Is Curbing Executive Pay the Right Thing to do?

Vince Cable is in his element. He has the sort of face that seems to say he has it in for someone and he has. In his line of fire are the executives of public owned companies and he is proposing to curb their pay. His reasoning is that over the last few years the combined performance of the top companies in Britain in terms of share price has been static at best while in that period executive pay has risen 13% each year, every year. He has a point.

Or has he? After all these companies have survived a recession, haven't they? And we should be glad of that. Besides, the incentive schemes that executives may be on could be bottom line related and we all know that share price has not always reflected the actual performance of companies in terms of profit making but is more a barometer of the market generally - perhaps more exactly, the sentiment of a select few traders of shares in the world and dastardly computer systems.

It also belittles how a company may be managed in terms of its performance measures. After all, some companies may be going through a transition and require large investment and less profit for a while, others may actually measure profit per head which may increase despite overall profits decreasing. Key Performance Indicators may vary from company to company depending on market conditions and just looking at share price is a very narrow way of assessing the overall success or lack of it for companies. But Vince Cable does have a point.

We have seen spectacular pay offs for executives who fail rapidly and monumentally - take Fred Goodwin for one. But it is becoming the norm. The faster and more effectively you fail, the more you can get in terms of a severance package - so why succeed? This is something most of us find abhorrent in modern day business.

It would seem the way forward being proposed is to reward long term share performance and to let shareholders have some kind of binding say in the matter. That's not always practicable. After all, the significant shareholders in companies may be pension funds managed by well-off mangers who actually only look at a short window of up to 5 years maximum. Why would these significant shareholders vote against a pay award if there are not in for the long run? It may be fanciful to believe that small shareholders can actually club together and organise a revolt that's binding as there may be thousands of individuals to organise.

And what happens when the markets recover? Business will boom and everyone will want the most hung-ho, highly rewarded executive no matter what. Worrying about exact pay now is only a symptom of the austere times we are in. When Britain's back on its legs, no one will worry how filthy rich an executive gets so long as we are all earning something. Isn't that right?

Anyway, lets' get to the nub of this matter. What we are all unhappy about is not so much executive pay but the pay of a thin wedge of incredibly well paid people in the finance sector. In truth, the finance sector only accounts for around 9% of our GDP, yet there is a disproportionate amount of money earned by specific staff within that sector, nearly all working in the City. These are the people who over the last 15 years have hardly increased share price, netted out the profits of their companies to zero at best and in many cases drove their companies to the brink of oblivion. Yet in that same period they earned on average around £3m each and it is rising this year to around £4m each.

Let's face it, these are the people who have made sure that we have extra tax to pay for the next 30 years. Even as we speak, the CEO of RBS, Stephen Hester, will receive a substantial bonus even though the value of our 83% holding in the company is still showing over a 40% loss.

These companies and their high earning staff remain untouchable. They are supposedly regulated by the FSA whose own staff actually received bonuses as they presided over the implosion of the British banking system and their response was to pick on the array of Independent Financial Advisers and drive most of them out of business while bank executives named their salaries and bonuses despite owing us a fortune.

No, Vince, you are looking in the wrong direction. Focus on what's really wrong first before hacking at the general melee of executives. There is a specific, massive problem that affects each and every one of us because we underwrite their failure. We have skin in the game. Our call is to pick on bank traders and executives first - curb the way they earn, how they earn, what its paid for and what they can trade. Then pick on the other guys who also do need curbing too.

The price of failure in banking is always laid upon the general retail banking staff and the taxpayer. And failure wins bonuses. With logic like that, banks should be the first port of call.

Problems With Sums

There are many things about life that you simply could not make up yet reality has much more of a fictional feel to it these days.

Think about it - on the one hand we make bold claims that we want more maths graduates, engineers and doctors to help make Britain great again and then we fine universities £3,700 per student over quota they go (or at least Peter Mandelson does). With university applicants up by 12%, many students are finding arbitrarily unfeasible entrance requirements being asked of them to discourage intakes. It means that universities will shun UK students and pack in more, fee-paying foreign students. That's really joined up thinking by the Government who cut funding to universities last year and will do so again this budget.

Meanwhile, in cuckoo land, RBS is clocking up £7bn of losses and the Government is set to sign off a bonus tab of £1bn for the RBS investment banking arm. How does that work when we own over 80% of the bank's shares and simply cannot afford the money? Some may argue we get some of it back through the windfall tax - but bankers are wily sorts and will make sure that is minimised while I would pose an argument that we should simply save £1bn and not pay any of them a penny.

On another note, Sir Jock Stirrup former head of the Armed Forces, has foretold that parts of the armed forces will merge before long in order to save money. Super thinking as we are fighting two major wars with many more likely - run that by us one more time. I heard John Nicholl, the former Tornado navigator shot down and paraded on TV in the First Gulf War, this morning. He made the point eloquently. Arguably with the exception of Iraq lately, all of the major conflicts which have occurred in recent times have been completely out of the blue and unanticipated.

So if we had used Jock's logic, after the first Gulf War we would have contracted the army as the whole war was virtually fought and won by aircraft. But then we could never have invaded Afghanistan if we had done so - conventional thinking is that we no longer need heavy armour as lightly armed, specialist troops are required. Tell that to the kids with arms and legs blown off and no armoured vehicles. From where we stand now, why do we need a decent Navy as wars are in major countries - but that presupposes that we never have a Falklands situation again.

The point here is that you either plan for all eventualities or none as you never know what is going to happen next or where the next threat comes from and in what form. Certainly, there is no point telling TAs to not drill or train with live rounds and then send them into battle situations - you may as well paint an arrow on their backs to a sign saying 'Greenhorn, please shoot at freely'.

It's all about non-joined up thinking and stupid logic. What is the point of paying banker bonuses when the company makes a massive loss and then telling nurses and doctors they have no pay rise? What is the point of paying off sitting MPs who are under legal investigation for fiddling expenses when they should be paying them back? And what is the point of allowing ancient protection to be misused to help them avoid legal charges? This surely shows just how guilty the people are in their squalid attempts to avoid justice.

It's a world gone crazy - the loonies are running the hospital.

The Second Coming of Swiss Banking?

President Obama has launched one of the biggest reforms of the bank system for many years as he bids to try and grab the money back that bankers have lost.

The plan is to claw back over $100bn which seems a great deal of money but in the great scheme of things it represents but a fraction of what the US has had to spend to save the banks and actually is not a massive amount compared to the profits banks are earning again. Just over the weekend, the bank that claims it does 'God's work', Goldman Sachs, has capped its partners' pay at £1m a head - a move seen as akin to wearing sackcloth for a year in the City. In the UK, we have the bank roll tax which may raise around £500m if we are lucky. Yet despite the fact that bankers seem to be getting off lightly, they are actually squealing like stuck pigs at such perceived 'unfairness'. The mantra seems to be, 'You can't live with us, but you can't live without us.'

It's the classic gun to the head situation in the UK - allow us to earn or we will move elsewhere.

The elsewhere is increasingly looking like Switzerland. The traditional old stuffy, discrete and positively criminal image of Swiss bankers of the past as they provided an anonymous and impenetrable home to illicit money, far from the hands of taxmen, the Swiss banking industry is not what it used to be. But for a land-locked country with no real other source of income other than banking, pharmaceuticals and chocolate, it always punches above its weight and has even won the Americas Cup.

City rumours are that the Swiss are in town murmuring in the ears of disgruntled bankers telling them that there is a welcome in the green valleys of Switzerland, where the individual tax regime is very accommodating. The cost of living may be high, but why worry when you are earning the kinds of money people of your calibre deserve?

A collective sigh of relief may be exhaling around the City - it's a bit of a trek for the Americans but they will find somewhere closer and maybe join the real casino boys in Cayman Islands or Bermuda, but the message is that there are willing homes for these poor wretches to rise again - and be richer than they are now.

'Be careful what you wish for,' say the bankers. Good riddance, I say.

Social Economics

I am absolutely sure I am using the term 'Social Economics' wrongly. Then again, I am not an economist or a real socialist for that matter. However, I probably know as much about economics as those who profess to by the state in which we find ourselves.

Recently, I blogged on National Debt being the new sub-prime but in the heart of that piece was the idea that external markets are watching our economy closely with a keen view to see how we can tackle our budget deficit and therefore be able to pay our debts. Given much of our National Debt is being subsidised by Quantitative Easing (QE) money to the tune of £200bn, soon it will go back on the open market and we will see what the real world, with real money, thinks of our ability to service our debt. There are many who now believe that as we leave a cogent strategy to tackle our debt until after the election and have built our strategy to date on using new money which we don't have to support ourselves, that Britain is in a precarious state.

It was described by an editor for the FT the other night as a period where a boy scout is trying to light a fire - the QE money is the firelighter which is burning brightly but there is little evidence that it has lit the fire that will be our economic recovery. But I would argue there is far more at stake here.

In my idea of 'Social Economics' which has nothing to do with its real definition, our future relies on two aspects which are not classical economics. 1) Politics - we are in a period of hiatus, marked by our lack of enthusiasm to actually do anything about the budget deficit, not even a spending review in preparation which is due to the imminent General Election. This may be understandable as cost cutting is not popular and it seems that inaction is as voters have actually polled in favour of the Government in recent months. Perhaps it is 'Denial', my age old theme - put your head in the sand and the problem will somehow right itself. Gordon Brown may be foolish to start believing in free market economics at the wrong time, especially as he believes it's what got us into this mess. The issue here is that the longer we delay and not tackle the problem, the worse the problem gets and the cure will need to be more drastic - in both spending cuts and tax rises.

2) Hand in hand with this comes the mood of the people. We have just had a dramatic illustration of how voters can change Government policy as Iceland has refused to back its Government in paying our Government compensation for those who lost savings in Icelandic banks. I have a great deal of sympathy with the Icelandic people - while they had many good years, by the end of this year they will have lost almost a third of their take home pay due to the banking disasters, and they are not a rich people. Besides, it was our Government's decision to repay the losses to individuals, not theirs. What it means is that there is a breaking point and people will have a finite limit as to how much they believe they can pay in taxes which is fair, while the same may not apply for spending cuts as they can be far more localised or general. The clear learning point is that if there had been a referendum on the bank bailout beforehand, it is suggested we would have all voted against it.

The outside world will watch closely as to what our breaking point will be. Astutely, Lord Mandelson has understood that there is a limit that people will pay in taxes but I don't think he was referring to us but to bankers who are royally miffed about the windfall tax, on top of the announced 'super tax' on those who earn £150,000 or more plus the new curbs on City bonuses. In a microcosm what bankers do about it will illustrate a wider reaction. Let's face it, if bankers get cheesed off their employers will relocate them and they will rise again elsewhere to earn their money. For real people like you and I, we will have to pick up their share of the tax burden and the rest.

So the question arises, how much will we all tolerate in Britain? How much are we prepared to sacrifice in order to keep bankers here and London as one of the biggest and most influential of financial centres? Are we prepared, as Iceland is, to say, 'Up yours, take your Casino banking elsewhere and the fools that play it' or are we realistic enough to know that we cannot have a Britain without the support of the City, its earnings and influence?

I am sure there is a line that we all cannot cross. I am also certain that the later we leave that 'stress test' the worse it will be. I do believe that part of the attempted and almost farcical leadership coup at Labour was fuelled by the PM's inaction on the whole matter. While it is nice to talk about halving the budget deficit and talk generally about the numbers, the reality is that every voter in the country would like to know what it means before they vote. Yes, it's true we are stupid lot - we think we are still relatively prosperous and that if house prices rise again, boomtime will be back - Christmas and new year sales spending shows we are that daft. It seems we have no idea what really may happen after the election or we are just in denial that it will not deteriorate.

The reality is that after the election, when the economic mire hits the fan, there will be pressure on two sides - 1) to impress the markets that Britain is doing more than enough to reduce its budget deficit and pay its debts and 2) the people will not like the bitter medicine we will have to follow to cure us of the years of excess.

It's at that point that my 'Social Economics' will kick in. Hubris and hiatus are two funny words but we have both to contend with right now and both are all about manipulating our minds and votes. Personally, I would rather know how much all this £1.3 trillion of bailout will cost me in real terms before, not after the election, and how parties are going to give us cast iron guarantees it will not happen again.

I see nothing of it from any party right now - which means we will cast our vote once again, as at the last election over Iraq, without any of the real facts at our fingertips. Some things never change.

Profit and Loss

It's nice to know, as major shareholders and owners of 5 banks in the UK, that we are being royally screwed at both ends.

I am sure endless puns and innuendos can be made of that statement but whichever way you cut it, banks are pretty nasty to us. On the one hand, they make extortionate profits out of thin air and spread the proceeds amongst themselves. Then when the whole scam is revealed, we have to bail them out to the tune of £trillions - effectively footing the bill for every bit of profit they have lost and more. Then, since the very existence of banks, they have crippled the customers with expensive, incomprehensible and downright unjustifiable overdraft charges.

Last month a court upheld the right of banks to charge basically whatever they want and not have to justify it to customers, which was amazing enough. Now the regulator, Office of Fair Trading (OFT), has dropped its attempts to rein banks in. Once again, regulators and authorities seem to be powerless when it comes to even the simple things at banks, so imagine what it must be like when it comes to the more important things like losing £billions or paying themselves hearty bonuses for doing nothing since the Crash.

It is clear that banks operate in a twilight world where people who ask questions or try to intervene are systematically told to get lost, be bamboozled by technicalities, are blackmailed in terms of consequences of interference or simply reminded of who their friends are (as in the case of Government ministers). The result is that the taxpayer, despite paying for both ends of the spectrum, has no say or form of recourse in what happens to them. If banks fail, we are told that we are liable yet if banks want to continue to shaft us for excessive fees, they can.

It really comes back to this whole point of banking reform. As shareholders and stakeholders we should have far more say in what goes on. Why should we pay such unjustifiable fees when we are bailing them out and supporting liquidity in the financial markets, from which a small percentage of people are benefiting to the tune of £millions in bonuses? We sit here like lemons letting it all happen - thinking a couple of quid of windfall tax will sort out the problems.

Perhaps, if we got ministers, regulators and non-executive directors in who cared about all this we might get some progress, but while we populate the FSA with former bank executives and have Government with ministers who want to be non-execs of banks, we will not get anywhere.

Just try not paying the fees, and the law will pound you for money and jail you if you refuse. Perhaps the bank executives ought to get some of the same treatment for their losses?

Finding Neverland

It strikes me that the Pre-Budget Report amounted to nothing.

Largely, we were told that the borrowing will be higher than the Government expected this year - which we expected as they keep getting that wrong. Taxes would rise a little and there were some increases in benefits. A few tinklings here and there and that was it, barring the pathetic headline grabber about taxing bank bonuses.

The Green stuff needs to be applauded - let's hope it translates into real initiatives for people, homes and cars. But that really was it.

The detailed, departmental spending review has been postponed until after the election - VAT was confirmed to rise to the old level and there was an increase in the state pension, all expected.

In the face of the worst financial position since World War II, we seem to be doing nothing. Neither stimulating growth or cutting costs - it's as if it is business as usual and nothing untoward has happened. Am I the only one who things we are in crisis?

I suppose the pattern is set - there will be a few grandstanding taxes on the rich which will raise little tax in the great scheme of things while there will be death by a thousand small incremental tax increases for the rest of us. This follows the pattern of this Government - we already are the most taxed British populations in history, so a few more pennies added here and there will only be mere rabbit punches on an already numb body.

Vince Cable called this a 'Missed opportunity' - that about sums up the last 12 years really. To my mind, it's a lack of decisive action in the face of the biggest financial disaster not caused by a war in the country's modern history.

Purge The Soul

He's only gone and done it.

Alistair Darling has bared his teeth and swiped with his mighty paws at the City bankers to assuage the public's anger and try to win some votes. In doing so, he claimed it was not about the money but was a deterrent to stop banks paying excessive bonuses.

That's certainly going to work, right? Certainly, our souls are purged - not only can we feel satisfied that bankers have suffered for their follies, but we now see that the Government has distanced itself so far from the greedy City spivs that we can no longer believe that ministers had any culpability for our financial mess as surely they would not have punished them if they had endorsed what they were doing? Believe that and you believe I am Tiger Woods - let's not go there.

So the banks will have to pay 50% of any individual bonus over £25,000 as a levy - not the individual, and there are anti-avoidance measures already in place. Indeed, there must be as Mr. Darling has told us there are.

Curiously, among all the £billions contained in bonus pools, it is alleged the tax will only raise £550m which can go toward unemployment. Just as well, because in the great scheme of things £550m is hardly going to make a dent in the damage the bankers caused. The chances that it will deter them from doing the same thing again are about the same as for me surviving 5 rounds with Frank Bruno.

This is headline grabbing tosh. Bankers will be laughing all the way to new pay packets and bonuses.

Meanwhile, down here below Wonderland, National Insurance goes up 0.5% which probably raises more than the tax on bankers - shows that headline - grabbing taxes are just that.

Grim Reading

If you want to really make yourself angry ready for a showdown with the boss or to get in the mood for a hard game of rugby, please read the attached description of the Asset Protection Scheme as pertaining to our wonderful investment, RBS.

On the face of it, there is nothing new in there. We have known for some time that as taxpayers we would be underwriting about £280bn of toxic assets accumulated by the bank. In many respects we were led to believe that the grimmest story was contained within ABN AMRO bank, the ill fated and disastrous acquisition made by RBS just prior to its demise. How glad we must be to find that in fact half of the stupid lending at RBS was plain old loans to the UK public, small businesses and property companies - what may be described as banking basics. There are quite a few derivatives in there too but not half as many as you might think.

Now, cast your mind back to when our glorious leader said boldly that it was sub-prime mortgages in the US that precipitated the Credit Crunch. How wrong he indeed was. His good friend, the man he knighted, Fred Goodwin was hard at getting the very basics of banking wrong. Fred 'The Shred' was well known for acquiring companies and then shredding costs and getting supposed 'value' for the assets, but he wasn't actually much good at banking per se, it appears. The risk assessments and controls at RBS must have been pitiful because most of the assets we are now underwriting, frankly, should not be there.

Where, oh where, was the FSA when all this was going on? Where, oh where, was the Government? The problems stemmed from the basic, basic rules of banking, and knowing that RBS was leveraging money on the wholesale money markets to finance his business big time, could we not see that this was a company doomed to fail? Yet even up to the wire, the Government and regulator reckoned RBS was a company with enough capital to survive.

It is a story of incompetence and hubris that runs through the entire credit crunch story. We only needed sub-prime to expose the rottenness underneath - it was merely the bit that was showing at the time. RBS was doing its own 'sub-prime' right here under our noses - the US had very little to do with it as it may as well have started right here.

I read the grim details of what I am insuring this morning and while I got very angry with RBS, I was more angry with the fact that people in senior positions did not know what was going on - like at the FSA and Government. It really reflects how little our most senior and supposedly intelligent people know about how the Credit Crunch actually came about and therefore casts more than my major doubt on the measures they have taken to get us out of it.

To be precise about that - Alistair Darling is now bickering about introducing a windfall tax on bonuses and excess profits at banks. However, the problems that were created were right at the very heart of the banks - the basics. That is where the real flaws exist and the whole ability to trade poorly assessed debt is where the money is made. Any debt was good as it could be traded many, many times for vast profits and no one ever cared about the original debt itself or the assets it financed or the ability of the person or company to service it. It did not matter - the money was in the trading of the debt, not the debt itself. The money to buy more debt was cheap and plentiful and no need to get deposits to pay for it - the world was perfect and still is. This is a basic but subtle difference in semantics but it's where the whole problem originated.

The crisis was about what banks do, not about the money they and their employees make. Taxing them may help purge the soul and win votes, however impractical it will be to implement if at all, but it will not stop it all happening again.

Stoic Britain in 2009?

I think we all need a pat on the back. 2009 has to be one of the worst years in terms of crises for many a long time, yet the average person in the street, young or old, took it all with a traditional British stiff upper lip.

We have endured 6 successive quarters of GDP contraction. We have endured 4 years (and more) of serious decline in household income, with 2009 being by far the worst. We have added well over 1m to the dole queue and there are still more to come on that. We have seen major companies try to impose draconian cuts on staff at banks, the Royal Mail and BA as good examples; we have seen the loss of major household names like Woolworths, MFI, Threshers, Borders. We have seen the near collapse of the financial system, with 5 household named high street institutions falling largely or wholly into public hands. We have seen the exposure of long term, systematic abuse of the taxpayer by MPs on their expense claims with some stepping way beyond the point of common decency and into the world of crime. We have seen more deaths in Afghanistan in one year than all the previous years of that engagement added together - and totalling now as many as those lost in the Falklands conflict. Even as we watch with horror as that seemingly pointless engagement continues, that still our troops are not being given the right support, numbers and equipment to do the job they are asked to do. As the official inquiry into Iraq starts, it is already clear that the public were grossly misled into supporting a war that had no legal grounding - making Britain no better than a rogue state intent on imposing its will on others because it wants their assets.

Why have we put up with it all? Even in the Glasgow East by-election, the status quo was endorsed. During the year there was much talk of discontent amongst workers and potential riots in the streets as Britain suffered from the depths of the recession. We have seen that wile private firms have suffered badly from the effects of the recession and the credit crunch, the public sector has enjoyed an unscathed path with hardly any job losses, no major cuts, good salaries and fantastic pension rights as more private firms close their final salary schemes.

For many we have seen our assets corrode at an acidic rate - the stock market has regained ground but most of us look at our pension and savings statements with fear and depression. Our homes have lost some 25% in value and although they are back on the rise, many people are now in the mire of negative equity or under the cloud of delayed payments. Many firms have deferred their tax under the government schemes and face a big cash call soon that may yet send more companies under. The VAT reduction to 15% will be reversed as of the end of this month and prices will rise sharply.

And perhaps most depressingly, we have been shielded from the true cost of the massive bank bail outs we have been party too. The National Audit office have now fixed the current running total as £850 bn and rising - a spend totally unanticipated by anyone and we are still worried about further liabilities as now the next wave may not be sub-prime mortgages but sub-prime national debt as whole states or countries like Greece and Dubai start to falter on debt repayments. The result is that we are likely to be paying for the huge borrowing on all this until 2032 although Government calculations seem to be wrong each month as the borrowing requirement keeps exceeding estimates.

In amongst all this bad news - terrible news - the population seems to be unfazed and carries on regardless. Even terrible disasters like the Cockermouth floods seem to move us little anymore as we become numb to the pain around us. Perhaps we are in denial - all this bad news is being locked out so that we can focus on existing in our way. After all, there are no food shortages, we still have credit and we still have means of getting what we need. Indeed, the travel industry, with the exception of BA, reports that holidays have not fallen off at all - for most of us, life goes on.

One theory why we have not been up in arms and rioting in the streets is that we have a focus for our fury. The one benefit of the bizarre banking drama has been that we can collectively and unreservedly hate the people who caused the mess we are in - the bankers. The issue just won't go away. Even as the money still pours in from the taxpayer creating an artificial market condition where every bank in the world can make vast profits quickly with little investment and cost, they are demanding bonuses for effectively just pocketing our cash. They are not even demanding it - they are blackmailing us for it.

At one point in the year, I advocated that we do not pay our tax as enough was enough - why should we give our money and see the direct result as being MPs cheating us for cash and bankers queuing to buy shiny new sports cars? Why can't we see more care homes for the wounded returning from Afghanistan or better equipment and transport for them so that they can be protected against the unseen enemy? If money was so easy to be handed out, why did we have to pay so much tax before, if debt was so good for us?

I can only put it all down to the old spirit of survival and stoicism by the British people. At the direst moments we had the surreal moment of an open racist on prime time TV telling us that Hitler had a point in so many words. And still we carried on.

I think as the year closes, we should all pat ourselves on the back for our courage, fortitude and downright ignorance of what is going on around us. By putting our heads in the sand, young kids in Afghanistan will continue to die and rich people in the City will continue to earn a fortune off the back of our mindless handouts and behave as if they earned and deserved it. Why, when history is rewritten, we will find that the likes of Goldman Sachs, RBS and the other banks saved us, not we them.

And we will believe every word of it, just as we did of the rewritten history in the TV program, 'The Blair Years'. The one thing that Mandelson and Brown got right in the last year is that the public was stupid - the rest they got totally wrong.

Public Service Is The Place To Be

One of the most recession proof areas of the last 2 years of crisis has been the Public Sector. Makes you think we are a bunch of mugs in the private sector.

As unemployment hurtles upwards, very few jobs have been lost in the public sector as private firms have borne the brunt of the downturn in terms of laying people off and cutting costs. There are few firms in the private sector which have grown to any great degree while many have contracted or even disappeared. Meanwhile, despite a colossal budget deficit and borrowing now at 59% of GDP and rising, the public sector shows no sign of having to rein itself in - except of course if you are in the Armed Forces where there have been many crazy cuts as we attempt to fight two wars and have suffered as many casualties in Afghanistan as we did in the Falklands War.

The Sunday Times Appointments Section, barometer of how the job market is in terms of investment, has for some time been packed full of senior public sector appointments with salary packages that would make most business people look at least twice. The recruiters in this sector, like Rockpools, have been making a mint and the market for Health Interims is more healthy than the industry they supply - it's big, big business. Executives in the public sector are paid very well - far more than many of their private counterparts considering they create no wealth. Then there are the pensions. Let's not go there - I had a recent statement on my plans and frankly the prospect of retirement depresses me greatly. I can see myself never being able to stop work.

Workers in the Public Sector just don't get that point as they hassle for more pay citing the private sector as the yardstick.

It's not just redundancies - the public sector is like a vast sponge for money and it just keeps expanding. Latest estimates show that almost 1 in 4 jobs in the UK are in the public sector while the sector just absorbs more money and wastes a vast proportion of it on projects that deliver little and continually over run. In the MoD there is dreadful control of assets, huge contract overspends and then too few people at the business end with little enough equipment to do the job, while the civil servants back home pocket a share in a £48m of bonus payments. Injured troops or the families of the dead get precious little compensation for their losses when clerks in the MoD can sue for massive payouts for little than a bit of bullying or stress - try Helmand province for a bit of repetitive stress. MPs consume vast expenses for little to show for it and cannot see why the public is at odds with them - indeed, they want more pay and to continue to stand at the next election. The NHS is full of padding and overspends yet vital drugs are not given due to cost. Education is delivering mathematically sub-standard and illiterate graduates who cannot even get jobs - the list goes on. Yet we have not saved a penny despite a huge borrowing crisis.

Now we have the final insult. As soon-to-be 84% owners of RBS, we (the public) watch in sheer horror as traders and executives are to be paid over £1.5bn in bonuses from making profits that we (the public) have created for them by bailing them out and giving them free money to re-capitalise, none of which they have passed on to the economy.

It's a story that you could not write it's so idiotic and unbelievable. Globally £15 trillion has been spent on saving the banks and all we have done is lined their pockets by giving them profits as easy as spearing fish in a barrel. As Gordon Brown enjoys a resurgence in public opinion even though the public do not understand why we fight wars, his crony, Lord Myners, says that, 'Bankers should get into the real world'.

Let's just remind ourselves, this is the same Government that told us we could not get caught up in recession as our economy was so strong, then it would not hit us so bad for the same reason when it did and now of the G20 richest nations we are the only one still in recession which is the longest on record for the UK. Let's also remind ourselves that WE own a huge stake in most of the high street banks and WE are the major shareholders of these companies. WE have the capability to demand how they pay their people.

The Government continues to sit on the fence and just lob insults - as they should have done to have avoided the crisis we are in, they should ACT now. To hell with competition, stop the bonuses and reform banking.

A Sense of Perspective

So the Board of RBS will resign if the Chancellor uses a veto to stop payments of up to £1.5bn in bonuses in their investment banking arm this year.

As a taxpayer and an interested party in the matter as I participate in the 70%+ shareholding we have in that bank, I say the door is there and mind it doesn't smack your backside on the way out.

Why are we arguing about this? A year ago this company was broke and dead, thanks to the board of directors who are largely the same as before with a few notable exceptions. Had we allowed them to fail then they would have collapsed owing hundreds of billions - that's how bad it was. Even though we rescued them they made thousands of redundancies of everyday banking staff who were not party to the mindless decisions to squander money on such stupid activities as playing poker to buy ABN AMRO or for that matter loan Dubai World around $2bn.

So they have turned £6bn in profit - thanks, we will take that as we generously allowed them to write off a further £8bn in loans only a few weeks ago.

For the public at large, it is incredible that a few strutting peacocks in the city dare hold us to ransom when we came to their aid and preserved their way of life not 12 months ago. They tell us the 'talent' that is capable of winning and losing so capably will go and join other banks if we don't pay and then we'll be sorry - and that by paying them they are doing good by their shareholders.

Hi guys - welcome to the real world. The public is your major shareholder and the 'talent' can leave whenever it likes - don't let us stop them. I'm a shareholder, that's my vote.

Very Sharp Reminder

Just when we were believing we were free of recession and the financial crisis was all but over, Dubai has shocked the world.

We were busy worrying how to curb bankers' bonuses and when the economy would show growth again - then we had a day of turmoil as stock markets reacted badly to the news that Dubai World, the state owned investment company, delayed payment on its quarterly debt repayments. Almost unnoticed, book store group Borders slipped into administration following the Thresher off licence chain, making a further 1,000+ people unemployed in the UK.

Dubai has enjoyed a six year period of unprecedented growth as it has invested enormously in property, both commercial and private and the market for it has been buoyant. As an Emirate state it is not blessed with a rich supply of oil but its strategic location makes it compete with Hong Kong as one of the great ports in the world for international freight transport. Dubai has been Western-friendly and inward investment has been enormous but Dubai World itself has clocked up astronomic debts of $59bn.

It's another tragic example of a total belief that asset values can only go up and that all debts can be repaid. The mind boggles to try and work out how many times that vast debt has been chopped up, repackaged and sold multiple times around the globe as part of derivative trades and credit default swaps upon which banks and their trading employees have pocketed enormous profits and bonuses.

This is a stark and sharp reminder of the folly of the global banking system. The total belief that any debt is good and that asset values will always rise has been the bedrock of the financial system that has turned into the sands of the Arabian desert. The creation of structured products to trade around these debts is like a terrible cancer ravaging the financial system and this shows how very easily the whole system can get a critical blow. This kind of catastrophic failure in debt servicing threatens to have a domino effect and I am sure there are many bank executives who are nervously watching and hoping that the oil rich Government of Abu Dhabi steps in to bailout Dubai World - Dubai has total debts of over $80bn.

There is a good reason why everyone is nervous. Dubai World is not the only entity in Dubai which owes incredible amounts of money. If the Dubai economy fails, the fallout could be felt all over the world and snag us all just when we believe we are recovering. As an eminent economist, Nouriel Roubini, has asserted, there is more bad news about debts to come and banks have not yet revealed the full picture on this yet.

Dubai is reminder of how bad things can get very quickly.

More Good News For Banks

Bank executives are probably having a few drinks tonight - not just because they are earning fat profits and bonuses again, but because they have found they can continue to profiteer at the expense of those who go overdrawn.

The Supreme Court has ruled in favour of the banks in the feud with customers over being able to charge excessive fees when customers go overdrawn without pre-agreed authorisation. We have all been victim of this at some point when a cheque is late or something, we get some arbitrary sum charged with no real reference to the cost incurred or to our banking history. There seems to be no real standard charging system and then suddenly, in the same month or more, all letters and administration charges can be lumped on you too.

Many bank customers had rightly complained and taken the action to court - I can only hope they had not gone overdrawn to pay for the legal fees as it has taken years to get to this point. But the Supreme Court was swift and damning in its judgement, allowing the banks to effectively charge what they liked so that they could offset the cost of those who do not incur charges.

Banking is one of the few services that you have little or no control over the charging structure and the costs can be as arbitrary as they like. It is now case law that you cannot complain and get compensation - they are allowed to do it.

Given the fact that banks are extracting front and back office staff at an alarming rate, the £2.3bn they earn annually on such fees are pretty essential to their well being. It seems a little churlish that banks would behave this way after all our incredible generosity in bailing them out - some of the bailout we did not even know about as £61bn was secretly stumped up to 'save' Lloyds and RBS last year and the public were not informed until this week. What else we don't know about may well have been swept under a very lumpy carpet.

It seems taxpaying bank customers are being shafted at both ends. We pay excessive fees for going overdrawn and if the banks go 'overdrawn' we totally underwrite their losses. I am sure that in isolation, the Supreme Court had no real choice but to exclude the fact that taxpayers rescued the banking system but in the cold hard business world once again it just goes to show what a dreadfully poor deal taxpayers got for its largess in saving the banking system.

Politicians may think it is petty to negotiate on such trivia but this is really at the heart of the matter - it is everyday people who simply cannot afford to prop up banks when they fail who have been preyed upon by banks with excessive charges. If the individual or collective taxpayer had had the authority to negotiate the bailout deals rather than ministers, civil servants and investment bank advisers, then the shape of the deals, if any would have been agreed at all, would have been very different. If we were to put that much 'skin in the game' we would have expected something in return. Instead we see high risk plans, excessive wages, written down debt being traded again and a new bonus extravaganza.

Lord Myners and the rest of the crew who negotiated all this rubbish were probably far too wealthy to be worried by such details but that was the essence of the whole lackadaisical approach that led to Fred Goodwin walking away with millions when his strategy had actually wrecked a great company.

At a time when the whole country seems to have gone mad enough to want more of this Government, this ruling was a timely reminder of how badly the whole bank bailout affair was handled.

Irrational Decision Making

Emotional and social factors are rarely taken into account when developing ideas on economics. I just read a great article by Professor James B. Duke on why they should be taken into account.

Which camp do you fall into after the economic crisis? Will the crisis change your buying habits or will you change? Here's the conundrum - some will say that because of the crisis they will no longer have a big mortgage or have such huge credit card debt. Then there will be some who think that they have saved for years and now see their savings depressed in the crash and they might think that they have missed out as their purchasing power has declined over time - perhaps they might spend more rather than save for the future because in reality, they haven't saved anything.

In some respects, this is the dilemma our economy faces. We are creatures of habit and so as the economy recovers we will probably revert to type and spend more - but until we see it recover we will more likely hang onto our cash believing that we may be at risk due the economy. It's the sort of circular argument that economists have tried to break by advocating Government spending and Quantitative Easing (QE) to give the economy a 'virtual' boost as it is money we don't have. Economists believe that the market will pick up but they lack the ability to factor in the human emotional and social dynamics which will actually play an important role in any recovery.

Here's an experiment which sort indicates this. Two players are given £10 each. Then player 1 is given a choice - give player 2 their £10 and player 2 will give player 1 half of their money back - or player 1 can keep the £10 and go home. Player 2 has the choice of keeping the £10 they have and the £10 they are given so they can leave with £20 or indeed give half the money back to player 1.

Then a nuance is added, as player 1 gives £10 to player 2, the £10 is quadrupled so that player 2 actually receives £40 and then has £50 in total. Player 2 has the choice of giving half back (i.e. they both finish with £25) or walking away with £50.

Now the rational perspective is that player 2 will never give any of the money back so the prediction is that player 1 keeps the £10 and goes home because they do not expect any of the money back. However, human nature appears to be more trusting as in the experiment it was found that there was a good chance that player 1 gave the money to player 2 and that player 2 would reciprocate and give half their money back. But the more interesting aspect was that if player 2 walked away with the £50, then player 1 is invited, having lost their £10, to give £1 to the experimenter and for every £1 given, the experimenter takes £2 off player 2 - so give them £2 and they take £6 off player 2 and so on. Rationally, why would player 1, who had just lost money, pay more money just to see player 2 punished? The reality is that people often do exactly that - spending money to effectively express revenge even when revenge is irrational.

This is a trust game and it mimics exactly what we have been through as investors in the last two years. We have ploughed money into investments and pensions in the past and we expect fair play from the providers. Now that these investment companies and banks have blown all the money and expected us all to bail them out, our trust has been broken as they have effectively walked away with the 'experimental £50'. Consequently we feel betrayed.

Professor Duke asserts that this trust needs to be rebuilt and it means that we have to get some understanding of what is going on in order to invest again. He believes there should be new regulations, more transparency and removals of conflicts of interest in order to rebuild our trust. But perhaps the most basic of human nature is at work too, and I know I really empathise with this, we also want to see the perpetrators to feel pain too.

I have to say that I am in that camp that says I really resent that I have been asked to bail banks out without seeing hardly any of the executives and traders who caused the crash suffer - in fact, we are griping and arguing on how to limit their pay rather than stopping them trading. The reality is that even if we attempt regulate their bonuses with laws that in practice cannot be applied they have not suffered for what they have done.

Perhaps this is one of the reasons why the recovery is a great deal slower than anticipated and it is why our Government consistently miscall that borrowing they need. One thing is for sure, the trust of every day people has yet to be repaired over the banking collapse and I, for one, am still not comfortable about paying for other people's mistakes and greed - now or ever.

James B. Duke is a Professor of Behavioural Economics at Duke University, North Carolina and is the author of 'Predictably Irrational'

Cut One's Budget Deficit

Amid a ceremony which might have been required some 300 years ago, the Queen will today effectively be the puppet to Lord Mandelson and read out what he thinks the General Election will be fought on next year.

There will be the grandstanding and total impracticality of a bill designed to curb bank bonuses which you can almost guarantee that it will not make it to law but if it does it will just cause chaos because it is so ill thought through and irrelevant. Then there is the superbly named 'Fiscal Responsibility' bill which will be a Government pledge to cut the budget deficit by half over four years.

The chances of the latter making it to law in the 70 or so business days left for the existing Parliament are virtually nil but should it actually get enshrined in law then it will probably be meaningless. By 2014, it is predicted by authorities like the IMF that Britain's borrowing will be over 90% of its GDP. The only thing that could decrease the budget deficit by half would be an incredible upswing in the UK economy so as to wipe out the requirement for further borrowing over that period - the sort of suicidal growth the country does not need or swathing cuts to public expenditure which the Government tells us it will not do.

Other than that, the whole thing is a complete con trick to make you think that the sad bunch has an iota of knowledge about what it is doing. That has been decisively been proven to be not the case in the last two years, though arguably for the last 12.

There are important things that need to be attended to between now and May of next year. Yet again, we have a missed opportunity to get to the heart of some the real problems in Britain for the sake of leading us down the vote decision making path as early as possible. The opposition are up in arms, maybe be rightly, as they don't get the same opportunity. But the howling shame will be that, despite Harriet Harman's lie the 'most' of it will be come law before the election, hardly any of it will actually get on the agenda to become law.

We now have one of the Milliband's spouting off to tell us that we will hang about in Afghanistan until the Taliban are no longer a threat, condemning our Armed Forces to an interminable new Northern Ireland - a tour of duty no one will want as it is where an unseen enemy can take potshots and hone their killing skills on you without much you can do in return. Such a vague strategy has been at the heart of the issue - what is it we want out of Afghanistan as illegal drug production is at a peak, the violence is getting worse and the democracy there - which we sponsored - is a sham amidst a corrupt regime?

The Queen's Speech is about as irrelevant as the content of it - the only important thing to note is that she and the Commons will be summoned to Mandelson's feet in the process.

Banks Sorted - Move Along, Nothing More To See

A simple podcast and bit of TV interviewing and finally Gordon Brown and Alistair Darling have brought the banking crisis to its conclusion.

The final solution is the FSA will be given the authority to tear up bankers' contracts if they feel they are excessive or reward high risk activities. Makes you wonder why the FSA would do that after sitting by and watching the last crisis unfold last time and doing not a sausage about it - in fact, receiving bonuses themselves for their good work at the time. Indeed, to a person, the same staff exist at the FSA so we can expect this new, draconian behaviour to really work. Sure.

Along with a few gems on higher capital to be kept by banks, Gordon Brown confidently announced in his podcast that "We will ensure that the banking crisis we have experienced over the last two years should never again come at a cost to the taxpayer".

The finality was awesome - the banking crisis as we experienced it will never happen like that again but if it does we will never have to pay for it the way we did before. Of course, if you believe that then you will believe anything and vote for a landslide Labour win at the next election.

Much more to the point, long before we look at why Brown's comments are not true, we should be asking why did the last crisis cost so much. Brown tries to tell us that as recessions go we have not fared badly on unemployment and repossessions. I think sometimes he must be reading different reports than the rest of us as unemployment is now higher than at any point in the last 12 years and if you add those who have been on long term benefits for whatever reason, then Britain is at its worst in terms of Welfare strain for a long, long time. As for repossessions, when those who have opted for the deferred payment schemes and when the interest rates start to pick with those in negative equity, it is arguable that we have yet to see the full effects of the housing crash.

As before, Brown seems to think the financial situation in Britain is far better than it really is.

The stark facts are there to see. We have spent £1.4 trillion on saving the financial system and to this day we have no idea whether that is too little, too great or enough. The bankers remain unscathed by our generosity and the best we can do is to threaten their bonuses in the future while at right now headhunting, sign on fees and massive profiteering on written down debts are bolstering earnings greatly. Under our noses, the very machinations that brought about our ruin are going on and the best our ministers can do is to write a few rules that banks and their lawyers are adept are getting around.

The actions by Darling and Brown are superficial and treat only the symptoms of a flawed banking system that is working in exactly the same way as it did before. We have printed £200bn of new money and given it to the banks to shore up their finances and play the markets - none of it has got into the real economy whereas the exact same QE in the US was put into the asset backed securities markets and guess what? They emerged from recession and we didn't.

At every turn and juncture this Government has got the financial calls wrong. We have spent far too much money rescuing a system that did us no good to act the same way again. None of what these two goons have done or said will make an iota of difference and at every point they called the situation wrong and estimated its extent wrongly too. It has been a process of escalation all along of reacting to the crisis, trying numbers and then spending much more as the guesses made were never right. How much we could have avoided paying, we will never know.

If you believe this cod's wallop they have spouted this week, you may as well believe pigs can fly.

A Sad Demise

Would you want to be a shareholder in Lloyds Banking Group right now?

Those who own Lloyds shares will wistfully remember the good times of a steady bank which paid good dividends, made some shrewd acquisitions and maintained a good share price. Theirs were a share renowned for a good long term performance and a company for its sensible management.

Just about a year ago, all that changed. From a peak of £8.20 the shares of the bank dropped to a low of 25p. In the face of the credit crunch, the bank made its most disastrous move in its long history when it made a bid for the beleaguered HBOS, who had been guilty of some of the most reckless corporate lending amongst other sins. As the bank suddenly realised the extent of HBOS' woes and the incredible strain on its own finances as the crunch took hold, it frantically tried to renegotiate the deal and even back out, despite the fact that EU competition rules were temporarily waived to allow the new group to own a whacking 28% of the UK mortgage market.

It was a collision of management incompetence and all consuming greed.

Then in stepped the final bunch of meddlers - the Government. It is widely believed that the PM himself personally intervened at the 11th hour to urge this merger to go through. Incredibly, the handshakes had barely stopped when Lloyds saw the folly of what they had done, tried to mess with the price of the deal and then went cap in hand to the Government to shore up the group's finances in order for the deal to go ahead and for the two companies to survive. As the whole mess unravelled, the taxpayer came to the rescue and took a 43% stake in the new group to stop BOTH banks sinking. The shareholders at Lloyds, after years of content, suddenly saw their investments collapse to virtually nothing.

So here we go again. Today, Lloyds launch the biggest rights issue in history. A further £21bn is required to shore up its capital which is only around £22b now, principally so that it does not have to join the Asset Protection Scheme (APS), the euphemistic name for the financial cesspit where toxic debt is to be parked and underwritten, in full, by the taxpayer - the premiums for which, Lloyds deem too expensive.

It's remarkable. They deem the insurance premium for APS too expensive - less than a year ago, they would have paid anything to be saved. As taxpayers, we should be happy, I suppose. Lloyds was always a dedicated stock market performer, so it would make sense to see it steadily rise again so that our 43% can be sold and returned to us. In the short term we will need to pay a further £4bn as our part of the rights issue so our stake rises but we would all believe it is money well placed?

That's if the management know what they are doing. Remember, the same bunch of individuals, which is a truism of all the management of all banks with the exception of RBS, the Lloyds Chairman and Andy Hornby of HBOS, are running the show. The daft investments they all made are being made again across the board as banks feed on the frenzy of a nicely depreciated market courtesy of the taxpayer. Across the globe, banks are accruing nice bonus pots for their good work and in the Sunday Times, the CEO of Goldman Sachs claims that his bank is doing 'God's work'.

Many economists are now coming to the conclusion that it would have been better and cheaper in the long term to have just guaranteed the deposits of savers, created a central mortgage bank and let the rest go down the swanny with the idiots who took them there with it. We would not be talking about bonuses and reforms now, we would have a new look banking system based around sensible criteria and practice.

I find the fact that genteel Lloyds shareholders having to stump up to pay for the whims of a management that nearly bankrupted the company abhorrent. Further, to pay for the suicidal practices that led to this sad demise of a once great bank, 5,000 staff at Lloyds will have to lose their jobs - people who were not involved in the abysmal decision making that got them to this point. That act alone has been described by unions as 'arrogance' and I agree. At all banks, we see low level staff paying the price while people like Stephen Hester at RBS accrue bonuses equivalent to the salary bill saved - in just one year at the helm of a company propped up by the taxpayer so that he could not possibly fail. Even then, he has us all pay more and been let off around £10bn of debt he owes us - for that he accrues £9.6m.

You could not write a script with such a plot as no one would buy the book - it would have been deemed too far fetched. The problem is that within a year, we will have all forgotten what and how it all happened. We will carry on and allow the whole process of rebuilding the house of cards again, ready for the next gust of ill wind to sink the whole lot.

Monumental hubris and arrogance at the most senior level in the banks, the regulators and the Government are at the witch's cauldron stirring up a foul future for the lot us. They will do nicely though, thanks to the taxpayer.

What a Great Deal?!

You couldn't make it up but I suppose it's to be expected.

Today, our prize investment, RBS, having just got the details of the extra £30bn we are pumping into it, has announced it is shedding around 4,000 jobs.

It makes you stop and think. Recently, there was a lot of controversy in that RBS' investment bankers will be getting fat bonuses this year and, indeed, their CEO, Stephen Hester, is in line for a £9.6m. They may get some deferred but that will really sit well with the 4,000 who will pay for them. In fact, around 16,000 jobs have already been shed from the back room, branches and other places - the sort of jobs that the expensive adverts on TV about NatWest and their push for more personal banking might be lead us to believe have not gone.

4,000 jobs and let's say the average salary is £30,000 per annum - that would be £120m off the wage bill this year. That will probably be less money saved than the bonus bill.

But it gets better. 700 branches of British banks will be sold to other companies in the fire sale of the decade as the EU rules that banks that got state aid must split. Private Equity houses and foreign banks will love this as they will buy already stripped down versions of the banks branches with redundancies already paid for by the taxpayer and because so many branches will be up for grabs they will be sold at rock bottom prices, once again leaving the taxpayer with the mired end of the stick.

It gets better than that. Having given away the jewels of the banking industry cheap and subsidised by us, they will be precisely the same buildings, staff and products as before just owned by someone else who will reap the profit on our loans and mortgages rather than us at least contributing to the value of our 'investments', i.e. the banks we saved. We are told it will promote competition - sure it will. Why would anyone buy the banks and then trash the price when there is so much cash and profit to be made? Prices will remain the same, believe me.

And is it good that Tesco buys into a bank? They squeeze the living daylights out of suppliers and only pass on part of the savings to customers which makes them ever more profitable. We are handing them a cash business to make them more money. Meanwhile, Virgin must be laughing as they offered to buy Northern Rock when no one else would and when it was leaching money - now they get to buy the cleaned up good part at a knock down price with a great deal more advantageous loans from the Government to lend at a large profit.

Alistair Darling kept a straight face as he announced all this. He didn't want to let on that we have all just been right royally shafted. The smiles will come later.

The Sage of Omaha

I dare say I was one of millions who watched Evan Davis' program on Warren Buffett last night.

I was probably not the only one who sat there, glued to the TV, pen poised above a notepad ready to scribble down the learning points from the 'Sage of Omaha' that would lead to my transformation into a multi-millionaire investor - make that multi-billion. Pithy remarks, wise anecdotes, shrewd insight, clever techniques and unique methods were the sorts of things I wanted to hear about. Instead, we found a homely old fellah living in a nice house, with a cheap car, a tiny office and none of the trappings of a man motivated by money. Indeed he had not only pledged to give it all away but his children seemed perplexed by the idea of it being passed down the family lineage.

I sat there at the end of the program and thought to myself, 'If he didn't seem to like money, why did he actually go out an make it?'.

Also, many of his investments seemed to be haphazard and almost suicidally hopeful as to believe that he could easily be hoodwinked or conned or, worse still, have no idea what he was doing. The phrase 'due diligence' was never used and seemed to be not in his vocabulary and there were at least two company purchases that he did in his career where he did not look over any financials or check any contracts beforehand. In fact, they interviewed the owner of a mobile home house builder who stated with surprise that he never met anyone from Buffett's company beforehand and the whole deal was done over the phone with the remark, 'Just send me any financials you produce each quarter'. For that, the former owner was hailed one of Berkshire Hathaway's greatest stars.

I am sure there is more rigour and greater acumen involved, but Buffett just came across as a strumming, would-be folk singer who just 'tap danced' his way to his small office each day as he loved his work so much. Indeed, when asked why he did not have much more than his 85 year old partner, Charlie Munger, on his staff, he replied, 'Why would I employ someone to just read the paper after me?'.

There is no doubt that during his career he worked a 'Lord Hanson' on some underperforming companies but it was clear that interacting with people about tough decisions was not his style - Rottweiler managements did not suit him. When he came up against bad ethics and mismanagement at one of his buys, Salomon Bros Bank, he personally pledged to the Fed that he would sort it all out and his word was taken as an invaluable bond to save the bank. Probably no other businessman in the world would have been taken so seriously.

Buffett likes to invest long term and he likes to invest big. He doesn't have any modern technology to monitor his investments, no office computer and he even rarely answers his mobile phone as Bob Diamond at Barclays famously found out. He doesn't visit his portfolio of companies and when he was led around the Microsoft's campus for half a day he joked to Bill Gates that he had seen more of Microsoft that any business he had owned. He doesn't monitor stocks and shares - he views companies as farms, watching how much they produce from the land rather than what the price of the farm would be.

He eats poorly, dining most nights at the same low grade restaurant, hates vegetables, and drinks lots of sugary drinks - indeed his daughter claimed she had never seen him drink a glass of water in his life. In the same vain as his friend Gates, he seems to thrive on just about anything a doctor says is bad for us. On top of all this, he lives in a leafy street in Omaha where his house of 50 years, bought for $31,000, is not even the best on the street and is his only property in the world. His car was bought by his daughter as she always did, at a discount because it was hail damaged.

So what picture are we building of this incredibly simple and likable man? To him investing seems very simple. The formula he and his partner use is obvious, repeatable and not rocket science. He may have started by punts on obscure, undervalued companies but he now tends to focus on household names like Coca Cola and Goldman Sachs. His engine is the cash business of insurance and his mantra is never to get into debt. But as much as he expounds a common credo you find he breaks his own rules all along.

The one thing I have always taken from Buffett is that debt is bad for business. He claims more smart people went out of business through 'leverage' or debt than unsmart people who succeeded and did not use debt. I like that mantra and I think it is something that most businesspeople should take seriously. Today, there is a huge focus on debt as being good - Buffett is one of the many cash businesses that has taken advantage of the depressed markets so dependent on debt to make $billions in tough times.

The other thing I took from the program cheesed me off. Buffett, despite the fact he will give all his money away and tells us to invest not speculate, has invested in the derivative products which he rightly labelled the 'financial weapons of mass destruction' that would tear down the financial world and did so. He now owns such products because he believes the fundamentals are right. That really did not square with the man's supposed philosophy and he visibly squirmed in the chair when Davis mentioned it. He was embarrassed. It was pure speculation and it had nothing to do with investing as clearly such instruments are not for long term investors. What he does believe, like most banks today, is that the whole market for such products has been 'written down' so much by taxpayer money that they are now all cheap again. The 'equity' that had been consumed by mad price spirals has been returned at much cost to everyday folk and he is ready to capitalise on it as any greedy bank would.

The one thing I asked myself at the end of the program was why? If he was indeed unmotivated enough by money as to give it all away so people less fortunate than him can benefit and to not live the life of a rich person, why would you capitalise on the misfortune of others so blatantly? And why, knowing who has paid for the market reset, would you play the market so cynically?

The answer is that if you want to make serious money in life, there is no other way, you have to profit on the misfortune of others. In fact, over on the other channel on 'Have I Got News For You' a capitalist credo was shown which I barely can recall but went something along the lines of, 'Inequality is a good thing as it makes sure that enough wealth can be generated to help everyone.'

That's the kind of circular logic that clever rich people use and believe in. It's the one thing worth writing down on your notepad. It's why bank bonuses are a good thing, allegedly.

That'll Show Them

George 'School Snitch' Osbourne is a complicated character. He looks like a cross between a snooty school bully who operates largely behind everyone's backs and something a little more sinister.

Then he opens his mouth and, while he is trying to make a point, garbage seems to fly out. Yesterday was a classic example.

In an attempt to boldly take on the City bonus culture he firmly said that he would curb bonuses to just £2,000 of cash and the rest in shares. That way the banks could use the precious savings, estimated so far as around £6bn of accrued bonuses, as money they could lend.

It was a daft policy on many counts.

Not least, he defined he would use the policy for this year only. In a recent reality test conducted by most citizens, it appeared that Gordon Brown and Alistair Darling were still, albeit by the skin of their teeth and arguably not for much longer, at the helm of the country. So the chances of it ever being more than just a stream of words from his well educated but inexperienced mouth was absolutely zero. Secondly, the fact was that despite the incredible sums of money poured into banks via new money printing, loans, capital and guarantees, lending is down by some £15bn. So the evidence shows that banks would just hoard the cash to make their balance look good if that was what they were compelled to do with it in the last resort.

But Osbourne missed a vital point in is idea, which was about as a worthy as that of an 11 year old winner of a class project. Banks are devious fellows and they would have paid the bonus in the form of some other precious and valuable commodity - en primeur fine wine or platinum or gold as good examples. True they all would have had to have large cupboards and the nous to realise the value but give these whizz kids some credit.

Far be it for me to say this was just political grandstanding but that's what it was. The trouble is that it was not very intelligent grandstanding from a guy with a lot of education but no common sense. It perhaps sums up the whole Tory challenge - a lot of wet wind and flannel but no real substance.

The danger is that we have people like Osbourne in high office and we start actually wanting Darling back.

What a nightmare scenario that would be.