All posts by John Band

In which your host is proved right

Every prediction I made in this piece from 2005 on 24-hour drinking has proved to be correct: on-trade alcohol consumption has fallen, levels of alcohol-related crime haven’t changed; pubs haven’t made any extra money; but puritan idiots have continued to rail against the rule change anyway.

The most offensively stupid puritan argument is that ’24-hour drinking hasn’t cut violent crime, so it was a failure’. No – the point is, it means that law-abiding people can go out for a drink without having to obey insane rules created to stop soldiers in the trenches getting jealous of civvies back home during WWI. That is a good thing in its own right. If drink-related violence had risen, we’d need to weigh the good against the bad. Since it hasn’t, we can say that the licensing law changes are an unequivocally good thing, and crack open some booze to celebrate. Hurrah!

(it’s also worth noting that on this issue, the Tories are lying crooks who should be run out of town on a rail. Quelle surprise…)

Evidence-based policymaking

Quoth our illustrious mayor (via):

I am informed that, thankfully, there have been no fatal accidents arising from collisions between cyclists and articulated buses in London since the introduction of articulated vehicles.

Serious incidents are defined by TfL as those where a cyclist may have required treatment, including in hospital. There was one serious incident involving a cyclist in each of the years 2005/06 and 2006/07, and two in 2007/08.

In other words, the data collated by TfL and accepted by the mayor clearly shows that bendy buses are not dangerous for cyclists.

As Tom from Blairwatch says,

At this point you checkmate him by pointing to the reams of documentation on gyratory systems and perceived cycling safety, particularly referring to Parliament Square, Elephant and Castle, Aldgate etc.

Indeed. The mayor isn’t pro-cycling; if he were, then he wouldn’t be adjusting the traffic flow to make cars faster and more dangerous, or pretending that something completely harmless to cyclists is a threat to them. He’s a traditional Tory ideologue, who hates public transport, urbanites and the poor, and loves cars, suburbanites and the wealthy, wearing an extremely skimpy green veil.

The implications for the next Westminster elections are pretty obvious. I can understand wanting to get the current lot out, and I can understand the argument that a Tory government might be less bad than the plausible alternatives. But if you’re voting Tory, don’t delude yourself they’re some kind of NuLabLite and that all you’re opting for is a change of leader – they’re still the party of Michael Howard and Mrs Thatcher, and a vote for them is an endorsement of the whole Thatcherite project.

(I might be being unfair – it’s just about possible that the mayor has no understanding of evidence-based policymaking, and genuinely doesn’t realise that the statistics are a bloody good reason to cancel his hare-brained scheme. I’m not sure that hoping the future PM is merely an idiot rather than a dishonest ideologue is a wonderfully optimistic position to be in, though…)

I endorse this product and/or service

While I’ve spent a few days been being assortedly sunburned, rained upon, terrified and crushed on our fine inland waterway system, dsquared has sort-of-broken his ‘not commenting on the current crisis’ rule. Read it.

Yes, of course there’s some TWST, WT? to it, but the conclusion that Western banks’ loans exceed their deposits because the decision was taken at a macro level (and a long time ago) for Western economies’ imports to exceed their exports is pretty hard to deny. Even if it’s not as satisfying as saying ‘those bastards in Canary Wharf stole our money’.

It’s not about the Scots, it’s about the institutional memory

So, we’ve been talking about the UK side of the banking crisis on Crooked Timber, and the discussion has taken a mildly anti-Scottish turn.

Now, that’s just wrong – although three of the UK’s largest retail banks pre-crisis were technically Scottish companies (Lloyds TSB, HBOS and RBS), only RBS was genuinely run out of Scotland by a Scottish management team. HBOS was, in all meaningful rather than purely legal senses, created by Halifax’s takeover of Bank of Scotland, just as Lloyds TSB was created by Lloyds’s takeover of TSB.

However, it does lead onto an interesting alternative point: if you take ‘failure’ to mean ‘bankruptcy, administration or emergency takeover for a token fee’, then all the major failed UK banks (RBS, HBOS, A&L, Northern Rock, B&B) are non-London banks – and all of the major non-London quoted banks (the Co-Op is, err, a co-operative) have failed.

Yes, two of the London banks are emerging markets banks that happen to be British-based for historical and cultural reasons (sure, HSBC has a UK presence, but it could nonetheless be closed tomorrow without destroying the group, while Standard Chartered doesn’t even have that), and therefore haven’t been significantly squeezed by the problems faced by UK mortgage banks. Still, Barclays derived 40% of its 2007 revenues from UK retail and commercial banking and doesn’t appear to have been wiped out, while Lloyds TSB is almost exclusively a UK retail bank [*].

Another point made on the thread is that the failed banks, aside from RBS, are primarily demutualised building societies, failing on their both home turf and their desired new ground and dying as a result – like Stringer Bell. But that doesn’t explain why the London former building societies (Abbey/Santander and Woolwich/Barclays) sold out to banks for large premiums when they had the chance, while all the regional ones kept going, or selling themselves to other former building societies for stock, until they hit the ground.

Update: Daniel points out that Abbey actually managed to post a massive loss and destroy value whilst property was still booming and money was cheap, after its US wholesale loans business went titsup in 2002, and that this was a driver behind the 2004 Santander takeover. While this is true, the bank was still worth £10bn and was still a viable independent entity at the time of the buyout – to me that’s not quite in ‘failed bank’ territory…

My theory, for what it’s worth, is that the biggest driver for UK bank success/failure was indeed buiilding society demutualisation, which created institutions that had to answer to external shareholders but didn’t have the real banks’ long history of having to balance liquidity risk and shareholder expectations. Lloyds, HSBC and Barclays have long institutional memories of previous bubbles, crashes and disasters; the former building societies don’t. So the first lot could resist the pressure from shareholders to crank up risks for greater returns, while the second lot couldn’t.

The theory has two main flaws: it doesn’t cover RBS, and it doesn’t cover why the London former building societies sold out when things were good.

I think they’re vaguely related: RBS, with its ‘swashbuckling plucky raider’ image, led the path down which the other demutualised banks followed.

The people involved genuinely thought they were creating a new model of UK financial services with London no longer at the centre – and for the former building society guys, the fact that a real bank with a 350-year history was doing the same kind of geared expansion (international acquisitions rather than domestic mortgage share, but it was still buying revenue with risk) vindicated their model.

Meanwhile, the London demutualised guys, with more contact with the established industry and no comparable sense of regional pride, viewed themselves as second-tier London banks who did exactly the same thing as the serious players but slightly less well – and therefore accepted large wodges of cash to sell to people who knew what they were doing as soon as it was in their shareholders’ interests to do so.

The one bit I don’t quite understand is why RBS behaved like a comedy bank instead of a serious one. Well, “shareholders blinded by charismatic guy who gets excellent returns when things are good, and who says that his brilliant ideas have transformed the company so that old concerns about recession are no longer relevant” probably has some relevance, but that shouldn’t be enough. Were Edinburgh’s business establishment so enthused by the concept of a real national champion that they overlooked the risks RBS was running? Or were the big London banks just lucky, and in fact RBS was a ‘but for the grace of God’ play?

[*] the theory falls apart if you think Lloyds is taking the current round of government capital because it’s in trouble. My view is that it’s taking it so that it can get HBOS’s assets for next-to-nothing and ensure it remains as liquid as it currently is no matter what happens. That could be spin – but if so, then Lloyds’ City PR firm deserve every penny they’re getting and more.

Just in case…

I’m doubtful that RBS will fail, despite some informed commentators’ beliefs to the contrary.

However, in the event that it should collapse, I’d like to be the first person to suggest that the Deloitte partner who led the BCCI liquidation would be an excellent choice of administrator…

Update: fail prediction FAIL. If the government is forced to take a majority stake in your company, you’ve failed.

Modest proposal

Mark W has an excellent idea for getting the bank bail-outs off the government’s books:

Gummint invests £50 billion in new bank shares.

AIH, gummint spending is about £50 billion per month.

Solution: for the next one month, all public sector salaries, welfare and pensions payments etc will be paid in bank shares!

Truly, a plan with no drawbacks…

In other ‘don’t panic’ news…

rates are still looking pretty good on UK government bonds, so even after the financial bail-out the government has plenty of room to borrow for infrastructure investment.

The only danger is if politicians bow to the pressure from “let’s turn this recession into a depression because we hate Keynes” maniacs and don’t take advantage of the opportunity…

Anything the global financial system can do, local government can do worse

Individuals who lost more than £50,000 in the Landsbanki collapse certainly let greed get in the way of good sense, and certainly don’t deserve the generous bail-out terms that the government has given them. However, that pales into insignificance compared to the 20+ local councils who’ve lost tens of millions between them in Landsbanki deposits. And who won’t get a penny back, as compensation schemes for bankrupt banks only protect retail investors.

These organisations actually have people employed with financial qualifications in working out what to do with their money. And it’s not like they haven’t been burned before by the collapse of a dodgy bank that just happened to be the highest interest payer (if it is in fact possible to work in local government finance without being told about the BCCI collapse and its knock-on effect for councils, then there’s a systemic problem in that everyone in the entire industry is completely inept).

It’s unfortunate that local taxpayers can’t recover the missing assets from the idiots in question, and the councillors who’ve singularly failed to oversee them (and who, I’m willing to stake near-Landsbanki-style amounts of money, will be more or less equally drawn from the ranks of the major parties).

Update: The Daily Mash calls it right: “oh fuck, we meant ‘Luxembourg'”…