But—here’s the wrinkle—you don’t know that I’m as savvy as you are. Maybe I’m confused. Even if I’m not, you don’t know whether I know that you know it’s worth $3.12. Besides, as long as a clueless greater fool who might pay $3.50 is out there, we smart people may decide to pay $3.25 in the hope of making a profit. It doesn’t matter that we know the security is worth $3.12. For the price to track the fundamental value, says Noussair, “everybody has to know that everybody knows that everybody is rational.” That’s rarely the case. Rather, “if you put people in asset markets, the first thing they do is not try to figure out the fundamental value. They try to buy low and sell high.” That speculation creates a bubble.
In fact, the people who make the most money in these experiments aren’t the ones who stick to fundamentals. They’re the speculators who buy a lot at the beginning and sell midway through, taking advantage of “momentum traders” who jump in when the market is going up, don’t sell until it’s going down, and wind up with the least money at the end. (“I have a lot of relatives and friends who are momentum traders,” comments Noussair.) Bubbles start to pop when the momentum traders run out of money and can no longer push prices up.Does this mean that no one is to blame for the "credit crunch"?
Well there's more to this story. After a few repeats of the experiment with the same subjects, you no longer get bubbles. This is not because the participants learn the true value of the dividends though:
But work that Noussair and his co-authors published in the December 2007 American Economic Review suggests that traders don’t reason that way.There is a twist here. The traders end up with behaviour that is optimal for a given environment. Change this environment and their experience may no longer apply. Indeed further experiments confirmed this:
In this version of the experiment, participants took part in the 15-round market four times in a row. Before each session, the researchers asked the traders what they thought would happen to prices. The first time, participants didn’t expect a bubble, but in later markets they did. With each successive session, however, they predicted that the bubble would peak later and reach a higher price than it actually did. Expecting the future to look like the past, they traded accordingly, selling earlier and at lower prices than in the previous session, hoping to realize a profit before the bubble burst. Those trades, of course, changed the market pattern. Prices were lower, and they peaked closer to the beginning of the session. By the fourth round, the price stuck close to the security’s fundamental value—not because traders were going for the rational price but because they were trying to avoid getting caught in a bubble.
“Prices converge toward fundamentals ahead of beliefs,” the economists conclude. Traders literally learn from experience, basing their expectations and behavior not on logical inference but on what has happened in the past. After enough rounds, markets work their way toward a stable price.
In research published in the June 2008 American Economic Review, Vernon Smith and his collaborators first ran the standard experiment, putting groups through the 15-round market twice. Then the researchers changed three conditions: they mixed up the groups, so participants weren’t trading with familiar faces; they increased the range of possible dividends, replacing four possible outcomes (0, 8, 28, or 60) averaging 24, with five (0, 1, 8, 28, 98) averaging 27; finally, they doubled the amount of cash and halved the number of shares in the market. The participants then completed a third round. These changes were based on previous research showing that more cash and bigger dividend spreads exacerbate bubbles.One can draw various implications from this. Postrel mentions two:
Sure enough, under the new conditions, the experienced traders generated a bubble just as big as if they’d never been in the lab. It didn’t last quite as long, however, or involve as much volume. “Participants seem to be tacitly aware that there will be a crash,” the economists write, “and consequently exit from the market (sell) earlier, causing the crash to start earlier.” Even so, the price peaks far above the fundamental value. “Bubbles,” the economists conclude, “are the funny and unpredictable phenomena that happen on the way to the ‘rational’ predicted equilibrium if the environment is held constant long enough.”
- That people should beware markets where lots of cash chases a few good deals. Presumably she has in mind the research showing that increasing the amount of cash increaases the risk of a bubble occurring.
- That big changes in the financial markets can cause bubbles even with experienced traders since their knowledge is no longer valid.
Both Postrel and Charles R. Morris, author of The Trillion Dollar meltdown, point out that the cutting of interest rates by the Federal Reserve frees up more cash to buy financial instruments. Morris blames Greenspan for cutting interest rates and keeping them low during the 2000s, thus causing a flood of cash into the financial markets. The findings reported in Postrel's article suggest he might have a point.
However interest rate changes are only part of the story. There are other forms of state intervention in the market and there were other factors feeding into the bubble (e.g. trading in new, complex financial instruments came to dominate the markets for example, as Morris shows). I hope to cover these other aspects in later posts.
This video highlights one of the problems that the National Identity Scheme(NIS) is likely to make worse.
Whilst the above scenario could happen (I think it is quite likely to happen), the following have happened and involve similar problems with existing government databases:
- Tax office worker passes address of battered wife on to ex-husband.
- Doctors betray forced marriage victims to their families.
The NIS will make these problems worse by requiring people to register changes of address (on pain of penalties upto £1000), by storing data in one central database accessed by all public bodies and by facilitating the cross-linking and sharing of data by those public bodies.
Thursday, January 08, 2009
A question I have regarding the current financial/economic woes being attributed to the "credit crunch", is this: Why did the money lenders give out loans on easy terms to people who were likely to default on them? The prime example of this is the so-called ninja loan.
Providing an answer to this question (in terms of the decision making of those managing the loans) is perhaps the most useful aspect of "The Trillion Dollar Meltdown", by Charles R. Morris, a US centric examination of the credit crunch. By explaining complex financial instruments such as collateralized debt obligations (CDOs) and credit default swaps, Morris illustrates how several factors drove the accumulation of toxic debt:
- The originators of loans would simply end up selling them on, thus weakening their dependence on the ability of the borrowers to pay the loans back.
- The subsequent handling of the loans was then split up amongst many different parties, aggravating what Morris describes as the "Agency problem", the problem of ensuring that an employee, contractor or other party performing a service for you does not act against your interests.
- There was increasing reliance on complex, mathematical constructs to guide investment decisions. The models the constructs were based on only imperfectly modeled the real world and break down in times of economic stress.
The originators of loans were incentivised simply to sell as many loans as they could, since they were no longer dependent on the loans being paid off. They'd simply be paid for arranging the loans in the first place.
The people who were subsequently managing the loans, and thus had an interest in ensuring they didn't buy too much risky debt, were those trading in the financial instruments. The complexity of the instruments (combined with optimistic ratings by the credit rating agencies) obscured the real risks from those people.
This is by no means the full story, since one also has to consider the legal/institutional framework within which this was taking place. For example, there is the role of financial regulators and other forms of government intervention in the financial system to consider as well. There is also the behaviour of the borrowers to consider too.
Morris does address the role of the financial regulators in the US. He blames Alan Greenspan for keeping interest rates low thus enabling a sustained period of cheap credit to develop, and he also blames "free market" ideology and financial deregulation. However here I find him less convincing. My main point is that in many significant respects, the financial system is not a "free market". For example, the very fact that the Federal Reserve has a monopoly on printing money and sets interest rates shows we're not talking about a "free market".
Moreover, Morris himself argues that the financial services sector in the US enjoys "inordinate privileges", pointing out for example that in a free market, a sector that takes high risks, like the financial sector does, would occasionally endure periods of big losses, as well as enjoying periods of high profits. But while the industry certainly enjoyed the high profits, its losses are often offset by government bailouts (NB: Morris was writing before the recent bailout programmes announced by Western governments).
Morris cites an example where Countrywide was paid $22 billion by the Atlanta Federal Home Loan Bank when they incurred losses that were likely to lead to insolvency. Providing bailouts to loss making companies is most definitely not a "free market" approach. Nor is it a "free market" when a privately run student loan organisation gets subsidies from the state (to take another example Morris criticised). The privileges enjoyed by Freddie Mac and Fannie Mae (the two big mortgage providers in the US) are also incongruous with a "free market" approach, and the role of these privileges in the credit crunch is not examined by Morris.
My point here is not to argue for the "free market" but to suggest that blaming "free market" ideology for failures in a system that enjoys considerable state intervention that goes beyond merely setting the rules of the game is perverse, especially when you simultaneously argue that some of the interventions directly contributed to the failures concerned!
Overall, the book may well prove useful to people wishing to understand the behaviour of the lenders in the credit crunch, but Morris's attempt to blame it all on "deregulation" and the "free market" going too far is not convincing.
Saturday, January 03, 2009
The Convention on Modern Liberty is a convention being organised for the 28th February 2009. To quote from the website:
"A call to all concerned with attacks on our fundamental rights and freedoms under pressure from counter-terrorism, financial breakdown and the database state"This looks like it will be an interesting set of events, with conventions planned in London, Belfast, Birmingham, Cambridge, Glasgow, Manchester, Southampton and Swansea.
I'll post more news when I get it.