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.

Icy Reception

Iceland has agreed to pay a sum equivalent to 40% of its GDP as compensation for the money lost by Dutch and British savers in the collapse of online bank Icesave.

Icelandic voters are up in arms, seeing this as taxpayers coughing up for the mistakes of businessmen, to the tune of almost €12,000 per person in a country of only 320,000 people. In terms of lost opportunity, the interest on the payments alone would run the cost of their entire health system for six months.

Icesave attracted savers and Local Authorities alike through its marginally higher interest rates but when it collapsed it was not covered by the FSA compensation schemes - something that savers had ignored in order to get at the extra savings interest. One could argue convincingly that the apparent lack of care by the FSA and the savers allowed this to happen while taxpayers in Iceland can rightly say that they should not be liable for compensation for the mistakes of a small group of greedy businessmen who happily risked the deposits on crazy products as a result.

In Britain, even before the banking collapse, saver deposits were protected to a certain extent and the Government moved in quickly to support all deposits, following Ireland's lead. The FSA has always had such a scheme - but why should it support the deposits of foreign savers? And should Iceland have a similar scheme?

Perhaps more importantly was the question of why several local authorities, including my own, were depositing funds in such saving schemes when they knew they were not protected by the FSA? It seems that not a single person in Local Authorities lost their jobs for not checking this and many such staff in charge of the management of funds do not even have formal accountancy qualification. Yet, such mistakes have to be funded by private citizens who pay tax in Iceland.

The Icelanders are not taking it lying down. A large petition has been put together and around 56,000 or 23% of Iceland's voters have signed it to try and prevent the payouts. If only the British voters could have been bothered to do the same perhaps we would have saved paying out such massive blank cheques to save the careers and fuel the wealth of a tiny percentage of this nation's citizens or at least made sure there were enough caveats to make them all culpable should it ever happen again.

But that's the stoic Brits for you. £1.3 trillion bail out to save rich bankers? Why not.

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?

Taxing Problems

While it may help soothe internal feeling about bankers by taxing them heavily for a short period, the reality is that the problem of banks running extreme risks in their business is not solved and we run the risks of other problems.

John Varley, CEO of Barclays, who did not use taxpayers' money to prop up their company in the Crunch, has said that using tax as a stick short and long term is not a solution. His argument is that it drives 'talent' away from Britain. Personally, I really don't care if unaccountable people who thrive on big bucks set up their own island somewhere in the Pacific to go race their fast cars and talk about the size of their wallets or purses. But I do care that if we do not fix the fundamental problems in the financial system, it makes not a jot of difference to the banks where they locate their staff just as long as they can earn big money - and so driving people away from the UK doesn't actually help us.

If the Taliban all dropped their weapons tomorrow, turned themselves in and embraced Christianity without a further shot being fired we might think this a victory but it isn't going to happen on the current tactics employed. Likewise, banking will find a way to continue what it does unless we tackle the underlying problems - it will also find a way to continue doing what they do to earn billions in scam profits and reward a thin wedge of staff beyond all sense of reality in some way or another. They can afford to as there are huge profits at stake and, frankly, we have shown that we cannot do without the banks. A compromise will be found or loopholes used - either way, banking will get what it wants in some place or another.

The UK Government's headline-grabbing move to tax bankers and high earners generally will not have the desired effect. Firstly, only £550m is expected to be raised on the windfall tax and secondly, high earners will find loopholes in the 50% tax on £150k or above - accountants and lawyers are hard at it as we speak, communicating openly on how to 'mitigate tax' on websites as legitimate as the IOD's.

Tax is a useless and archaic system in driving behaviour. As with speed cameras, it is a way to make money out of transgressions but it does not stop dangerous driving which can be done even at low speeds. So too, heavy tax on bankers merely makes a few bob to assuage public opinion but it does not stop the banks trading products that will cause the next bank meltdowns and even harder economic times while staff cream off ridiculous profits. In fact, unless we fundamentally reform what banks do, before we have paid off the bills for this time around, the next bill will be on us. You see, taxing them this way ultimately will get transferred to us anyway by the fact that they will continue to do what they do to cause financial meltdowns.

If the tax burden gets too high, ultimately it will drive people out of the country. The most able to pay will leave, transferring the burden back onto the people who did not cause the problem. The non-domicile rules will ring fence high earners at one end of the spectrum and banking havens will arise nearby fairly soon.

Fundamental reform of banks is what is needed. I applaud the splitting of investment and retail banking as a start - too often staff in retail banking pay with their jobs for the idiots in the investment banking side and the cash is used to hide the activities of the investment arms. But trading debt should be rigidly reformed so that complex, structured products cannot be used to hide poor asset valuations and debt management, creating a convoluted web that no one, even in the banks, understands. Wholesale money markets should not be used to prop up banks' activities, it is not a question of ratios it is far more fundamental than that.

Until we get some people with real sense and courage into the banking industry, regulators and Government who aren't so rich that their views are biased then we will always have this stupid attitude of tax being the tool to solve any problem.

The problem is that taxpayers have to pay for the mistakes. If we, the taxpayers, held people accountable for the money they use from our personal wealth pots, then people like Andy Hornby, Fred Goodwin, Alistair Darling, Gordon Brown and Hector Sants would be flipping burgers at McDonalds learning the basics of business by now - paying tax like the rest of us and ranting at the their former colleagues in the banks.

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.

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.

Banking Governance

Kudos to Sir David Walker who has at least understood some of the big issues in the banking sector and has proposed some major changes which he believes the UK should lead on.

However, I still do not think anyone has nailed the crux of the problem. It's all very well proposing that banks should disclose how many people earn of £1m or more and that Non Execs (NXDs)and shareholders should take more responsibility in the governance of banks but I really do believe it is naive to believe this will actually solve anything, even if it is a step in the right direction.

Firstly, disclosing millionaire earners is neither here nor there - meaningless in the great scheme of things and it reveals nothing of how a banks works, the basis of reward schemes or whether it is acting properly or not. It is a mere barometer and if anything, it advertises to peer companies which bank is prepared to pay more of its employees more money. As for NXDs and shareholders having more say, I believe there are several issues here.

Firstly, we have seen how NXDs have acted in the lead up and during the crisis. As the proverbial hit the fan and one of its biggest perpetrators was being thrown to the dogs, they still acted as if nothing was wrong in conjuring up a massive pension pay off for Fred Goodwin or re-engaging Andy Hornby on a £60k per month consultancy contract at HBOS. Because the rewards of the NXDs are inextricably linked to the profits, they are hardly likely to kill the golden goose - they are by definition already wealthy people who are there to make a great deal more money. Then there are the shareholders. Of course, their rewards are dependent on the banks' fortunes as well but there is a bigger issue at play.

The vast majority of bank shares are owned by the public but indirectly - either via the Government and its vehicle, UKFI, or via pension funds and the like. The general public owns very few shares individually. Therefore any involvement by shareholders comes as 'block votes' from these 'aggregators'. Again, both fund managers and directors of UKFI are charged with obtaining maximum value from the shareholdings so they are hardly likely to vote against making profits. Again, they are all wealthy individuals and are motivated by making a great deal which their own bonus schemes generously allow.

Finally, as the whole of the banking industry now has a safety net of unlimited lack of liability to their losses should there be wide scale failure, there is zero incentive for any of the 'aggregators' to act in any way different to the banks themselves. Indeed, even the staff at the FSA all received bonuses for last year despite presiding over catastrophic losses.

There are far more fundamental issues to be resolved here and it isn't rocket science. At the heart of the banking system lies a serious flaw and a massive liability. Upon this flaw, the global financial system has built an estimated $550 trillion of open derivative positions and a further $400 trillion of associated insurance positions - all of which are so convoluted as to be virtually unauditable. As long as banks are allowed to continue trading in such products and financial instruments, then the rewards will be massive and yet largely unreal.

Until we get to grips with these 'Financial Weapons of Mass Destruction' as Warren Buffett called them, we will always have a basic issue of governance in banks for which the taxpayer will be liable - yet we are the biggest shareholders.

Debt Is Good?

Hey, if bankers can make billions out of trading debt then every penny we clock up as a nation must be a good thing? Right?

Really, we owe £825bn as a nation and we must be getting richer if we borrow more, according to the rules of bankers - so borrowing a record £175bn more over the next two years must actually be a good thing. No need to tighten our belts, rein in the spending, cut costs, make efficiencies - perish the thought. Spend as if there is no tomorrow, because debt is seriously good.

Well there is a minor flaw to the logic. We know as individuals and consumers that we can borrow and borrow thanks to the plentiful supply of low cost credit using the above logic. Then the party can come to a shuddering halt. As if someone has noticed a small turd in the bath water or that the emperor is actually wearing no clothes, someone always realises that your ability to service the debt gets in the way of a good time. The debt suddenly becomes a millstone around your neck and for consumers that can mean a lot of hardship, possibly bankruptcy in the extreme. Banks can be merciless if you cannot pay up, as we know, yet when they get into debt, we get to pay for it. An odd story but that's 'Big World Economics' for you.

While our Government continues to spend as if there is no tomorrow, we ordinary folk in the street know that it cannot go on - just as many of us realised that the rise in house values had to collapse at some time. Too much debt is a nightmare. We know that, yet we are not the equivalent of financial 'rocket scientists'.

It seems the public know more about the current national situation than the ministers at the helm - in line with people at the IMF and other bodies that look at Britain as growing pile of sewage on the world seas when it comes to borrowing money. We borrow and borrow yet we make no long or short term plans in which to pay the money back other than believing we will win phenomenal growth at the next throw of the dice or that the economic recovery will take care of all that we need to repay the money. It's like an executive asking the bank for a loan as the business is losing money but makes no modifications to his or her business because they believe success is just around the corner when it hasn't been for six straight quarters.

Put in those terms, Britain is heading for a financial disaster. By all means follow the creed of Friedman but there comes a time when you have make cost cuts as the situation will start to spiral.

A survey of the public agrees - so it is not the population of this country that wants to keep clocking up this debt. We have to pay for it in taxes - the interest bill by 2014 will be £60bn, the size of the NHS budget in a single year - and contemplating it scares the heck out of us. A BBC poll suggests 59% of people would prefer to cut spending rather than have increased taxes. Almost half of those surveyed (48%) also believed there should be a pay freeze in the public sector - the reason it was only half, I suspect, is that the proportion of jobs in the public sector must mean that statistically half the people who were surveyed that work must be in the public sector - it's a position which itself is a time bomb. Bureaucracy and civil service should be the first big area to get the knife, there are just oceans of people doing little of value to this nation other than occupying a seat and consuming tax pounds.

31% of those surveyed reckon the pay freeze should for two years - welcome to the world of sane thinking. The good times, as the public know, are over.

Here's a thought, over half the people reckon that the highest earners in the public sector should take between a 5% and 10% pay cut. During the entire recession and credit crunch, the Sunday Times Appointments Section has been chock full of public sector senior jobs with huge salaries - far greater than the private sector for similar jobs and with gilt edged pension plans and benefits. It seems as if the public sector has been booming while business has experienced reality.

Of course, you have to get the priorities right - the Armed Forces and parts of the NHS should not endure some cuts but there is so much wastage in this country all the way to the top that thinking you have only to cut all salaries is the mindless way of viewing things. It's like us cutting spending on training reservists and then sending them to fight the Taliban - doing such things are stupidity in the extreme but increasing the pay for MPs is exactly the same. You have to look at things from a value point of view. Increasing the pay of a CEO at an NHS Trust gets you no value while increasing the wage of a nurse or hospital doctor does. It makes you shudder when Labour introduced the manic scheme for GPs that increased their pay overnight by a huge amount for nothing extra only to find they had made a gross mistake in calculating how much they actually worked to qualify for their money.

This whole Government tenure has been one of laissez faire management of finances, policing and immigration as examples and now, as we contemplate the abyss of massive and unmanageable public debt, they continue to spend on stupid things like MoD and FSA staff bonuses when the country is on its knees while cutting spend on Armed Forces and frontline weapons while trying to fight two wars.

The penny has not dropped in all quarters yet as Glasgow North East showed - but at least this survey shows we are finally getting there.

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.

The Patient is Not Responding - Hit Him Again

The operating theatre euphoria dies down as the man in the white coat and thick glasses points at the bank of monitors and speaks in a weak voice.

“Em, I said it looks as if the patient’s recovery has faltered,” said Dr. King in a frail voice. L. Ron Mandelson gave him a look of pure evil. The rest of the team looked down at the patient, a Mr. British Economy, who had looked as if he was recovering from his massive open heart surgery in the wake of a severe heart attack suffered due to incredible over indulgence.

“But I thought the surgery went well,” stammered Nurse Darling. "All the other people operated on from France, Germany, Japan and USA have recovered while the Italian one is getting better despite being fatter and with all that plastic surgery that he had too."

“The expensive sticky plaster is holding the heart in place nicely, indeed,” remarked a man in an expensive suit, a Dr. I. Banker. “The vital signs have wained but a new boost of intravenous QE should sort it out. Get another bag.”

“Hold on,” said Dr. King. “That’s bloody expensive stuff you know – we’ve put in £175bn so far. We are not made of money, you know.”

“To my mind, you are,” replied I. Banker tersely. He gave L. Ron Mandelson a nod. He smiled back and turned to King and twisted his ear.

In the corner, a man with manic look on his face was putting weights on a rubber band scale which was connected to a speaker which made an annoying ‘weee, pop’ noise.

“Who is that idiot making that noise,” asked Professor Brown.

“That’s Dr. Sants,” replied and adviser. “He’s besotted with his new Stress-Testing Machine. I’ll tell him to stop.”

“Tell his boss to tell him,” snapped Prof. Brown.

“Erm, he is the one in the corner tied to a chair and gagged, sir. The one with the notice saying ‘Loony’ around his neck at the request of Dr. Banker, sir.”

A lady shuffled forward. “Before you put that bag of QE on the drip, I would like to point out that the last lot of QE had no effect. In fact I think it isn’t getting into the patient at all but it’s been diverted by another tube into this drain which says ‘Financial System’.” Whoever she was, L. Ron Mandelson cuffed her on the head and told security to remove her.

“I wouldn’t give the patient QE, try cannabis,” said a man. L. Ron Mandelson immediately cuffed the man on the head and had Porter Johnson remove him.

“I don’t pay you to advise, Nutt,” remarked Johnson. “ I pay you to toe the line.”

“You don’t pay me at all,” remarked the man.

“Precisely my point, Nutt” hissed Johnson as he threw him out.

“Right,” said Dr. Banker. “All agreed?”

Everyone looked at one another before L. Ron Mandelson dug his elbow into Prof. Brown’s ribs with some venom.

“Ow,” screeched Prof. Brown. “Yes, yes, of course, all agreed.”

“Good,” said Banker. “I’ll add that to our fees and £25bn extra QE via drip please, Nurse.”

“Wait, wait,” interjected Nurse Darling excitedly. “What about that idea of the Government being a Hedge Fund and buying further into our hopeless banks. It sounds as if everything is just going down the toilet.”

“Trust me,” replied Banker. “I know what I’m doing - as if I would ever lose you billions? You don’t think you pay all those fees for nothing, do you? Just buy the shares and put the QE in and stop asking irrelevant questions. "

Air Shots

Some while ago I blogged on how many golfers, when faced with an immovable object like a tree blocking their route to the green, will choose to hit through the tree rather than round it in the vain hope that there is more clear space than branch to be hit.

I argued that the reality is that by using a club of a specific loft and length you actually narrow the area of tree you are aiming at and in that 'corridor' of the shot you actually increase not decrease your chances of hitting branches as you increase the amount of space occupied by the branches in the corridor with respect to the total available space in that corridor. When you think about it, you are taking the very randomness of the tree's branch arrangement out of the equation by hitting at it. The logical course of action would be to take the tree completely out of the equation and go around it using two shots rather than risk wasting shots.

I would argue this is precisely what happened on Quantitative Easing (QE) by the Government. In piling a ton of cash at a problem, they viewed the financial crisis as a tree blocking their way to rescue. Their logic was that if you pile so much money at the problem some of it has to get through. But that was the wrong assumption as banks needed an extraordinarily large amount of money to shore up their huge lending gaps - RBS' alone was £161bn and the total QE to date has been £175bn.

What has happened is that the QE has been horded by the banks as free new money which they use to play casino banking or just keep. Very little of it has got into the wider circulation as the recent M4 figures on money supply has shown. In fact, the money measure M4 decreased despite QE.

This was the equivalent of a golfer hitting a ball directly at the tree and hoping they hit a gap to get through. If only someone had stopped and thought what the real cause of the banking crisis was then QE would not have been the best measure to deal with it or at least they could have thought of a better way to introduce it. In fact, by buying bonds in our own debt, they played right into the hands of the very banks that caused the entire problem who had been commanded by the Government and FSA to do precisely what QE allowed them to do - increase their capital to lending ratios without lifting a finger.

In hindsight it was obvious but it has been the modus operandi of the Government in this whole crisis. They have paid millions for duff advice from bankers and think they did the right thing. Now all the real measures of our economy like GDP and money supply show that what they did was either wrong or wrongly executed. You cannot argue with the figures, our management of the crisis was sheer panic measures.

Now we have the great bank sell off bonanza to come. The proposal is that new high street banks will be created in the new market conditions free of encumbrances. Investors are going to have a field day as we split profitable businesses from bad ones and sell them off nice and cheap and just watch how much profit foreign and private investors will make on our business. You can feel exactly what will happen and a few years down the line we will find every single one of our High Street chains of banks will be owned by foreign companies profiting out of our mortgages and lending needs.

You don't believe me? Our utilities have already gone that way in water and power, many High St banks are foreign owned already like Alliance & Leicester, Abbey, HSBC and the Royal Mail will be sold to a foreign company. In each case, the dirty end of the stick will be held by tax payers as we pay the profits of our mortgages to foreign companies.

You could not invent a better strategy to waste tax payers money by constantly leaving them with the bills while the profitable bits of the businesses they bought are sold off. But that is the key to the Government plan - the taxpayer is there to fund the rubbish.

As a quick for instance, the good part of Northern Rock will be sold for £1bn and we will still be owed £27bn when that happens plus the liabilities. Great deal, eh? Just watch the rest of them.

Meanwhile, us would-be golfers have learnt our lesson - it's better to hit round the tree than at it.

Layer Upon Layer

I recently took part in a survey of what things I felt could be done to help Britain reduce its borrowing. Hold your horses - it was neither the front bar of a pub nor was it in the corridors of power. It was an online thing in one of the networks I use.

So the results are hardly likely to go anywhere. However, I have to say that some of the thoughts seem to resonate with those of others and the broad consensus of agreement is that there were many, many ways for the country to save money and reduce borrowing long before we actually impact services.

The first and most obvious way to reduce costs is simply to look at the layers of structure that exist both within public service departments and Government itself. Over 1 in 4 jobs are now in the public sector and this is warning enough. But when you start looking at the complex web of management structures and communication bridges, quangos and the like you suddenly get very depressed at the level and competence of the people that must be in there. Yet not a day goes past when some advert comes out for an overpaid interim to run some NHS Trust. We are breeding terrible grounds for long term bureaucratic money sumps.

So a starting point would be to review how many people we need in Parliament, the number of people to support these and start cascading the process. Very quickly we could home in on the number of MPs, the flunkies and mandarins, then the level of Local Councillors required, their staff and amorphous bodies around them, National Assemblies and their associated costs. Vast sums could be saved on the multiple layers of politician and the associated support infrastructure and people in pretty short order. Then we start looking at the departments around them and critically analyse who does what and why - the old time and motion study on public servants would bring into stark focus why Departments have spawned their own empires and management structures - Business Secretary alone has 9 junior ministers and umpteen staff - it's bizarre.

Don't start me on quangos and ancillary 'private' companies like the FSA or similar - vast staff who have proven they do nothing and cost loads. There are thousands of them, all stocked with the highest paid clever-clogs and never sensibly priced workers. It's all jobs for the boys and none deliver real value.

Associated with this is the whole costs associated with public service. In Wales and Scotland whole new prestige buildings were erected to house new assemblies when there were oceans of office space going begging - the costs, the salaries, the expenses so much of it unregulated. Then you start to look at the 'hangers on' - how many of these offices have associated external advisers, consultants, PR agents and the like running around on vast retainers adding little value to the everyday business process and our lives. Value for money is the key issue - it's not about making politicians or civil servants' lives easier it is about getting value for taxpayers' money. First to get the chop would be the army of investment bankers and lawyers advising on the current economic crisis - nearly £100m on them alone per year.

Then we could start looking at the layers of management in each department. Having experienced the NHS at first hand in the last few months, it is absolutely clear that money is not being focused in the right area. I have no qualms with the services provided, but when consultants have to beg for the prescription pad to administrators you know there is something wrong. The layers of management in such organisations are dreadful and unnecessary. The first thing these people would do is call in advisers to look at structures when in fact this is what private business does all the time. Management reviews are an everyday occurrence in business and if that's what the NHS is meant to be, then the managers should be capable and tough enough to do it. The amount of cash it could free up in the largest public budget is enormous.

Coupled with this is the vast wastage of money associated with budget overruns or badly implemented projects. It is not rocket science but you see £billions wasted on overly complicated IT and data projects, emergency service automation projects and the like. And so much focused in Police projects on how to balance budgets through revenue collection rather than focus on crimes. Value for money is the mantra here.

And again coupled to all this is the potential savings in salaries and costs associated with reviews. But it should go deeper. There is also recession on and wage negotiations have to be tough and tightly controlled while the whole bonanza on public sector pensions has to tackled before it cripples us completely. Why public service has such bias in terms of pay and conditions is beyond most people in the private sector who would kill for such fantastic automatic pay increments and pension schemes.

The target system is these departments is just a mess. While checking in waiting times may have gone down at the NHS, the chances of getting treatment quickly is minimal and highly trained people are focused on the simplest of tasks as they help hit targets. As we all know, hitting targets means money so more can be spent to hit the next targets which move you ever further from proper value for money. The whole service of Government is becoming a postcode lottery as incompetence seems to breed in certain areas.

Education is costing more and more and delivering less. How Ed Balls can smile is beyond me when you look at the basic deficiencies of entrants into the business world. They can text nicely on a phone but using written English defeats them while basic maths skills are beyond them. Looking at exam results, then the message is that we are producing genii. We are loggerheads with reality and what is required for future generations.

It's a simple matter but layers of management are counterproductive - we in business know this. Looking in at the whole public sector and you see layer upon layer of unnecessary levels of management whose tasks are to aggregate communication for the next layer up - in today's world of advanced communication that delivers nothing and hinders plenty.

The problem stems back to the central control issue. The idea that a Government has to control everything means that you have a cascade principle at work. Only partly in that structure do you get any kind of devolved thinking and its why we get so little value for money. Services in general are less but cost more - just take a look at local refuse collection. The amount of refuse being taken is decreasing, we have to do more of the work as individuals than ever before in sorting and if we should break the rules we get a criminal record. yet do we see a decrease in cost? It's just crazy. More and more talk comes about direct taxation for specific roads or services and it makes you ask, 'Then what have I just paid for in taxes?'

Value for money should be the credo for all taxpayers. We should be able to ask how our money is spent in wars, services, education, health, bank bailouts and other areas - we want to know why we are funding more politicians than ever, why are we supporting such generous pension requirements for the public sector and why are we paying for so many external bodies who deliver zero value?

All that happens instead is we sell off £16bn of assets no one cares about. It's a drop in the ocean in terms of what is required. Governing this country and delivering service has been an enormous sponge to cash over the last 12 years and no one knows how much we get back for the money we spend. It's time that rigorous reviews are done and savings identified fast. The IOD reckons at least £50bn per year can be saved on annual expenditure without cuts in services and I think they are undercalling it.

Waiting for the election will not help deliver the necessary savings in time. It needs to start now.

Roll Up, Roll Up - Everything Must Go

Fired on by Arnold Schwarzenegger's garage sale in California which saw old bikes, lawnmowers, sofas and old 8 track tapes raise an approximate 89 dollars and 15 cents to dent the state's budget deficit as much as gnat would the grill of a speeding juggernaut, Gordon Brown is putting out the country's old assets to help reduce the £175bn deficit.

From tomorrow you should be able to bid for the Tote on Ebay and Barclays will probably handle the student loan book as they are experts in taking toxic debt and turning it into £millions of profit for themselves and the alchemists who touch the rubbish with their financial version of the Philosopher's Stone. They are up to their old tricks again as with the Protium gag of last month, this time with £4bn of Collateralised Debt Obligations worth about as much as a knackered push bike in real terms. After those boys have finished with it there will be more capital on their balance sheet, a hefty book profit on a new loan and around 45 new millionaires after a few strokes of a pen and two fingers at the taxpayer and the FSA. The Student Loan book should be a doddle for clever people like that.

There are some who question the prudence of our PM on financial matters, would you believe. This fire sale should raise around £16bn to help reduce our rather desperate position and probably not inspire all the credit agencies curious as to how our Bond sales will go after our Quantitative Easing finishes as any more of it will reduce us to a banana republic with no bananas. Some wistfully remember that there was a time when we had rather a lot of gold in our vaults at the Bank of England - today those vaults are stationery cupboards as some bright spark sold it all close to the bottom of the market. Had we some left at this point it might have been handy as all those smiling chaps on TV might have bought some as those in the know will tell you gold is at record high prices.

Some would say only an idiot would have sold our reserves at a cut price and not kept it back for what it really was meant to be for - a rainy day when we were almost bankrupt. But Gordon knew best then as he does today. Fear not, £16bn is just the start of it. Jacqui Smith has pledged to sell her husband's collection of porn videos, Hazel Blears has said she would sell her second home if she could work out with the taxman which one that is while several MPs want to sell the shirts off their backs as they feel they are underpaid and hard done by on expenses.

Welcome to Britain, where it's the sale of the century. Everything must go.

Is There A 'Real World' Anymore?

I hadn't realised that there was a famous Economist who has been credited with predicting the world financial crisis. There is one and his name is Nouriel Roubini, from a New York University.

Although I know of several people, including myself, who reasonably accurately predicted that there would be, in my own terms, 'A hole in the economy', largely as we believed that asset values had lost all connection with the world's voracious creation of money, we had no idea of the real technical issues. There was one other minor problem - none of us were world famous or economists and therefore we were not allowed to have such opinions, express them in public or have any credence attached to them. That's just a fact.

In fact, even as a shareholder in RBS, Lloyds, Northern Rock and Bradford & Bingley I have no say as that shareholding is managed on 'our behalf' by UK Financial Investments plc, a company that has not issued share certificates to any of us or in which we have any rights to vote. I have an unnerving feeling that we probably will not not get full value for our 'stock holdings' as the staff associated with that company will not only get a salary but bonuses too. Just like the FSA who received bonuses to a person as the world economy melted down on their watch.

But we should be grateful, because the politicians who did not want my opinion then do not want them now - not because I would probably start each sentence with, 'I told you so' but because they really could not give a flying fig what people like me think, even if we are vaguely right. We are the 'programmables' - the people who are fed the information and soundbites and duly absorb and believe them. In a single weekend of spending our future tax to an extraordinary and unprecedented extent just to save the skins and bonuses of a group of greedy bankers to the tune of £1.5 trillion, the Government now believe that the enormous debt burden they have put us all under can be halved by 2014. Yeah, right.

It's complete cod's wallop and I know it. But they rely on the fact that no one will listen to me as I am not a world renowned economist and nor is anyone else in the front bar of a pub.

I have talked about Joseph Stiglitz before. He's not a personal friend, and you probably would not like to get caught in a lift with him, but I feel a kind of kinship with the Nobel Laureate for economics as he could have come into the front bar of most pubs and been greeted warmly as a person who we might have described as not having his head up his arse. And so too Nouriel Roubini. Again, I probably wouldn't recognise him if he walked into the White Lion in St Albans. I might have even nudged a friend and nodded toward him and said ,'Isn't that the bloke off Bergerac' and gained 10 points for a good lookalike, but if he joined into our conversation then we may forgive him that he knew nothing of rugby but as long as he could name at least 5 films with a memorable song in them then he probably would have got a fair hearing. If he spoke of the economy, then I would expect a hearty pat on the back and a pint of Black Sheep would be bought for him. Assuming, of course, that even a lowly economist would stump their round at some point.

Roubini is supposed to have predicted this financial meltdown. He also points out that we are not out of the current financial crisis yet as the world economy looks very weak - his words not mine but, without blowing my own trumpet, I would agree. He claims that in a general sense shoppers are 'shopped out' and 'debt burdened' - this despite the fact that last month saw the first reduction in the £1trillion unsecured debts that UK consumers have for years. Roubini believes that we all should 'cut back consumption and save more'.

Hear, hear from the front bar. Wise words, another round on the slate or my debit card, please. What? I can't have credit? Well Roubini then goes into techno-speak claiming that the financial system is damaged and that not much corporate spending on capital is going on. That's true - and most companies are reining in expenses too as credit is scarce as well as the markets depressed.

But here comes the real blow in his message. He reckons that US house prices have yet further to fall. That's a worrying comment as the problem of inflated asset prices was far more acute in the UK than in the US. Our prices had soared uncontrollably over the last 10 years and our drop has only really been 20% or so during the crisis. Enough to send everyone into a panic and many into negative equity exposing the stupidity of the markets for buying debt but there you go. So Roubini is saying we have not seen enough of a fall in house prices yet - that's really bad news. It's really bad as that is just about the only financial instrument that has propped up the economy for the last 10 years and is currently our barometer for recovery. Wages have fallen over that period and so household income in real terms fell, but we leveraged our rising assets a great deal to supplement our spending spree.

We lost sight of the 'real world' where you only spend according to what you earn. We participated in a new 'unreal world' where we all discovered the new banks - our homes - and the world of cheap credit it released. So when the financial system went into meltdown, our homes were right in the middle of it.

You see, while property prices in the US have fallen just 13%, there has not really been a corresponding spread of price decreases into the commercial property market. That would cause chaos as that is where the big pension funds that we invest in for our future have all the money. The chaos so far has affected those who largely backed only the housing world. Should the price of commercial properties also fall, then we will have a very gloomy world to live in.

Roubini clearly has, at some time, been in the front bar of a pub as he believes the current 'froth' in the world markets which has seen the FTSE rise some 40% in a year is due to the manipulation of the Federal Reserve and the Bank of England. As Roubini puts it, "There is a wall of liquidity cashing assets, but I think that there is a growing gap between what is the asset prices and the real economy."

The 'real' economy. The real world. That's really the issue. This is why armchair sages like me struggle to communicate our thoughts - we have no formal economic education, I am a humble scientist by training and a salesman at heart. The economy is something that I glaze over when people start mentioning the 'Broad Money Supply' and, to me, M4 is just a motorway I use to go and see my family in Wales.

But Roubini is right. We have disconnected what are the underlying economic things from the new world order where we can create money out of nothing, profit out of profit. Even our solution to the problem compounds it all as we create money out of nothing to buy our own debts as Quantitative Easing has done. There is a real concern in the US that Government Bonds will not get bought as interest rates are too low. Meanwhile, when our Government stops buying its own debt with fake money, will there be a market for our bonds?

What the solution to the global economic meltdown has been, across the board, is an exercise in saving a small number of wealthy individuals' careers and re-fund them to make more money for the future. In doing so we stopped a collapse that could have taken us all with it that's true, but in reality we have just resupplied these individuals with the means to carry on creating more of a fake economy, very distant from the real economy.

Instead of these individuals using our precious cash to provide credit to business they have used it to buy the reduced value 'toxic' debts at the very companies that crashed in order to rekindle the whole fake economy and get their bonus train going again, making vast profits from effectively barrow loads of manure - worthless debts. The one thing that could really exaggerate all this is if house prices do start to rise because this will just get us all back into the groove and contribute by withdrawing from our equity and forgetting that in real terms we are getting worse off - as we forgot for the last 10 years.

The likes of Roubini and Stiglitz are the 'turds in the swimming pool' of new economic thinking. Stiglitz may have offered his advice on the solution to the global economic problems for free but that was his mistake - Credit Suisse knew the British Government was willing to pay and so they made sure they bid accordingly and have been paid handsomely for their advice. You see, in the new world of economics your value is not perceived by the number of Nobel prizes you have won but by the pounds you can bill or the value of your bonus. Porsches and Bentleys count in that world and that's what Gordon Brown asked for and got. So it's little wonder that we have a set of solutions which effectively threw enough faeces against a wall until some stuck in the form of incredible sums of money instead of resetting the 'real' economy by making sure banks did what they were supposed to.

But that is the issue. The banks have carte blanche to carry on as before. Oh yes, we can posture about bonuses, we can moan about imposing taxes, we can even supposedly turn on our friends as Peter Mandelson has done and accuse them of the very things he applauded, benefited from and whose advice he has paid for not months ago, but until you get to the root of the problem banks will carry on producing a fake world in which only a very few benefit and the world becomes a far more precarious place to live in.

Has, indeed, the fake world of the new financial order taken over from the ;real' world of fundamental economics of supply and demand?

If we do not reform the whole banking industry, there will be more than money to pay in the future - as Roubini puts it, 'We are already planting the seeds of the next crisis'. At the heart of it is the stability of the world as, if the financial system does break to an extent where mere money cannot repair it, then those with the most valuable commodities will rule.

My God, David Icke WAS right.

Who Should We Believe?

Depending on which set of figures you look at for the economy, you could be verging on the suicidal to the ecstatic. Certainly, we seem to be clutching at straws if we think Britain has emerged from its recession yet.

In the week, I highlighted The Sunday Times Appointments Section as being devoid of private sector jobs and full of public sector senior appointments, arguing this was a bad sign. Yet for the second month on the trot, there has been a marginal increase in the number of appointments available generally according to Government figures. Encouraging, if fragile.

But, the National Institute of Economic and Social Research (NIESR) has calculated that our GDP did not rise a jot in this last quarter. This falls in line with the worrying industrial output figures reported for August which were sharply down on July. True, we could argue it's holiday time but the level of drop, some 2.5%, surprised most economists. Bizarrely, the Government's response was to say that this prediction of stagnated GDP showed that the Government's policies are working.

We have also heard that house prices are now nearly back to levels experienced in 2008 - certainly there are plenty more placards up in my area - but this is still some 15-20% down on prices in July 2007. The number of mortgages being approved has risen but we know that lending to small businesses, despite Government indications to the contrary, is reckoned by the Bank of England to be £14.7bn down on last year. Are we putting the credit in the wrong places, you might ask?

Bank profits and bonuses are sharply rising, the price of gold has hit a peak (perhaps I should have followed those persuasive TV adverts), car sales are up 11.4% from this September to last, inflation has fallen to 1.6%, and the Services sector, such as restaurants, showed expansion for the 5th successive month and is now at a two year high - trashing my comment on empty tables for pre-theatre meals in London last Saturday. Or so it would seem.

The figures are all slightly baffling. The reality we see is a great deal of uncertainty as we face a great many cuts to public services no matter who gets into power which will inevitably hit jobs after 12 years of growth in bureaucracy in the public sector that now accounts for 1 in every 4 jobs in the UK. Our population is rising faster than expected due a new birth rate explosion, 25% of that growth coming from couples not born in the UK as immigration takes its toll on the UK. Unemployment continues to rise to nearly 2.5m and there are predictions of over 3m by this time next year which is well above 7% of the working population.

The budget deficit continues to rise and at a greater rate predicted by the Chancellor, indicating that it may well be getting out of control, which will see Britain borrow an extra £175bn this year - and rising. Many predict, contrary to Government promises to halve it by 2015, that borrowing will be nearly 99% of GDP by 2014. As we are faced with a rising Welfare bill due to more people on the dole claiming benefits, and greater immigration numbers than ever predicted, and therefore a shortfall in tax revenue, the squeeze is on. And there will be a need, due to the heavy borrowing, to find big cuts, some 10%, to try and manage the situation down.

I find the whole situation baffling but the one thing I believe to be true is that we are paying for 12 years of unsustainable and unreal economic growth that was based on a flawed financial system that relied on the unchecked ascent of asset values and the instruments which relied upon that principle. And we have set up the remedies to start the exact same cycle again, despite posturing to the contrary - banks are once again out of control.

It seems that even if we halt the decline this quarter, we are a full 6 months behind our competitor nations in recovering despite all reassurances to the contrary before we hit the recession - the one that we were reassured that we would not hit - and I believe we are focusing on the wrong areas to manage the situation. Time will tell, but the comedy of errors by the Government, Investment Banks and the FSA in calculating a bailout of the financial system literally over a few late nights and some pizzas will haunt us for a generation. Last Sunday's article in the Times was meant to reassure us that the parties took the banks on and dressed them down for 10 years of excess. What it showed was that having ignored the banks for 10 years, they suddenly became experts in their business to save them.

If you believe that, then you will believe that little green men have invaded Uxbridge and put up the price of rail tickets.

Post Crash Experts

If only Alistair Darling and Lord Adair Turner had ever visited a front bar of a pub nowhere near the City prior to the credit crunch and financial meltdown, they would have got their chest heartlity prodded and been told in no uncertain terms that there was a massive hole looming in Britain's finances and that our economy had become unrealistically dependent on over-inflated asset values which were being traded spuriously to raise cheap money on the international markets.

Of course, none of us armchair sages would have had an earthly idea about why this was so dangerous, what these derivative products actually were, how badly our economy would be affected by asset value falls but we all new that what went up HAD to come down. There was a bubble inflated to maximum and it was going to burst - and boy, didn't it just.

These Governemt and associated 'illuminati' like Turner sat back murmuring how beautifully under control everything was. Even when things started to go worng like the 'discovery' of sub prime in America, no one linked this with the financial system in general - not even the bankers. As the crisis got worse, Ministers told us that it can't happen to us as we had a 'robust economy' and then that recession would hurt us less as house prices were more stable here. But the whole vicious circle of finance catches you up - all you needed was one small puff of bad gas and the whole financial system would collapse like a house of cards.

So now that it has all happened, Lord Tuner has had an epiphany. After all that education, years in the Consultancy business, heading the CBI and sitting on numerous Quangos, he has suddenly realised that bankers were in fact trading products that had no real implicit functionor even value other than for them to earn money and that these bankers had little understanding of the implications of doing so. Other, of course, than the fact that they could earn sensational amounts of money by doing so. Mr. Darling has also suddenly woken up and has smelt similar coffee and now espouses the same 20-20 hindsight wisdom as Turner. We are all finally singing off the same hymn sheet.

Not as such. What has either the FSA or the Government done to outlaw the trading of these daft products? Nothing. In fact, as we piddle about fiddling with bonus cultures and wondering if everyone will do the same thing or else one us gets left behind, the written down toxic debts are being 'traded' for vast profits right in front of our faces. Stuff that we now guarantee or have written down in value with our taxpayer cash are actually being used to create vast new profits for banks as if they have suddenly reclaimed some value. The embers of Lehmans and some 94 other banks that have failed in the US are being raked over for little nuggets to trade while Barclays do not even use a white cloth to hide their toxic debt that they suddenly make vanish and create a $3.9bn profit by doing so while at the same time they make 45 former employees millionaires - overnight with one click of the computer and a swish of the pen - it even makes their capital ratio look better it such a good magic trick.

Despite all this post-crash wisdom, nothing has been done. And nothing will be. But talk is good - it helps us taxpayers get used to the fact that we can blame people who have added over a million to our dole queue who will this year be getting multi-million pound bonuses after a short technical hitch to their money making. The fact that the sails are set fair for the next crash seems to ellude their feeble minds and that talking is not going to get the problem fixed. It will take one of the leaders to confront the issue and make sure that his/her country's economy is no longer so dependent on a few people making more money each year than an average worker would make even if they won the lottery jackpot at least once a year.

The G20 starts this week, my bet is that nothing comes of it that will change the behviour and machinations of banks substantially and we will all forget the crash until the next one happens again. Then the same sages can act as dumbfounded as they were with this one.

In a cruel blow to Odgers, the recruitment company charged with headhunting the new CEO for UKFI who manage our 'investments' in banks, they have been fired as they took on an ex-RBS banker.

They learned the bitter lesson that headhunters and recruiting managers should all take on board - just because you have experience of an industry, it does not mean you know anything about it.

Problem Solved?

EU leaders have voted on a new bank bonus clawback deal and they are all patting themselves on the back, smiling for the camera and can look to the renewed trust of their electorates that they have solved the issue that caused the crash of our financial system that in turn has cost each and everyone one of us so much money. Hurrah!

As the champagne starts to go flat at the end of a long day's celebrating and the last of the stragglers leave the party with ties askew, lipstick on their collar, silly hats on head and worse for wear, we should just ponder for a moment.

Let us do a thought experiment. You happen to know that your company bought a barrow load of sticking, rotten manure and it is sitting in a cupboard somewhere downstairs - a barrow load of manure they bought for $12.3bn when the market for manure was very good. So you think, 'I can deal with this'. The barrow load of manure is not only smelling the place out but, of course, it is sitting as a nasty debt on the company's books as the manure is now worthless. So you offer your company exactly what they paid for it - you would then transport it to a place where they don't mind what manure you want to store just as long as you pay good money to do so. In order to pay for the manure, you take a 10 year loan out from your company for $12.6bn.

You set up a nice company in the place you want to store the manure - the sort of place where no questions will be asked and no nasty hidden taxes are paid and where prying eyes are sightless. In return for the doing this, you resign, along with several colleagues who know as well as you that where there is manure there is money, from your company and they pay you an annual fee of $40m in order to 'manage' the manure.

The loan is a nice one - it is set at 2.75% above the US interbank rate which your company hopes will attract $3.9bn in profit over the course of the loan agreement. Only the interest is paid net of interest paid to the 'investors' in the storage company you have set up - let's call it Protium Finance for argument's sake. This investor income is at 7% of the $450m they have invested in Protium and their interest ranks higher than your company's.

Your company rubs its hands - it has cleared the debt off its accounts and on paper it will receive $16.6bn in 10 years time - it has been able to prove to the world that it no longer has the filth on its books and by doing this deal it appears it has bettered its capital ratio by getting its most toxic manure off its books. Meanwhile, you and your friends at Protium will be returning a sizeable profit to your investors who might be a US bank and a hedge fund, while your company will be paid from the manure's cashflow.

You see the manure could be replaced by toxic debt in this experiment and suddenly it does not look so ridiculous, pointless and downright stupid. Toxic debt has a 'cashflow' based on the assets supposedly. The 'Your Company' involved here is Barclays and Protium has indeed been set up by 45 of their employees who have now resigned to populate Protium Finance.

It does not matter how you account for this, the toxic debt remains a toxic debt and is highly risky. Barclays' CFO, Chris Lucas, stands and tells everyone that this is a good deal as it is producing a 'stable return profile for shareholders' as they rely on cashflows on such debts, so why not restructure them to rely on them and maximise shareholder value?

Protium has a recipe for the future - this will not be the only deal of this nature they will undertake. They will be the manure storage company of the future, state of the art facilities and discretion guaranteed as they operate out of the Cayman Islands.

This deal is nothing but straight forward, rotten manure. You can put your Palin-lipstick on the pig but it is still a pig. This is a deal that is at the very heart of a rotten and deeply flawed banking system. On the one hand, Barclays have 'cheated' the Government and regulators' capital ratio requirement by no longer appearing to have this toxic debt while the new Protium company is making money out of toxic manure fumes.

Have no doubt that this pile of manure/toxic debt will be worth its weight in gold after 9.99 years and by the 10th anniversary of the loan being taken out to pay for, it will be spread over the faces of plenty of people seated close to fans. The cleaning bill for their expensive suits and fast cars splattered by the mess will be picked up by yours truly.

This deal is the template for the next financial disaster and it illustrates why my blog of yesterday is true. Bonuses, and their culture, are not the problem per se, it is the flawed banking system that allows money to be made out of worthless piles of manure we euphemistically call toxic debt. It is the apparent intelligent thinking behind such a deal that defers the bad news to a point far in the future, long after many people will have made an absolute fortune out of the obvious - the obvious being that these toxic debts are nothing more than a pile of worthless manure. And manure is nothing more than manure, yet we will pay a princely sum to underwrite deals of this nature and that is what the whole financial industry now depends on - our enduring and bottomless pockets of money to pay for their profits and losses they make with total impunity.

This is the process of making money out of thin air and it is why bankers are a more aggressive, more risk taking then ever as they can make money out of losses. Does that sound stupid? It is because it is stupid. The massive losses that companies have made, the kinds that bust Lehmans Bros, are being openly traded again in order to make money from them - big money.

We haven't yet got a handle on how much this financial disaster will cost the world going forward but the bankers can tell you exactly how much profit they will make out of it. The response to this by the Treasury Select Committee Chairman, John McFall, merely claims this is 'sleight of hand' - Maradonna would have called it the financial equivalent of the 'hand of God'. Where are Hector Sants and Adair Turner of the FSA, Pinky and the Brain, as this goes on in full public view? Probably taking it easy talking up their futures with other agencies all around the world on large expense accounts and guaranteed bonuses.

Where are the politicians? They are still at the party congratulating themselves that they have stopped the financial world in its tracks - bonuses are curbed, problem solved.

Come again, what was the problem then, chaps?

Shock News - Brown Is Appalled

Now they are in for it. Gordon Brown has gone public on the fact he is 'appalled' having found out that some financial firms are continuing - or even extending - their bonus culture.

The world must be a constant surprise to poor Mr. Brown. I mean, he thinks and says one thing and people do the opposite. He observes how things should be and then, blow him down with a feather, things behave very differently. It must make him very excited about getting up each morning as he would keen to find out what else has happened he didn't expect.

In the case of the banks, he clearly thought that because all those executives and traders who had been making millions had run up against a wall and lost the lot, that they would feel a great deal of contrition and not want to go through it all again and earn even more money than before. How it must have shocked him that, after he saved the world, and used the hard earned cash of his loyal and worshipping public to bail out the failed financial people that they did not kiss his backside for saving their rotten necks and then all become the financial equivalent of monks - living off the land, wanting no rewards save the joy of living, weaving baskets, treading grapes and distilling fortied green liquors.

Now it has come to his attention that indeed bank executives and other financial people are not behaving the way he had anticipated. In fact, the moment their companies were saved by the global $11 trillion of bail outs, of which Mr. Brown contributed £1.5 trillion on our behalf, it seems that they immediately whooped it up and started all over again. It turned out that the credit crunch had not dried up the flow of cheap money after all - these financial genii had found a new source, the public. Even better, they did not have to seek their permission to get the cheap money, there were no rules or nasty contracts attached, indeed there were no real requirements to pay any of it back - all they had to do was to lose a load of money and the public would continue to pay. If anything, the financial world had a new instrument that allowed them to take even more risks and try to earn even more money which they could pay themselves as they had discovered the one thing that was missing from their bold scheme/scam to make money - an unlimited underwriting of all debts they incurred should they fail, now or in the future.

Mr. Brown must be shocked indeed. After all he gave all that money in good faith. He did not ask for seats on the Boards at banks he had 'invested' in, instead he wanted them to carry on with much the same staff as before as he was convinced they would not want to risk all that again. He did not go to the regulator and sack him for total incompetence and sleeping on the job as that would be churlish - instead he asked the same incompetent fool to write up the rules again with slightly different language and give them a new grand name - Macroprudential Regulation - which would help make it abundantly clear to the public how banks could not overstep the mark again. The fact the public had no idea what the title meant but could plainly see that none of the regulations had changed did not seem to occur to him. It must have sounded different when that hopeless fop, Lord Turner and his willing but intellectually challenged sidekick, Hector Sants, had presented it to him like the characters from 'Pinky and The Brain'.

You see Mr. Brown has a head for dates. He knew that one year ago from today, Lehman Bros bank failed and was allowed to collapse. Inside, he knew that was a massive mistake by the Americans as he had stepped in and saved all the UK banks. Not one of them had been lost and every saver's bit of cash and mortgage had been saved. He even went after those nasty Icelanders who had 'stolen' the savings of many people including our Local Authorities who also had played gambling games with people's money. It came as a nasty shock to Mr. Brown that in a world of derugulation and globalisation, which he decreed should be saved at all costs, that if British subjects had put their money into foreign banks who went bust, then they would not get their money back.

15 September 2008 must have been a dark day for Mr. Brown, and as he went to bed that night with his mug of cocoa he must have thought, 'Now there's something new I learnt today - what went up must come down, particularly if it was traded on hot air.' Sadly, he failed to connect the very clear dots. The financial system he was hell bent on saving was only being set up to carry on, there was no understanding that the system was flawed at its very heart and merely giving the cancer victim an aspirin may only stave off pain for a short while but it does nothing to solve the problem.

But now he is back and fighting. The new eco-friendly light bulb has gone on in his head and he has decided that banks now must be regulated more vigorously. He is going to fly to Pittsburgh in his superman outfit and tell those G20 leaders exactly what for and demand that the world once again follows his fearless lead. In aggressive language he has said:

'Now I will want an agreement - because we are talking about banks in other countries as well as banks in Europe - at the G20.' Clearly Mr. Brown has read the Ladybird version of the banking system and discovered that other countries have banks too - this globalisation thing may have some credence to it, you know.

In a rare moment where he admitted that he was less than perfect, he said. 'It's true that the mood of opinion in Britain was that we needed less regulation and not more. Now we've found we need more.' It was a clear 'No sh*t Sherlock' moment and he obviously believed he is the only world leader that had discovered that banks were out of control in the past - thanks to his own personal 'light touch' approach because he did not want the poor lambs to become uncompetitive and leave the City of London as a third rate financial centre where people came for loans of last resort only.

'We should have all been supervising more,' said Brown sternly as he neatly deflected the blame to fictional others whose role also was supervising even though it was his fault that the FSA stuck their feet up on their desks and played online poker while the banks melted down. Now he wants us all to feel we can trust banks.

At this point, it seems that Brown has lost touch with reality. You see, the public never trusted banks as they watched young numbskulls make millions by creating and trading products that served no earthly purpose and had lost all connection with the assets they purported to represent. In our feeble way, we had already guessed that the banks were trading blocks of nothing and pretending they were worth something. We also know that the same is happening again. It must come as another terrible shock to Mr. Brown that banks are buying former Lehmans open derivative positions for anything from 10 to 50 cents in the dollar in wild speculation that when the liquidators have unravelled the mess, they might find some of them are worth something.

Now, maybe I'm being naive here. We have just bailed out the whole system, we have collectively paid trillions to do so, covering the immense losses that allows liquidators to write down such derivatives to virtually zero because we allowed such contracts not to be honoured - a debt obligation was forgotten about, a default swap was allowed to disappear. Now, in the aftermath of the largest corporate failure in his history, we are going to allow the vultures in the banks to pick over the failed pieces and find small nuggets of gold in order to make money again trading the very same products that ruined us.

We must be stark raving crackers, the lot of us.

It isn't regulation that is needed - Yvette Cooper's 'Janet & John' book on the financial system does not quite suffice in situations like this. The banking system needs a fundamental reform and the time to do it was when they needed the money to survive as they would have had no choice but to comply. Instead, the whole gravy train is back on the tracks again, the banks are making money, the leaders of the countries are satisfied disaster has been averted and the system is slowly reviving. The banks have all their power restored and the very people who ruined us are being paid for their thoughts and leadership on the solution. It is not a bit of wonder that they do not want change and now they are once again 'Masters of the Universe' and the types that Blair, Mandelson and Brown bent their heads and so very gently kissed the backsides of before, are once again calling the shots.

Mark my words, there will be few constraints applied to the system - reform will not come and companies will be allowed to make money out of Lehmans' losses. 15 September 2008 was a very dark day for the world generally. 15 September 2009 is even darker because we have just reset the House of Cards to be puffed over by the gentle waft of a butterfly's wings - again.