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$27 million a year is a bargain price to buy a government

August 21, 2014 Leave a comment

It’s been Good Times Online as Crikey gets hold of a copy of News Australia’s detailed management accounts for fiscal year 2012-13 (I’ve uploaded a copy here, since the Crikey version, hilariously, is paywalled).

As a way of demonstrating its commitment to journalism, News has threatened to sue anyone who reports on the topic. The fact that The Australian loses $27 million a year (almost as much as the Guardian, despite being a barely-read Canberra local paper rather than a major global news organisation) has been noted as particularly hilarious.

If you try and frame The Australian as a newspaper in the traditional sense, of using content to sell readers to advertisers, then the level of fail here is baffling. News is a private company, not a charitable trust dedicated to furthering the cause of journalism. The continued existence of The Australian (and the continued employment of its coterie of gibbering morons at an average wage of $174,000) is a mystery.

But I don’t think that’s what’s going on. The News Australia accounts show that the actual value in News Australia comes from its pay-TV businesses.

News Australia’s profit for FY12-13 was $367 million. Its share of profit from pay-TV (Foxtel, Fox Sport and Sky New Zealand) was $230 million. Add in REA (which runs realestate.com.au)’s $146 million profit, and you’re already above total group profit. The newspapers in total – even including the profitable regional tabloids – contribute less than nothing [*].

That breakdown isn’t entirely fair, since it ignores $75 million of parent company costs – which are mostly, but not wholly, newspaper focused – and also $40 million of amortisation costs related to the Foxtel stake (whose accounting treatment I don’t understand). But it makes clear where the financial heart of the business lies, and it’s not in dead trees, or even their digital equivalents. It’s in having a monopoly on pay-TV delivery in Australasia.

Hell, it’s probably the only business of any real worth in the whole of News Corporation, since its assets outside Australia now consist solely of dead-tree businesses.

What are the ongoing risks and opportunities for pay-TV? Well, the biggest opportunity is in gouging people out of even more money for it, and the biggest risk is that people stop subscribing to it. Both of these depend mainly on government: the more draconian copyright legislation is, the more stringently it is enforced, the harder it is for you to just get things from Netflix and iTunes, the more crippled the ABC is, and the slower your broadband Internet is, the more value Foxtel has.

So that’s what The Australian is for. When you’re defending $230 million of annual profit, paying $27 million a year to shape the opinions of Very Serious People in Canberra regarding copyright law, competition law and telecoms policy isn’t a bad investment at all.

[*] per pages 3, 13 and 14 of the accounts. These are complicated by the fact that stakes in the various businesses changed over the year, with some some Fox Sports revenue counting as operating income and some as income from investments.

Only sentimentalism could have saved the Australian car industry

February 12, 2014 Leave a comment

There is much wailing and gnashing of teeth over the news that Toyota will follow its fellow foreign-owned carmakers GM Holden, Ford and Mitsubishi in ending car assembly in Australia. But at least from an economic point of view, there shouldn’t be.

The basic problem for the Australian car industry has nothing to do with unions or pay rates, despite the government’s outrageous lies to the contrary. It’s far simpler than that. Australia is a country of 23 million people, with a new car market of just under a million a year, while car manufacturing is an industry with massive economies of scale where the most efficient factories have annual production levels of more than half a million a year.

Less than half as many cars per worker…

Nissan Motor Manufacturing UK in Sunderland, which is famed for being one of the most productive plants worldwide, is about to increase production from 500,000 to more than 550,000. To knock out those half a million cars, NMMUK employs 6,000 people, and supports around 23,000 jobs in the UK supply chain. So that’s about 80 cars per worker (labour is not the whole story, but it’s a tolerable proxy, and accurate job data is easier to find than full input cost data at plant level).

Toyota Australia employs 2,500 people to produce 100,000 cars year, which is about 40 cars per worker. In the rest of the industry (as of now-ish, before Ford and Holden begin their shutdown), 1200. So carmaking in Australia employs 6600 people directly, for a total of 220,000 cars per year, or about 33 cars per worker (as you might have expected, Holden and Ford are less efficient than Toyota).

Scaling the supply chain in line with NMMUK employment (i.e. assuming Australian suppliers are as inefficient as Australian carmakers) would suggest that about 25,000 supply jobs will be lost when the Australian industry shuts down. Scaling it in line with Nissan output (i.e. assuming Australian suppliers are just as efficient as UK suppliers), you’d assume about 10,000 jobs will be lost.

…and 21,000 jobs, not hundreds of thousands

Data from IBISWorld suggests the actual number of jobs in the industry at risk is about 15,000, somewhere in the middle. So the total number of job losses when the car industry shuts down, including knock-on effects, will be about 21,000 [*]. This is roughly equivalent to the number of public servant jobs the federal government is currently cutting.

(the number of Australians in employment is 11.6 million, as of December 2013; the number of unemployed Australians is 716,000).

These 21,000 jobs are being lost because the Australian car market isn’t large enough to support an efficient domestic carmaking industry, even if every single car Australians bought were manufactured domestically. A large, remote, resource-rich and wealthy island of 23 million people has more productive uses of time and resources than subsidising industries that require greater scale than can possibly be achieved domestically, and where we’ve never excelled at exporting. Economically speaking, we would do better to buy new cars from South Korea, import second-hand cars from Japan, redirect the labour and capital involved towards things we are good at, and spend the subsidy money on things that we actually need.

But whence will come the V8 Supercars of the future?

Economics isn’t the whole story. It’s possible that having a carmaking industry is so important to Australia’s wider culture and self-image that it is worth protecting, whether by direct taxpayer subsidy or by higher import tariffs (which are a tax on everyone who buys a car, whether it is domestic or foreign-made). If Australia agrees as a society that this is the case, then continuing to subsidise carmaking is a completely legitimate decision – just as is the case for the large subsidies that go to farmers.

But if you think that the car industry has closed because wage rates are too high, you are wrong, and you believe the toxic bullshit the Liberals are seeking to peddle in order to erode everyone’s employment conditions. If you think that the decision to stop subsidising inefficient lossmaking industries will cost Australia money, you are wrong, and you believe the economically illiterate bullshit Labor is seeking to peddle in order to bash the Liberals. The only grounds on which to support a domestic car industry are sentimental grounds.

[*] Wider estimates of up to 200,000 job losses have been published in various ‘newspapers’. These are lies.

Why the G4S Olympics screw-up proves that outsourcing is good

July 17, 2012 10 comments

Everyone seems very upset about the fact that private security firm G4S has not delivered as many guards as contracted to police the white elephant that is Sports Day 2012, with many people suggesting it’s an example of why outsourced contracts are terrible . I’m not sure they should. Let’s rewind on what’s happened here…

G4S was contracted by the London Organising Committee of the Olympic and Paralympic Games (LOCOG) to deliver 2,000 security guards, as part of total security staffing of 10,000 people. The requirement for private security was increased to 10,400 out of 23,700 in December 2011 for reasons that were left obscure at the time, but can be presumed to be down to some combination of fear of imaginary terrorists and the desperate need to prevent people bringing in off-brand merchandise.

The company agreed to the increase, having its existing GBP86m contract value increased to GBP284m. It then carried out 100,000 job interviews over the following six months for staff, but failed to find enough people available at the right time and willing to take the work. Eventually, it had to admit that it had massively screwed up by taking on a near-impossible task, was not able to meet the 10,400 requirement, and LOCOG (presumably with government help) has instead brought an unspecified number of police and 3,500 soldiers  in to make up the shortfall.

While detailed contractual arrangements for the G4S deal haven’t been published, people familiar with LOCOG say that its Olympics contracts generally contain two separate contractual penalty elements: 1) payment by results, so if you don’t deliver, your pay is scaled back; 2) reimbursement for the costs of getting someone else to finish the job if you can’t.

So we can reasonably assume, in the absence of evidence to the contrary, that G4S is getting its pay scaled back and paying for the police and soldiers to step in. There’s a standard rate of GBP55 per hour at which cops are billed out to festival organisers; while I’m not sure the Army makes itself available for hire on quite the same basis [*], the soldiers presumably should command something similar.

This double hit – less pay and much higher costs, offset by much smaller savings on wages for the staff that haven’t been hired – is reflected by G4S’s statement to the London Stock Exchange last Friday, in which the company said it expected to make an overall net loss of GBP35-50 million on the Olympics contract. According to FT Alphaville, the total profit for G4S if everything had gone according to plan would only have been in the region of GBP10m, or 4% of the revenue from the deal. In the best-case scenario for G4S, 96% of the GBP284 million paid by LOCOG to the company would have have been paid out in costs [**].

Net result:

1) Sports Day will still be going ahead with a full security contingent;

2) the net cost to LOCOG of the deal will be lower than if G4S had delivered, because of the impact of the penalty clauses;

3) the police and the army will also get decent reimbursement from G4S, so the taxpayer will win out to an even greater degree;

4) G4S will make a significant outright loss on the LOCOG contract, which is at least four times the size of the profit it would have made had everything gone well.

Had security staffing been carried out directly by LOCOG, there’s little reason to assume it would have gone appreciably better. G4S is probably the organisation in the UK with the most experience in recruiting security people for events, and this is one hell of an event; if the task were easy, they wouldn’t have stuffed it up so badly. Unlike G4S, LOCOG has a million other tasks to focus on to the same deadline, and no direct experience of recruiting security people.

LOCOG perhaps could have made the cops and the army part of the original plan – but then the taxpayer would be paying the full billing rate, rather than having G4S picking up the tab. Or it could have massively raised wages for everyone (including the people already hired, not just the extra people at the margin – I’m fairly certain this is why LOCOG and G4S didn’t go down that route once problems arose) - but again, the taxpayer would then be paying the full rate for everything.

In other words, the risk of failing to deliver on the contract was successfully transferred from the taxpayer to the private sector, without being significantly elevated. For just 4% margin, G4S was willing to assume the entire financial responsibility for the staffing project. The consequences of the epic failure fell entirely on their shareholders, and not on the taxpayers.

Conclusion:

The outsourcing model [***] has won the day, and the wicked private capitalists are the only ones to lose out. Hurrah!

[*] although I suppose this could be one way to offset the impact of military cuts in future.

[**] the only reason to take such a low margin on such a high-risk contract is as a loss-leader, with the whole world watching G4S’s performance as a contractor. Which has admittedly happened, although not quite as planned.

[***] when combined with tough contracts that have decent enforceable penalty clauses. Without them *cough*Metronet*cough*, it’s a terrible model and people who use it should be horsewhipped.

The future of News: from one oligarch to the next?

June 27, 2012 Leave a comment

In the wake of a punch to the face from phone-hacking-Leveson-scandalous-British-naughtiness, and a kick to the balls from shrinking print revenues, News Corporation is contemplating splitting its TV assets from its print ones.

The plan would be to remove the newspaper drag from the share price, and hopefully bypass some of the regulatory fallout from News International’s behaviour. In Australia, that’d mean the Foxtel, FoxSports and Sky stakes going into ‘Good News’, and the papers, magazines and book publishing (HarperCollins) going into ‘Bad News’.

An obvious problem here is that Bad News would be, well, bad news.

The analysts at Nomura have worked out what the historic and forecast income statements would be for both demerged companies. They’re projecting that, despite the newspaper division halving in profit (EBIT) in 2012, future profit declines will only be in the region of 5% a year – and that global newspaper division (including digital) revenues will show slight overall growth. Nomura values the print company worldwide at around US$3-4 billion.

To me, that sounds optimistic. 2012 is going to be particularly awful for the newspaper division because it’s the financial year after the cash cow of the News of the World was killed, sure. Nonetheless, looking at Fairfax’s position, the Guardian’s position, News Limited’s announced cuts in Australia, the Times and Australian’s massive losses, and the ongoing march of often free, often superior (albeit seldom both) online news sources, growing sales even at the rate of inflation seems like a pipedream.

Supposedly, the WSJ’s finances are in a better state than most of the other titles, because people actually pay for business information online. The four remaining sensational big city tabloids in the group – the UK Sun, New York Post, Sydney Daily Telegraph and Melbourne Herald Sun – likely still make money, since they were never reliant on classified advertising. But the Times and the Australian are reported to lose vast sums annually, despite the imposition on both of draconian paywalls which very few people have taken up, and which mean that they form no part of the online conversation.

(the Times recently started a Tumblr for some of its opinion content, in a desperate attempt to maintain some kind of relevance to the outside world…)

Now, Rupert Murdoch is 81, and his children show absolutely no interest in taking over the print business. And Bad News would be a publicly traded company with shareholder obligations.

When you’re a vehicle for an oligarch to promote his corporate interests to politicians, in the way Mr Murdoch has used his papers for the last 50 years, bunging tens of millions of dollars a year into a respectable-opinion-leading project like the Australian or the Times can get you results far in excess of your investment: tax reliefs, exemptions from competition laws, broadcasting licenses, etc.

But once you break the link with the corporation that benefits from the regulatory corruption, lose the oligarch to retirement/senility/Old Father Time, and lose the ability to shape national conversation by excluding your pieces from most modern forms of sharing and discussion, then really, what’s the point?

So the only way for the Times and the Oz to survive is to be sold to some kind of oligarch who’d benefit from their advocacy. In London, you can barely throw a stick and not hit some overseas billionaire or other, so that should be easy enough.

In Australia – now, who might be interested in buying a voice in the national conversation? Who easily has the money to continue publishing the Australian, tearing down the paywall, making it into perhaps (if Fairfax’s desperate plans are followed through) the only free source of premium news and commentary in the country? Who has a conveniently close ideological position to the one the Australian is already pushing? And who’s just been rebuffed in her attempt to gain control of a couple of newspapers whose readers and editorial staff are completely opposed to her ideological position?

Gina for the Oz. You read it here first!

Being for the retirement of Mr Hartnett

December 11, 2011 2 comments

So, you’re a lifelong civil servant. You’re quite competent, and you’re amazingly good at tolerating people who aren’t, especially your political ‘masters’. You’ve spent over 30 years in the service, and you’ve risen to be in charge of collecting tax and that.

You’re well aware that a lot of companies are headquartered in the UK, that it costs them a grand and a few Ryanair flights a year to be headquartered in Ireland where there’s hardly any tax at all on foreign earnings instead, and so any company that makes the majority of its money outside the UK is only not sodding off to Ireland because the boss quite likes his office on the Thames/being among the London advisory community/and so on. But that this isn’t necessarily worth billions of squillions of squids.

So, given that the government’s official ethos is “we’re OK with people getting filthy rich, as long as they pay their bills”, rather than “fuck everybody we don’t like TO DEATH”, you come to deals with people, under which the UK gets shedloads of tax money, far more than if the companies in question had just fucked off to Ireland, and nobody has to fuck off to Ireland.

Then, you get a disastrous recession, caused more by the governing ethos that both parties have shared for 20 years than anything else – and which you’ve bought into wholly, as did everyone except for some marginal cranks (no, shut up, as did everyone except some marginal cranks). And it all goes to ratshit, and the incoming government declares war on the public sector.

What better to do than to a) strongly encourage you-as-lifelong-public servant to quit now; b) smear you to fuck as a FATCAT PUBLIC SECTOR SALARY PERSON, even though the pension difference is vastly less than the enormous lifetime paycut you accepted for working in the public sector in the first place?

It’s not quite fair to view the current UK scenario solely as an excuse to fuck over people who work in the public sector. It’s also massively fucking over people in the private sector, but they have to meekly take it because FINANCE IS GOD. Thanks to Mrs Thatcher, as played convincingly by Corinna Harfouch, that’s the perceived medicine for everything. “Oh, you’re poor? Well, we’ll stop helping with your rent and your dole, then you’ll be less poor”. < - FACT | SATIRE -> “Oh, you’ve got cancer? Well, here’s my asbestos-themed cigar bar; also, this lady in heels will kick you in the genitalia whenever you care. After all, you wouldn’t want to bring kids into such a world”.

(I lied with the Harfouch resemblance. At lest Mrs G got the “not wanting to bring kids into such a world” part).

But yeah. Everything’s fucked. Dave Hartnett devoted his life to making the best job of public service, for paymasters who haven’t (at least yet) been hanged. Until and unless we hang them, we owe him that deal, just as much as we owe everyone else who rejected easy private sector money in order to do hard stuff for crap money with the sole benefits being a smile on your face and a tolerable pension.

Why credit ratings weren’t important in the Thameslink deal

July 19, 2011 1 comment

I’ve not abandoned this blog – just, whilst struggling with painful paid work on the kind of social media and consumer goods marketing work I tend to post here (it’s rewarding and worthwhile paid work, but whilst working on it for pay I’m not so keen to blog on it for no money), most of what I post tends towards the political, so I tend to post it on Liberal Conspiracy. If you’ve missed out, my work for LC is here. I’m also on Twitter a lot, and am slightly disturbed to see from my tweet figures that I’ve written more than a book’s worth of Tweets. Oh, and also I was blogging as part of my MA course – I should really repost those blogs here.

However, this current topic is definitely unsuited to any of those media. Roger Ford, who’s probably the best railway journalist working in the UK at the moment (sorry Nick!) writes a great technical column in Modern Railways magazine, and sends out a monthly email based on his work for the mag. But although he’s a brilliant rail industry writer, he’s not a great finance industry writer. And so he’s fallen for an insiduous and silly myth spread by the Telegraph’s Alistair Osborne in this piece.

The last UK government put out a tender for 1,200 new train carriages to be built for the Thameslink project, which links southeast London and its commuter belt with north London and its commuter belt via upgraded lines running from London Bridge to St Pancras via Farringdon. The tender didn’t specify any British-built content for the trains, and was won by Siemens with trains that will be built in Germany rather than Bombardier with trains that would’ve been built in Derby. Siemens bid cheaper than Bombardier, and the government wasn’t allowed to take British jobs into account because a specification of British jobs wasn’t part of the invitation to tender.

This created anger, especially as Bombardier used the announcement as a catalyst to announce that it’d sack two thirds of its contract staff and 25% of its permanent staff in UK train-building, because it doesn’t have any UK train orders after it’s finished building new London Underground trains. Europhobics used it as an opportunity to attack the EU’s anti-corruption rules; more sensible people used it as an opportunity to attack the previous government for failing to specify British jobs (as would’ve been allowed by EU rules) in its invitation to tender.

Which is fair comment. A related question, though, is why – as the biggest supplier of trains to the UK railway network over the last five years – is why Bombardier couldn’t outbid Siemens to the contract. Osborne’s claim was that this was a reflection on Bombardier’s credit rating relative to Siemens. Siemens’s debt is rated at A+ by Standard & Poor’s, compared with Bombardier’s BB+ rating, and the contract was to provide the trains on a leasing basis rather than to buy them outright. He says that because it costs Bombardier more to borrow (credit ratings are basically like individual credit scores, so A+ means you get a cheaper loan than BB+), it would’ve cost Bombardier 1.5% more than Siemens per year in interest costs to supply the trains than Siemens, so no bloody wonder Siemens won.

However, this is rubbish. Neither Bombardier nor Siemens bid on their own. Bombardier teamed up with Deutsche Bank, services outsourcing company Serco, PFI investment company Amber Infrastructure and SMBC Leasing for its bid. Siemens teamed up with PFI investment company InnisFree and private equity company 3i Infrastructure. In neither case would the train manufacturer have put up the money for the trains – in Bombardier’s case it would have been SMBC (which has an A+ rating, befitting its position as one of Japan’s least bankrupt banks), and Siemens’s case, it would have been its own corporate finance division (A+) plus 3i Infrastructure (BBB+). For the Bombardier consortium, the money would have been borrowed against SMBC’s account; for the Siemens consortium, it would have been borrowed against Siemens’s account – they would both have had an A+ credit rating.

So, in other words, the Bombardier consortium and the 3i consortium would have had the same financing costs. The only difference is that, had the bid been successful, Siemens’s credit rating and ownership of a finance company would have allowed it to take a higher proportion of the profits. The difference between Bombardier and Siemens based on credit rating is that Bombardier wouldn’t have been able to take an additional slice of the profits based on the financing part of the project, and therefore had to bring in an external partner for the financing. But that’s about how the profits from winning the bid are shared, not about the cost of delivering the trains.

The same EU rules that ban the government from choosing Bombardier because it’s designed and built in Derby also ban the bid from being awarded on a cross-subsidy basis from companies’ finance arms compared to their building arms. In other words, Siemens’s assessment of the cost of building the trains had to be on the same basis as Bombardier’s, and it wasn’t allowed to pretend that the trains were cheaper and offset that money on the basis of any financing that its finance company did. So there’s no sane reason why this should have made the Bombardier consortium’s bid more expensive than the Siemens bid.

In short, either Siemens overbid (presumably because it was desperate to keep a foothold in UK rail, having lost most major recent contracts to Bombardier), or Bombardier underbid (either because it thought the government would somehow dodge the EU rules and pick the British-based trains, or because it couldn’t really be bothered and was looking for an excuse to cut Derby anyway). The financing problem is not important.

Friends don’t let friends buy gift cards

February 18, 2011 11 comments

Australia’s worst book retailing chain, RedGroup (parent of Borders and Angus & Robertson) went into administration yesterday. There are a few reasons for this:

1) RedGroup was a highly indebted private equity portfolio company;
2) Australian retail spending has been weak-ish in general for the last year or so;
3) Books have been particularly hard-hit by consumers switching to online retail from overseas;
4) This is exacerbated by an extremely silly law which bans wholesalers and retailers importing books from overseas, instead forcing them to pay exorbitant local publisher prices;
5) According to pinch-of-salt-worthy rumours, the chain wasn’t very well run. Certainly, it didn’t provide a very enjoyable retail experience.

So, it’s the kind of story that was prevalent in the UK in the late 2000s: a retailer which isn’t massively successful but was making just-about-tolerable money gets bought and heavily leveraged by a private equity company. Then the market takes a turn downhill, the new owners can’t cut costs enough to make up for the downturn, and the company can’t make enough profit to pay the debt – so the administrators get called in and the shareholders lose all their money. On the plus side, at least the shareholders who lost all their money on the deal were greedy private equity zillionaires.

But since the Australian media has been denied an ‘OMG THIS IS AN OUTRAGE!!!’ story from ripped-off shareholders, it’s managed to dig one up from consumers instead, about RedGroup gift cards not being honoured by the administrator. Well, no – of course they aren’t. Indeed, he’s being very generous in their case.

When a company goes into administration (Australian and UK law are fairly similar here), the administrator is required to run the company in the interests of its creditors – the people to whom it owes money – until he has worked out a longer-term plan for the company’s future. If he can sell the business as a going concern once the debts are out of the way, this will normally generate the most value for creditors.

In this case, RedGroup’s creditors are its banks, the Australian Tax Office, its landlords (because the stores have multi-year leases), its suppliers (because publishers are paid in arrears), and the people who hold RedGroup gift cards (because they represent a commitment for RedGroup to give you goods of a certain value on a certain future date).

If the company is unable to pay all of its debts, some of these creditors take priority over others, because their debts are legally enforceable against the assets of the business. Usually, these secured creditors are the banks and the ATO (under certain circumstances). So the administrator’s job is to come up with the best way of minimising the loss to the company’s creditors in total, while also ensuring that secured creditors are the first to be repaid. It’s likely that RedGroup is in this position: otherwise, its management would have been unlikely to bring in the administrator in the first place.

This means that if Penguin’s MD were to turn up at RedGroup’s head office saying “you haven’t paid us for books in months, give us some money now!”, then the administrator would tell him to go away until the administration process is complete. Penguin will get its share of the remaining assets once the secured creditors have been paid off, but as an unsecured creditor it won’t get anything until then.

The administrators of collapsed UK music retailer Zavvi applied this same approach to gift voucher holders: they were treated as unsecured creditors, and – along with other unsecured creditors – are likely to get back 10-20% of the face value of their debt. However, RedGroup’s administrator has been more generous to voucher-holders than Zavvi’s.

Borders or A&R gift card holders also have the right to lodge an unsecured claim, but the administrator has said that they can instead fully redeem their card as long as they are spending twice its face value (i.e. if you buy $40 worth of books, you can pay with a $20 gift card and $20 in cash or card). This is offered as a gesture of goodwill, but presumably reflects the administrator’s belief that the chain will be worth more if he does this – both because it’ll keep up cashflow in the short term, and because it’ll tarnish the brand less than if cardholders had been offered cents on the dollar years down the line.

The difference in administrator behavior is most likely because Borders and A&R are likely to continue to exist in some form or other, whereas Zavvi pretty much wasn’t (it was a newish brand, and it moved from ‘precarious’ to ‘ruined’ after its main supplier went insolvent a month before Christmas and therefore couldn’t supply it with stock). But if the administrator ends up concluding the finances look really nasty, this could all change – so if you’ve got a voucher and you value a half-price trip to the bookshop, then now’s the time to use it.

What’s the conclusion, apart from ‘don’t borrow money against assets that won’t cover your interest payments, duh’?

Well, for individuals, no matter how unimaginative you are, how mercenary your nieces and nephews are, or indeed any other concerns of any kind whatsoever, don’t buy gift vouchers. Would you spend $50 on unsecured, 0% interest bonds sold by a highly indebted company struggling to stay afloat in a massively competitive market? No, nor would I – and that’s exactly what purchasers of gift vouchers are doing.

There’s a policy conclusion as well, which is that retailers shouldn’t really be allowed to issue gift vouchers – they’re effectively a license to print money, granted to institutions that (jokes about the financial crisis aside) are far less regulated and far more likely to go under than banks are. That can’t be a good thing, for anyone in the system.

If retailers do want to have a gift card scheme, they should be obliged to lodge all money earned from the sale of gift cards with a third party, completely detached from the assets and liabilities of the business, and only released when the gift card is redeemed against goods. I suspect, since it doesn’t mean Free Cash Now, such a scheme would be significantly less popular among retailers than the current setup…

It’s a Jolly Fun Bank Quiz

November 8, 2010 20 comments

It being Sunday, or Monday, or one of those kind of days, and this being a Journal of Record [*], I thought I’d put out the kind of quiz that only my readers could answer.

What do the following UK-headquartered banks:
* HSBC
* Lloyds Banking Group
* Standard Chartered
* RBS

…have in common with no other UK-headquartered retail banks?

[*] I’m almost embarrassed to say that this blog is being archived by the British Library. I actually have no idea what the hell 25th century historians of the 21st century will do – well, I recognise half of my readers believe they’ll occasionally venture out of their caves and wonder why the outside world still makes their skin blister or similar. But right now, every humanities undergrad thesis candidate is delighted to find a neglected text to use for their work – in 2500, this crap will be (and, in terms of proportion of utter shite to “survives”, actually will be) available for an undergrad thesis. In which case, hello 2500 person, I hope they’ve genetically engineered girls to look like Natalie Portman, gizza shout if you’ve got a time machine, OK?

More fun with marginal tax rates

October 25, 2010 4 comments

Here’s Felix Salmon Justin Fox standing in for Felix Salmon, on the economic impact of the socialist Truman government’s evil confiscatory tax policies:

During the Korean War, Congress enacted an excess profits tax meant to keep military contractors from, well, profiteering. In its infinite wisdom, Congress defined excess profits as anything above what a company had been making during the peacetime years 1946-1949.

Boeing was mostly a military contractor in those days (Lockheed and Douglas dominated the passenger-plane business), and had made hardly any money at all from 1946 to 1949. So pretty much any profits it earned during the Korean conflict were by definition excess, and its effective tax rate in 1951 was going to be 82%…

It being 1951, Boeing instead sucked it up and let the tax incentives inadvertently devised by Congress steer it toward a bold and fateful decision. CEO Bill Allen decided, and was able to persuade Boeing’s board, to plow all those profits and more into developing what became the 707, a company-defining and world-changing innovation.

(I’ve deleted some of his sarcastic commentary about how a government enacting a similar measure today would be described, so that mine sounds cleverer.)

Data point on taxation and labour mobility

October 15, 2010 1 comment

From Financial News:

Not a single trading team from Tullett Prebon, the London-based broker which told employees they cold move abroad for tax reasons in one of the clearest signals of an exodus from London has moved, almost a year after the offer was made. It is the second development in a week that suggests fears over core talent leaving the City were overblown.

So *nobody at all* at Tullett thought that they would be better off paying less tax to work somewhere that wasn’t in London.

I suppose some people might argue that although not emigrating, Tullett’s brokers are working-to-rule and deliberately ensuring they aren’t eligible for big bonuses, because they’d rather have 100% of nothing than 50% of a lot. This doesn’t seem entirely convincing, given the personality traits of the trader-y types that I’ve encountered…