Euro(w)s… Democracy versus Sovereignty

Croesus Pyre urn – if only his money were available to the Government in Athens right now and not burned up…

A few thoughts from watching Greece…

If one sixtieth of the population turns out on the street (e.g. marching against the Iraq war), our recent experience in the UK is that this is not sufficient for our government to change its policy.

There are riots, anti-cuts camps etc. in the streets of Athens.  The Greek Prime Minister has sacrificed his Finance Minister for someone that the Daily Mail tells me is “a populist” whose biggest achievement to date was delivery of the 2000 Olympic Games along with the crippling expense and squandered legacy that when with them.
But will the Greek government change its policy requiring more austerity measures?

I very much doubt it.
For much the same reasons.

There is understandably a lot of news coverage of the unpopular measures that the Greek government is going to need to take in order not to default and thereby avoid a financial crisis worse than 2008.

Much of the coverage has chosen to put the street protests in Athens in the context of the “Greece as cradle of democracy” story.

The question is whether the Greek government can or should decide that they don’t need to make the cuts being talked about (including 20% cuts to services and jobs in the public sector).  Given there is already 16% unemployment, this scares an enormous number of people there. According to Professor Peter Morici, writing in UPI:

Greece is slipping from a liquidity crisis into downright insolvency. Bond investors are demanding yields 20 percentage points higher on Greek debt than on comparable German debt. Rolling over existing bonds, as those come due, will be prohibitively expensive and the collapse of Athens’ finances seems inevitable.

But even if not inevitable, could Greece just be allowed to declare itself bankrupt? Could it default, if it were the will of its people?

This is where the difference between democracy and sovereignty comes into play.

Wikipedia defines democracy as:

a form of government in which all citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal (and more or less direct) participation in the proposal, development and passage of legislation into law. It can also encompass social, economic and cultural conditions that enable the free and equal practice of political self-determination.

There are concepts that sit alongside democracy, such as the rule of law and moral behaviour codes which require the honouring of commitments undertaken.

Wikipedia defines sovereignty as:

the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided. In theoretical terms, the idea of “sovereignty”, historically, from Socrates to Thomas Hobbes, has always necessitated a moral imperative on the entity exercising it.

While ancient Athenian democracy was direct democracy (open to all men who had done their military service, but not to women, slaves, freed slaves, resident aliens etc.), modern democracy is generally representative democracy, with decision-making passed to elected representatives of the people on the basis of the greatest number of votes gained at democratic elections.

While the United Nations requires only that a State is sovereign by having effective and independent government within a defined territory, modern states are – needless to say – a bit more complicated than that.

Money is behind much of the complexity.  The money required for a state to operate is equally international, with each country’s balance sheet containing in addition to its citizens taxes loans from the private sector and other purchasers of gilts and bonds.

In a democracy, sovereignty is granted to the government by the people and actions are carried out by the government in their name.
But countries can be seen to give over some of their ability to act independently (sovereignty) to their financial creditors – the added finance available to the country being for the general benefit of the people of the nation.

Greece’s position as a sovereign nation is also in the twenty first century inter-connected world context.  In addition to the national we also have supranational (e.g. EU and euro) and international (e.g. UN, IMF) layers of governance, providing us with both responsibilities (defence, finance, market access, honouring of commitments) but also support (financial, market access, political and military).  This is made contractual through Treaties – pooling of sovereignty granted by the people to the government shared with others at supra- or international levels for the general benefit of the people of the nation.

The question is that old point of “no taxation without representation”.  In a bailout situation between states, it is not only the taxpayers of Greece who have a legitimate interest in how Greece handles its debts but the taxpayers of the countries providing the help via the IMF and the Eurozone… welcome to the complicated world we live in.

So who can legitimately tell a country what to do is indeed a bit more complicated.

There is talk of just “letting Greece default” and cutting Greece loose from the Euro.
This is not something to be flippant about.  While a Greece-with-Drachma could devalue its currency against others in a way that Greece-with-Euro cannot, Greek default could cause a shockwave across the economy in the way that Lehman Brothers collapsing did.

If the Greek government were to default, it would not only be Greece that was affected – in taking money from others, Greece is part of an inter-related global political and financial system.

Nor would it only be Eurozone countries affected – French, German and American banks in Greece’s market and with Greek government gilts and bonds would be hit directly. This would affect the network connections between banks (that’s the way in which banks hold national debts, lend to each other and buy and sell loans).

And while Eurozone countries would be hit because of the common currency they have with Greece and the money they have put up to keep it afloat, it would also because of the inter-relatedness of their economies.
If Greece has its debt restructured (i.e. it pays out on its debts at less than 100 cents to the euro), Eurogroup leader (and Luxembourg Prime Minister) Jean-Claude Juncker has already warned of the contagion effect and potentially bleak prospects for Portugal, Spain, Ireland, Italy and Belgium. Greek debt restructured would be the mark-to-market of other European countries’ national debts.  And as Norman Lamont pointed out a couple of days ago on Radio 4 – it would beg the question whether a Euro in Ireland, Portugal etc. was worth the same as one in Germany – and when that happens the Euro itself fails. No sensible person could want that.

While the UK is not part of the Euro, we are also bound into this.  The UK has loaned money to the Greek government – we’ve already done so as part of our IMF responsibilities and would have to do so again.  It’s part of the deal in our pooled sovereignty at  international level.  And in case we are telling ourselves we should just think national, we ourselves have had an IMF loan within my lifetime, so it is part of our international role and responsibility.  The wider interconnectedness of international finance means our banks and our pockets would be badly hit by a destablised Euro.

That said, it seems the £95bn loan last year didn’t help because the cuts hit any prospect of financial growth and the markets don’t want to loan money to Greece.  Evidence of this is that Greek government bonds are already at 30% return rates (compared with 3% for the UK and 5% for Spain).
It remains to be seen whether throwing more money (another £196bn?) is enough to tip the balance or simply good money after bad.

But is there anything else that can be done?
In May 2011 at a conference in Lisbon hosted by Left Block and GUE/NGL, Unitarian Left at the European Parliament, French researcher Benjamin Coriat proposed an alternative to IMF bailouts:

  • the European economy should “break with financial markets”, imposing “conducting audits on public debts so that can be identified who owes and what owes and so we would see that after all creditors have to pay more than borrowers“;
  • The “European Central Bank must buy government bonds on the primary market in order to lower interest rates and leave the rating agencies out of the game”;
  • This would be accompanied by establishing a fair and balanced tax base in order to “reverse the counter-revolution” in which the rich get tax breaks;
  • there should be changes to macro-economic coordination in Europe towards achieving a balance between the centre and the periphery because “Germany can not only take the benefits of Europe and leave the disadvantages to the others”.

But this is in the realms of fantasy – and I can only assume that there were neither Germans (who are pretty annoyed with bailing everyone else out) nor anyone with a grasp of the sums of money involved in actually doing any of that in the audience?
Realpolitik also suggests that if the Euro is not seen to be functioning brilliantly, politicians are unlikely to want to grant more powers to the ECB.

Are there any other ideas out there?  Well, if Greece were a company, others would be sniffing round to buy it up at a bargain price rather than bail it out with the current management.  But happily for democracy, the crossover between capitalism and politics has happily not gone this far yet!

Anything else? American (and some German) economists propose a strong-economy Euro (e.g. Austria, Finland, Germany and the Netherlands), cutting loose weaker economies (e.g. Belgium, France, Greece, Italy, Portugal and Spain) for the good of all.  I can’t help thinking that one would go down particularly bad with the French…

But one thing is clear – the Greek government cannot give in to the street protesters.
Well, of course they can – but they’d need to think through the global consequences of doing so.
But if the street protesters want to change the government for another, democratically via the ballot box, that is of course their right.  Storming the parliament is not the way to do it.
But in a democracy, sometimes what is for the best for the people overall is not what is going to be popular.
Sometimes we have to elect people to do what we individually could not.
And honouring our international obligations matters, whether we’re debtor or creditor on the ask.



Hungary for wider Europe…

(image copied from the excellent until I can download ours)

Jó napot!  We’re back from a long weekend in Budapest.  I know, leaving it late in the day for the Hungarian Presidency but since I stopped working full time on EU stuff, it has been increasingly hard to visit each country at Presidency time.

Arriving at Budapest airport we were immediately impressed with the efficiency (and price!) of the taxis from the kiosk there.  The half hour trip to the Buda hills took us through the city and across the Danube.
In the last few years I’ve been lucky to travel to several of the newer EU member states.  There’s a lot of difference, and a lot of similarity in the mix of the beautiful past and the Soviet past architecturally.  Like many cities Budapest is a mix of old and new, elegant rococo confections and bunion-topped towers alongside utilitarian boxes and brutalist concrete.   The Buda hills felt a bit like a more verdant Hollywood – they share that orangey-yellow colour on the Spanish-style villas, the beautiful, massive mansions and mansion blocks so at odds with the tiny tenements in the suburbs of the city.

We spent our three days on three different things.
The first day, in 30 degree heat and high humidity, we took our toddler on reins around old Buda. This was a mistake – we ended up carrying him for most of the time.  Definitely take a pushchair even if it uses up some of your flight luggage allowance.
We caught a bus to Moscow Square (Moszkva tér, which has just been renamed in Parliament as Kálmán Széll tér) – a weird transport hub with tatty 1970s kiosks at the centre, crumbling concrete steps and the older, nicer buildings around the outside branded with the universally familiar American corporate logos of McDonalds and KFC.  I liked the fountain and the plastic bottle-and-chicken-wire-filled plaster of Paris seating blobs though.  We though the underground loos – clean, thirty florints cheaper than most, take the prescribed number of sheets off  the communal loo roll at the pay station – was hilarious and very ex-communist in approach.

We walked a bit randomly – we had our map but our hot, tantruming toddler refusing to walk and instead of taking the short walk to the UNESCO protected castle district we ended up down on the riverfront directly opposite the gothic splendor that is the Hungarian Parliament building.  We had a coffee (and a toddler nap) while we found our bearings.  On the way to the castle we found Batthyány Square which includes an old train station that has been converted into a shopping mall and yummy pastries are sold in the entrance hall, and the St Anne’s church – a hidden gem of Buda.
We didn’t visit the royal palace but instead headed for Halászbástya (Fisherman’s Bastion) the light grey stone turreted walls around the Matthias church which look like castles should look if designed by little girls with a craving for real life Disney.  There’s a cafe up one turret if you fancy a drink rather than paying to walk the walls and the views are outstanding.
Amazingly, the steps there are in really good condition and perfectly spaced for climbing in the humidity of a Budapest summer.  The same cannot be said of the crumbling concrete steps and walkway at Moscow Square.
Oh yes, and to stamp your tickets on the bus, the manual ticket punch requires that you put your ticket in the top of the black plastic hole and tip the whole black bit towards you. The electronic ones don’t require you to pull them about at all!

On day two, we borrowed a pushchair, crossed the river on the tram and went into Pest.  We got out at Oktogon (junction of Nagykörút -Grand Boulevard- and Andrássy út – Budapest’s Champs Elysees).  Given that during the Nazi era, Oktogon was named Mussolini Square it seems fitting that the Terror Museum was located nearby.  Having been to the Latvian equivalent a couple of years ago, I knew pretty much what to expect there, but it was still moving.
The museum dedicates roughly equal time to the Nazi occupation and the Soviet era despite the different lengths of each period.  There is a massive black tank in the building’s internal courtyard, and the building itself is significant, having been both the Hungarian Nazi headquarters and used by the Communists.  Taking the stairs or the lift, you walk through a room of exhibits and film footage straight into a Hungarian Arrow/Nazi dining room complete with model in brown uniform, blackshirts on the wall behind you and crockery bearing the Nazi insignia.  Along with the wartime how-to film for correct wearing of your official uniform, Soviet-era listening equipment, the video testimonials of ordinary people and the interactive map of the gulags with prisoners’ belongings in cones, the biggest impact comes from the basement level.  It only takes a moment to realise, but the cells and chambers down there are real – prisoners of the regimes lived, were tortured and died there.
The specially composed music adds to the feeling of terror and you pretty much just want to get out.  The point is I guess that what is being come to terms with is that this was not just two occupations of Hungary, but occupations with which many ordinary Hungarians were complicit.  Confronting the past in this way is part of the healing process.

By way of celebrating capitalist freedom, we walked down Andrássy út which is lined with designer names.  We popped into Alexandre, the big bookshop, and admired its cafe’s ornate ceiling, but headed on down to the square by the National Bank of Hungary so that toddler could play on the play park and run through the dancing fountains there in his pants.  This is one of the top things for children to do in Budapest!  There was also a free music festival going on all over Budapest, and every new area we visited seemed to have something different going on.
We ate at TG Italiano – really lovely oregano bread, very good pizzas and wild boar pasta – but I’d steer clear of the lethal cocktails there if its a baking hot lunchtime…  We also visited the St Stephen’s Basilica, carrying the pushchair up the steps but while we were lucky to see a wedding taking place there, it limited our viewing of the inside of the basilica.  Heading down to Fashion Street we bought ice cream and then braved taking the pushchair on the metro system.  Wow – that was definitely a blast from the past.

On day 3, we pottered a little more – ice cream sundaes and Sajtos Pogácsa (cheese scones) at a local cafe, then a trip on the world famous children’s railway.  Another relic of the Communist era, this is a real railway service operated by 10-14 year old children (under adult supervision!) – we caught a heritage service with a little blue and white engine.
We had to prise toddler out or the driver’s cab once he realised you were allowed to go and see the train being driven!
At the end of the line, we caught a tram back down to a rather lovely little cocktail bar called Majorka – a nice way to round off the day (and just remember that just because the cocktails are a quarter of the price of those in London, you can’t drink four times as many!)

I was fascinated by the Angol shops – shops selling second hand clothes from English high street stores.  The story is that they came about in the immediate aftermath of the soviet era, when British charities sent clothes to Hungary and these became so popular that a secondary clothing market grew up around the surplus.
I also found the language almost impenetrable – not completely true, as a linguist I could pick out how sentencess were constructed and (almost) ordered my peach flavour ice cream correctly… apparently there can be at least eight different pronunciations of each vowel! I picked up “Jó napot” for hello and “Szia” (pronounced see ya and used like ciao) easily, but “Köszönöm” for thank you was hard and I would have been completely stumped by menus – I liked “Uditorial” as the word for soft drinks and guessed that “Naranča” was (like naranja in Spanish) oranges but “gombas” turns out to be mushrooms not prawns! – so we were lucky to be staying with friends and instead negotiating supermarkets and shops where a minimal amount of mime was necessary.

But visiting Budapest again reminded me why the European Union is important, not as a force of tyranny as it is presented in the UK, but as a protector of freedom, liberty and a way of ensuring that we never again see discrimination and oppression as a political force and neighbour turning against neighbour.
Visiting Prague, Riga, Bratislava and now Budapest shows me that when these things happen, its not that the people it happens to are somehow different to us, they are us.  It could have been us.  It’s why we should welcome Serbia, Croatia, Bosnia and others that want to join and share our values.

And while we didn’t see everything we’d want to, we did a lot of exploring. I’d definitely go back to Budapest.

Doctor What next?

So  we guessed, did you?
A few thoughts before the second half of the series starts in the autumn – I’m not interested in the “I watched the filming and overheard X” spoilers, more in clues already dropped in the shows and in the official teasing by the crew and cast.

The problem with internet commentary on Doctor Who is that half is from old-Who obsessives that want old characters to link in.  In the past few weeks I’ve read about Omega, the Valeyard, the Rani etc. etc. even though I’ve absolutely no idea who they are really – I was old enough to watch Peter Davison, Colin Baker and Sylvester McCoy’s Doctors in my childhood but most of the mythology stuff seem to be from earlier incarnations.  But I think this might miss the point – the new series doesn’t have to just rely on the past for characters.  For example, when there was a reference to another Timelord in the episode “The Doctor’s Wife”, it was the Corsair – a completely new one!  The much trailed “old friend with a new face” was the TARDIS herself.

Equally some want too strong reinforcement of links to the Eccleston/ Tennant /Russell T Davis era Doctor Who and keep asking for the return of the likes of Captain Jack or Jenny the Doctor’s daughter.  Never mind the filming or family commitments of the actors that played those characters – they are simply not necessary.
Think – Jack enabled the doctor never to fire a gun and has a sucessful spin off series now unconnected to Doctor Who itself.  The Eleventh Doctor has River Song and Rory as weapons-wielders, even Amy shoots guns and flings swords around.
Jenny enabled the Tenth Doctor to talk to Donna about having been a father – which can hardly have been a revelation to the audience (William Hartnell’s Doctor travelled with his grand daughter Susan).  But it is not the Doctor’s daughter but Amy’s that is the focus of the current series’s storyline.  Jenny got to zoom off into space, leaving the door open for a spin-off if the character had been popular enough, or a reappearance if one is ever needed.

Then there are the reviews from people who clearly weren’t listening or watching.
All the stuff about how did he know Madame Vastra the Jack-the-Ripper-eating Silurian who brings a Silurian army on board Demon’s Run to help?  Well, if you watched it, she told us herself – he found her in the underground system of Victorian London taking revenge on the workers for the death of her sisters.  No mystery, but a cool character.
The Stephen Moffatt version of Doctor Who is intelligent TV – the plots are not linear but are always revealed but you need to think about what you’ve seen and there’s plenty to talk about between episodes.

OK, enough of that.  So what are the loose ends?

1) Who is River Song?

  • Yep, River Song is Amy and Rory’s daughter.  “Melody Pond” was a massive clue, and once you threw in the comment from the dying Idris/TARDIS in “The Doctor’s Wife” that “the only water in the forest is the River” it was clear that – linguistically at least – River was going to be something to do with Melody.
  • She appears to be the Doctor’s wife too if the kissy kissy faces the Doctor pulled at the revelation are anything to go by.  They have already kissed once from the Doctor’s perspective, and for the last time from hers.
  • But what would be written on the cot in untranslatable Galifreyan?  It couldn’t be “Melody Pond/ River Song” – it was old. But hold on – timey wimey wrong order stuff…
    May be names in Galifreyan combine both parents names and she’s the mother of his future children? Or Susan’s mother?
    But equally it could have been the Doctor’s real name, in which case she’d have known it in “Silence in the Library” when she meets the Doctor for her final/ his first time.
    Or she may have known it already if she’s spent a long time with him in the TARDIS?
  • She appears to be able to regenerate: how?
    Well, there are still those little hints that she might be the Doctor’s child in some way.  Amy saying to baby Melody that her father is the last of his kind then clarifying she means Rory “the last centurion”, the Doctor answering “because it’s mine” then clarifying he means the Galifreyan cot… And we’ve had build up to the idea that Amy might actually love the Doctor more than Rory – despite the events of “Amy’s Choice” last season where she realises its Rory and always has been.  In “The Impossible Astronaut”, when in the clutches of the Silents, Amy cries for the Doctor specifically – and only possibly for Rory – the “stupid face” stuff is ambiguous and the pay off unconvincing.
    Stephen Moffatt says in Doctor Who Magazine “You’ll see The Doctor’s life change forever. You will gasp at the true nature of his relationship with Amy and cry out in horror as Rory Williams stumbles to the brink of a tragic mistake.”  Given that that relationship at present appears to be him being her son-in-law, I’m not really gasping, so there must be more to come.
    The whole Time Lord DNA thing that the army were looking for in Melody looks a promising strand of confusion and potentially tragedy in the second half of the series.  While this was explained by the “time head”/ mother’s intuition comment that the Doctor referred back to when discussing the DNA issue with his ragtag army friends, where being conceived in the time vortex might have done to Melody’s genes what billions of years did to the race that became Timelords, neither Amy nor Rory were there. Will Rory conclude that Melody is not his?
  • The Doctor heads off because he says he knows where Melody/ River is… We know too – she’s in a children’s home taken over by the Silence in 1969, then in a New York alleyway six months later. But there are so many things that are going to happen to her – not least being swallowed by a Silents-made spacesuit, possibly being in the forest and regenerating and possibly killing the Doctor…
  • Does River also answer what those sub-TARDISes (in “The Lodger” and in “The Impossible Astronaut/ Day of the Moon”) are for – for her to pilot as an alternative Timelord?

2) How will Silence fall?

  • Anyone else think the Silents fell too easily?  Manipulating humankind from the beginning, even organising for the moonlandings so that a spacesuit would be made but vanquished with subliminal messaging during the moonlanding?
  • We also don’t know how or why they blew up the TARDIS at the end of Series 5 leading to all worlds collapsing.
  • Do Madame Kovarian and the Demon’s Run asteroid army work for the Silents? Building the little girl as a weapon to destroy the famous, great warrior against whom the world must be protected…
  • The thing is, we think of the Doctor as a good man, a fun man, a kind man.  And the character is all of those things.
    He is willing to give a chance to the new species he encounters – New Humans created in the New Earth cat-run hospital, the human-timelord-dalek hybrids, the Flesh Gangers he stablisises.  But he is also ready to exterminate the last dalek in Manhattan, the vampire fish (Saturnynians), even the Timelords themselves, for the greater good of the universe.
  • Other series of Doctor Who have always had the Doctor able to slip in anywhere unknown and disappear before the consequences of events have to be handled.  This series and the last are different.  Fear of the Doctor – the great warrior able to change the world without spilling a drop of blood, the most dangerous being in the universe against whom an all-worlds alliance formed in “The Pandorica Opens” – the Doctor famous throughout all worlds for nearly a thousand years was a totally different perspective.  It fitted the darker Tenth Doctor from “Waters of Mars”, perhaps less aware of his power but completely unaware of the impact he has.
  • It was a neat trick too to have Lorna Bucket – her role was vital in both explaining who River Song is and that the darker doctor, living up to the “oncoming storm”, is a warrior.  It also sets up a forest-based story for the future in which a younger version may feature.

3) Does the Doctor die?

  • Killing the Doctor dead, mid-regeneration, gives us the choice of the series ending when Matt Smith leaves, a time reboot (again) or somehow getting a second Doctor.
    As soon as we saw the Flesh, we knew that the Doctor that dies for good in “The Impossible Astronaut” didn’t have to be the real Doctor.
    Of course, the Doctor is at pains to stress that the Flesh Gangers are real – and that the other Doctor is also the Doctor.  Interesting too that Amy trusted the Flesh Doctor more: was it prejudice on her part because of the shoes (which they had swapped)?  Or was it because she was also of the Flesh and there was a familiarity between them from that?
  • Does River kill him?  All we could see is the Astronaut that emerges from the lake.  We know that Melody is intended by her kidnappers to become a weapon and brought up to kill the Doctor – and that River is in the Storm Cage for killing “the best man she ever knew”, a good man.
  • Is the Doctor a good man? It is clear he’s a just man – think about the Sontaran nurse doing penance for his clone batch and the Family of Blood punishments. But he warns Madame Kovarian that she doesn’t want to see why he sets rules for himself.  The good man, the best man River ever knew is Rory. May be she killed her own father instead.

4) Oh my God, they killed Rory!

On that point, a few thoughts about Rory and Amy.

  • Is Rory still an auton?  No.  The Doctor used psychology to make him confront his potential fears, access the determination of 2000 years as a centurion guarding the love of his life (memories there behind a door in his head, he said), and wearing Roman clothes enabled him to go onboard the 12th Cyber fleet.
  • Is Rory dead, or going to die?  I think both he and Amy may do so before the series ends at Christmas this year.  Why?  We’ve been prepared many times now for Rory’s death: death-by-old-person, death-by-Silurean, death-by-total-eradication-from-existence, death-by-universe-reboot, death-by-FBI, death-by-old-age-madness, death-by-drowning…
  • Amy’s role is also surely almost done – she was an amazing child growing up in a house next to a crack in space and time which in itself could surely have affected Melody’s DNA. Now she’s a mother – and you can’t have a family with a small child on the TARDIS.  But we don’t know how the Silents got the glowing recorder out of Amy’s hand (easier to remove from the Flesh?), how many days she was gone (was that the real Amy with the Silents?) The Doctor says she was taken some time “before America” – really? Or did he just notice then.

While many commentators have gone on about a gay agenda (the gay, married anglican marines and the silurian and her maidservant being the latest additions to this), far more interesting is the anti-faith agenda.  Think about it: the Headless Monks don’t need a head as their minds cannot be changed and they are heart over head.  And the religious army thing?  Moffat says the national armies of today are the aberration if you look at human history where they have mainly been religious (well, may be) – but more importantly the religious army is both the enemy of the Doctor and guardian of the prison where River is kept (perhaps she kills Rory when he was going to kill the Doctor, hence making her the enemy of the army?).  There’s an episode in the second half of this season called the God Complex.  Can’t wait to see what’s in that as there is apparently a minotaur and David Wailliams as a mole…

While Stephen Moffat’s series of Doctor Who have been criticised as too dark and too complex, I think it is true that the clues are there – they are just delivered so fast and so staccato that it is sometimes hard to catch them on a first viewing.  And that’s the perfect excuse to watch episodes more than once 🙂

I’m going to be hugely, embarrassingly wrong about all this in the autumn, aren’t I?

Banking on a better system?

As DG Markt Director General Jonathan Faull writes to the FT about the lobbying of Basel III and European Commission, and politicians and protesters with their “Banker Wanker” posters (and worse) blame the banks alone for the recent crisis and current financial climate…
the more windows get smashed or buildings occupied… I just wonder whether any of us really know what banks are for?

Put in really basic terms, banks basically do two things: they take in short term deposits and give out long term loans.  This is known as a “maturity transformation”.
But it seems that the major issues that caused banks to collapse were inability to properly manage this basic maturity transformation:

1)  running out of funding (like Northern Rock)
2) running out of cash (like Lehman Brothers)
3) inadequate risk management regarding quality of loans (primarily a problem in the USA).

We’ve heard a lot about the last bit, complex packages of bad debt and whatever.  Gordon Brown as PM blamed this third issue for the whole of the banking crisis.  But it is really quite simple: loans are things like mortgages, car loans, student loans, the sorts of everyday loan we can get our heads around.
Everything else is just a different way of packaging these up – e.g. as bonds to flog on the market.  That gives a different product which attracts a different sort of investor and therefore more money to be paid as interest, borrowed by those needing it etc.  Is this an inherently risky business?  Or is it the lack of transparency and understanding about what’s in the packages that’s risky?
I can’t help thinking it’s both the quality of the original loan and also management of the maturity transformation that are crucial here.

So banks borrow short and lend long.
Northern Rock basically seems to have run out of funding for its 25-year mortgages – for which it was borrowing a month at a time.  D’oh.
Lehmans, meanwhile, ran out of cash – a liquidity problem. As a sw you need to be able to pay up at all times.  Many deposits are repayable on demand, and banks have to assume they will be asked to do and if they can’t, the bank goes bust.
You can imagine Lord Sugar on The Apprentice shaking his head in disbelief that these simple concepts cannot be grasped by the self-proclaimed business experts standing before him.

While in the EU we were affected by the US sub-prime loans, unlike the US where these things were not really regulated, in the EU it was.  It’s not that banks don’t have capital standards – the existing Basel standards have been around for about 20 years.
So the Basel Convention and the European Commission are trying to design two metrics for the other two crisis causes to stop all this happening again.
There’s going to be a Lehmans Ratio – so that payments out can always be made for a month – and a Northern Rock Ratio (known as a Net Stable Funding Ratio) for a year’s funding.  And these new standards are being drawn up in just a couple of years.

Real care needs to be taken that the standards set are not so demanding that they will have a negative effect on the economy.
For example, one impact of the Northern Rock Ratio is that it reduces the amount of maturity transformation i.e. there’s more matching of assets against liabilities.  That means it is more difficult to fund long term.
Good, we might think – that means the wrong people won’t get loans.
But what about large scale infrastructure projects?  If we can’t fund them through banks, other sources of funding will need to be sought, such as the market.  And that brings a whole load of other insecurity…

While banker bashing is fun, it is not going to fix the system.  Nor will just breaking up the banks on its own fundamentally tackle this, as it risks making banking more expensive for consumers.  All these things really do is make it look as though the failure is distanced from the political decision making process – which of course it never can be.  Choosing not to act, failure to regulate or supervise effectively is a political decision just as much as choosing to do so.

The key question at the moment is whether our primary aim is to have processes for handling banks when they fail, or whether we should be focusing on building an economic system that doesn’t presuppose this.
As for the idea that if taxpayers don’t have to bail out the banks, we don’t have to pay, that’s to fundamentally misunderstand the nature of our economy.  

If a bank fails and we pay for nationalising it through our taxes, it’s a visible cost.
But the overall increase in costs from what may be politically attractive but economically risky metrics also affect us all – as shareholders, as mortgage borrowers facing increased interest rates or higher entry hurdles, as entrepreneurs with start-up needs or business owners looking to expand through loans, and crucially through our pensions.  Yes, you did read that right, reduced bank profits means reduced dividends which directly affect our pensions pots.
Ah, but not every one is affected, right? Mortgages, shares, workplace pensions… not everyone has them and this way the poorest don’t have to pay for the greedy bankers?  But given the lowest paid have been lifted out of tax, they wouldn’t have been hit that way anyway, so that’s just disingenuous.   We all pay.

And we shouldn’t, you may say.  Let the bankers pay!
Bankers get million pound bonuses!  Yep, some do.  In the UK, according to former City minister Paul Myners,  last year it was 5000 bankers out of a million people working in financial services.  Well, if we want to debate the inherent unfairness in pay and reward structures in our capitalist economist, and the value to the economy of farmers,  call centre workers, teachers -v- say, premiership footballers who merely kick a ball around a field for 90 minutes, that’s a whole other blog post. However distasteful the enormous pay packets seem to us, and the differential between the highest and lowest pay, I think we need to differentiate between our sense of social injustice and convenient scapegoating of the bankers.

If we are to think about an economy that is about economic growth and not on bank failure,  then we need to move away from the assumption that nothing can be done and these things just happen – somehow bubbles that burst bringing down the economy are an inevitability.
Alan Greenspan had a mantra that it is cheaper and easier to mop up after an economic bubble bursts.   He’s been proved wrong.
What we really need is a more mature way of thinking about bubbles.
Bubbles are very rarely economy-wide.  So if it’s a property bubble, we need to have targeted measures aimed at deflating that sector.  How do we tell if there’s a bubble?  Loads of economic analysts argue over this, but essentially it’s a bit like pornography – almost impossible to pin down but you know it when you see it…

Is there a bubble at the moment?  Well, not easily seen.
But some food for thought – LinkedIn was recently valued at what equates to $100 a user.  I don’t know about you, but I’ve not put $100 into my LinkedIn use and would withdraw my details before seeing them sold – so unless some people are putting in thousands of dollars, I can’t see how that worth is derived.  Is this a new 1990s style internet bubble?   Who knows?

But will all this activity make the banking system less likely to fail in future? Don’t bank on it.

Edit: 2014, and things have moved on a bit politically, including party politically, on which I of course have no intention of commenting further. This set of thoughts gives a snapshot of the situation in 2011, the basic functioning of banking and good governance.