Tough Times

Big price rises and restricted credit are here and are going to get worse for a while yet. As spending inevitably slows, pay demands grow and sales fall, we can expect unemployment to rise and exacerbate the situation. The whole mess will feel worse as public sector unions organise strikes to get what they feel they deserve, despite the problems we all face. Further, the corrupt politicians will award themselves yet another massive pay rise, while scamming even more from us on bogus expenses claims.

Government has borrowed heavily on our behalf in expectation of continued growth, which evidently was financial bad judgement. They borrowed in the recent good times, running up debt rather than saving for this rainy day. To balance the books now they have three tools: increase our countries already huge debt, which eventually has to be paid for with taxation, raise taxes less but immediately, cut services. Raising taxes immediately is perceived as political suicide, indeed government has just committed us to even more debt to pay for the interim 10p tax concession, so obviously the pay later option will be selected in combination with cuts to services.
These problems show how poor our system of government is: clear financial incompetence, political power placed before good judgement, corruption at the very top. Sadly the incompetence is not limited to the financial aspects of government. It seems impossible for the public sector to keep our information safe or prevent top secret information from being scattered across the country. To top the list of complaints, how did we end up in an expensive and damaging war in two countries that were no threat to us? Was it breathtaking incompetence or an ego trip for our previous PM Tony Blair? Whichever it was Gordon Brown was not seen to be against it.

We need a new form of government. One not based on an adversarial political party system run by the dysfunctional people that are politicians. Politicians tend to be self serving, power hungry, deluded and egomaniacal. Adversarial political party based government is an anachronism, we are all in this country together and we need to work together, not fight each other. We need a new government system that is not party based but formed from people of all views. It must be adaptable and able to respond rapidly to changing world conditions, not based on dogma or ideologies or evolved out of rule by despots. The system needs power to be widely distributed to deny corruption and ego. Positions need to be filled with experts, not friends and family of those with existing positions. Changes are needed to the legal system, so that it does not persecute the innocent, unlucky and misinformed, but targets the criminals. Control of the economy needs to be placed squarely in the hands of the expert with a remit of long term stability for the whole, rather than be used a tool for political party advancement. Accountability needs to be more immediate. One vote every few years for one of a small number of parties composed of dysfunctional individuals is not good enough.

To get involved in the creation better government visit this site and join the forum.

No EU Democracy

Jose Manuel Barroso: (EC President and big head): I don’t care what the stupid people think, we want more power.

David Miliband: (Foreign Secretary and annoying child): Me too!

Tories: (Where do we fit in and mostly anti EU party): Told you the EU is crap!

Liberal Democrats: (The whinge and tax party): err, that’s disappointing, we need an extra penny on income tax!

Gordon Brown (PM and ditherer): Arse! Does anyone know what to do now?

Although I am outraged because I live in what is supposed to be a democracy, I know its not, so I am not surprised. Further, I think democracy is an anachronism anyway, so lets ignore the lot of these megalomaniac fools and create something better for us all.

Icarus Economy

I distinctly remember Gordon Brown not so long ago implying he should receive plaudits for a successful UK economy. I also remember thinking that he did not do all the work, we did, the best one can say for him is that he did not get in the way too much.

Now it seems the economy is going pear shaped, will he be as quick to seek the responsibility for that? Perhaps there are problems even his mighty skills could not quell. Then again, perhaps it was just a combination of good fortune and our application that allowed the UK to prosper.

If we flew too high fuelled on hubris, we would do well to remember who was the designer of our wings.

Why Celebrity?

Many celebrities are not particularly unusual, nor have they done something excellent or noteworthy, so why are people interested in them? It would seem to be just because they are widely known. If that is true, why is it so interesting to people that someone is widely known?

Why for example is Paris Hilton interesting to many people? She garners a lot of interest for nothing exceptional, other than apparently being wealthy by someone else’s industry and antics which could broadly be summarised as childish or at best immature.

Credit Crunch Conspiracy?

I very rarely attend to conspiracy theories, when I do it’s just for entertainment value, so I am surprised to find myself writing this, but something smells odd about this credit crunch and I can’t just ignore it. Anyway you judge for yourself and correct me if you see mistakes.

I have read a lot about the credit crunch to try to understand it. Apparently it was precipitated when many more US borrowers than expected were not able to repay their residential property loans. Lenders belatedly reacted by tightening their lending criteria and something like hysteria broke out among them, restricting lending more widely and so impacting the economy as a whole. This spread to the UK and around the world via global financial institutions. I know this is a gross simplification of the situation, but documenting the hyperfine nature and causes of the credit crunch is not my task here; this is a good enough understanding for this post. For a deeper exploration see my earlier post: Understand the Credit Crunch.

For years I observed a property price bubble forming in the UK and for a while was surprised at its extent. Had I been in the US I think I would have experienced something similar. Lenders employ actuaries to do mathematical analysis and must know quite accurately at which point to restrict lending to maximise profits. So the lenders must have seen problems coming; even using the crude metric of house price growth against wage growth one could see that the situation was well away from the norm. Naturally lenders are happy with larger percentages of earnings going to them, but concerned that this extra thick slice of the pie does not get eaten away by bad debt. So how did things get so out of kilter? There are several possible scenarios:
1, the outcome is approximately what the lenders intended.
2, the actuaries got it wrong.
3, the people running the companies ignored their actuaries.
4, exceptional events confounded all the experts.

Certainly the first scenario is not claimed by anyone, so we can leave that for the moment. The second scenario does not seem likely. Actuaries are bright people that do exactly this type of mathematics for a living and they have many years of examples to draw from. Even I could see anecdotally the inevitability of most of the problems (at a course grained level obviously) only the spread of lending restrictions between financials was not obvious to me. The third scenario does have something of a ring of truth about it, because we have seen high profile heads role, but nothing like the clearout one might expect. Can the heads of so many large organisations have been so bad at their jobs? It could be self interested short-term planning by executives looking for a few years of exception bonuses and a golden goodbye. Perhaps the purge is not yet complete, or perhaps the top jobs are safe regardless. The absence of large numbers of high profile sackings implies that the financial institutions don’t attribute the problems to their executives ability or probity. The fourth scenario is also receiving some backing; in particular creative sales people supposedly managed to slip many billions of unwise lending through the system without anyone noticing. This seems more than a little improbable. I am sure that this happens on a very limited scale, but not in such amounts for so long. That would imply that nobody had noticed even the broadest of indicators looking dodgy and I feel confident that people must have been monitoring them. Perhaps I am missing one or more scenarios, but if not where does this leave us?

There is doubtless a combination of factors from the scenarios, but as much as the property price bubble was obviously forming, none of these scenarios or a combination of them is obviously causal. That leaves me reconsidering the first scenario. Perhaps we are broadly where the money lenders expected us to be. Not only have they grabbed a larger slice of the economic pie for themselves, they are seeking even more from state / central banks as support and that eventually translates into taxation. This reminds me of the old saying about owing a lot of money to the bank implies the bank owns you, but owing an amount the bank can’t afford to lose implies you own the bank. Do the lenders own us all? Are they using the state / central banks as proxies to extract even more through extra taxation on their behalf. Certainly the wealth extracted so far by them either was not created yet and that is what needs correcting, or it did and is now somewhere. If it didn’t exist that implies serious strategic mismanagement on a colossal scale, which again would be easy for the actuaries to spot. If it did exist where is it now? Have we been intentionally cleaned out by the lenders? Certainly the outcome seems to be the same.

I know that some of you will say that hindsight provides perfect vision and that the financial institutions were heading into this blind. To that I would say property price bubbles are nothing new, we have seen them before, their outcome is broadly similar. How can a property price bubble have exceptional or unexpected consequences when we have seen them before? Is something different? Well if it is simply that the scale of the thing is bigger then it should have been more obvious as it formed. It was obviously a problem building to me as a casual observer. Admittedly I did not foresee the lenders restricting credit to one another, but then it was not my concern to look out for such a problem.

Perhaps I have misunderstood or not noticed something, if so I am sure someone will put me right and that is what I think is most likely, but until I have that understanding I have to say things look suspicious.

Understanding the Credit Crunch

This post documents my understanding of the credit crunch and its associated ructions thus far, along with some wider understanding of related important economic factors. In it I address: what are the problems, what caused the problems, what are the consequences of the problems, what is being done to fix the problems and what are the consequences of this fix.

What are the problems

The problems are manifold and the pressing problems for individuals such as elusive credit, falling house prices and job insecurity are really consequences of problems in a larger picture, so I will focus on that. That larger picture has two important players, the large financial institutions and state / central banks controlled by government(s), together they modulate economies. The main macro scale problem for the money lenders seems to be a lack of confidence in their ability to avoid collapse under the weight of bad debt. Specifically, it is the fear that much more than expected of what has been lent will not be fully recovered and lead to large enough losses to make the lender unable to continue in business. The main macro scale problem for state / central banks seems to be the possible collapse of money lenders, especially those that also provide savings services. The collapse of large financial institutions will have a negative effect upon the confidence of the whole financial system that could cause a cascade of secondary problems through an economy.
Certainly there is a poor position on mortgage debt and one does have to wonder how it was not obvious to the lenders that they were getting into it, but that does not mandate rampant defaulting on repayments. It was obvious to me for years that a property bubble was forming and would need correcting. I always assumed it was even more obvious to lenders and that they had calculated the best level of risk to accept in order to maximise profits, balancing those that would continue to pay with defaulters. It is rather a surprise and suspicious that they claim not to have seen it coming. Regardless, the lack of lender confidence slows down business as usual and perversely increases the probability that lenders will fail. It is the cessation of business as usual at the money lenders that is creating the dramatic economic effects. Unless we can identify the causes and find fixes for the problems the fear of failure will translate into actual failure and the problems will be amplified.
The credit crunch problems are exasperated by shortages of food and fuel causing steep price increases. These are a simple consequence of supply not keeping up with demand. Although their timing is unfortunate they are only related in so much as they restrict consumer spending patterns, which has a deleterious effect on business, slowing overall growth and confidence.

What caused the problems

Housing has increasingly been used for profiteering. It always has been used this way by architects, builders, mortgage providers, landlords, estate agents, solicitors and surveyors, among others. However, recently two classes of interested party have burgeoned. One class is the speculators. Speculators have no product and offer no service, they are simply there to profit and are the biggest cause of the problems. Speculators pump up what they have already identified as hyperinflation in prices. Some speculators may call themselves ‘property developers’, but they do little or nothing but profit from a bubble situation. Just to be clear, people who take out buy-to-let mortgages are also speculators, they differ from traditional landlords in that they must borrow to acquire property to let. This is obviously a risky practice and inflationary for property prices. The other notable problem class is those with meagre means being offered excessively easy terms to buy.
Property was bought with increasingly easy to obtain loans for increasingly tangential reasons; for example: buy-to-let property, holiday homes, weekend homes, university accommodation and just plain resale i.e. naked speculation. This combined with the demands of rapid immigration and a property supply that did not increase quickly enough, to cause unsustainable house price rises above wage rises. Housing, like pensions is too important to be used in that way, government should impose controls to prevent its misuse.
Some of this profiteering is long term, with people using it as a pension because of the poor quality pensions. The UK government does not provide a sound pension scheme, except naturally for themselves and other public sector workers. A good pension scheme should: be 100% underwritten by the state, have a guaranteed minimum growth rate, be contribution based, have a guaranteed minimum pension at the end regardless of contributions but based on time resident, be index linked, not be means tested, be ring fenced and protected by law. It seems the government believes that only the public sector are worthy of a good pension. They are, as ever, helping themselves.
So the causes seem to be increasing use of residential property as a means of speculation and pension savings combined with poor lending criteria. The problems only seem to have become visible when the inevitable increasing bad debt arranged with less financially solvent borrowers as mortgages on inflated property prices precipitated a collapse in confidence. That increase in defaulting was triggered by an increase in interest rates which were held low for a prolonged period to avert the worsening of the previous economic slowdown. During that period many poor loans were made that could never be sustained on a return to more normal interest rates.

What are the consequences of the problems

Debt is used as money i.e. the potential to recover money at a profit from loans is being treated as money. This works well enough if you know that the loan will be repaid with interest. Unfortunately, not all loans are repaid, some fail and money is lost, but as this is statistically at an expected level its effect of reducing the value of the rest of the debt can be taken into consideration. When that rate of failure jumps, confidence plummets in the value of the loans and they are less valuable alternatives to money. The loss in confidence in their own loans and those of other lenders who were similarly unwise, tends to restrict them from lending to all classes of borrower, including each other, to reduce risk. This has the effect of reducing the number loans made, how adventurous lenders are, how high the repayment rates are and how much collateral is required. Those changes in turn make it difficult for business to borrow for expansion and ride out problems and so employment and the greater economy suffers. Also, reduced borrowing by consumers slows spending, with the effect of reduced opportunity for businesses to profit from sales.
We may wish to consider the sustainability of economies built upon the premise of continuous growth in consumption. Large disparities in the relative sophistication of economic development must be sustained and the more sophisticated economies need to retain the perception that their economic model is best. If they fail in either part, people will stop pursuing the growth model. Debt has potential for significant further expansion providing lenders can consolidate to drive economies of scale and operate on tighter margins and apply pressure to keep interest rates low enough that borrowing is the only obvious route for many purchases.

What is being done to fix the problems

Firstly it is rather worrying and suspicious to me that the state / central banks seem to have been as blind to these problems as the money lenders claim they also were. Can they really be surprised that many years of house price growth above wage growth fuelled by low cost loans would lead to problems when interest rates rose. It seems so stupid that I would be quite credulous if a plot of grand proportions to profit under the guise of the credit crunch was revealed to me.
Anyway the government tactic to solve this problem is to get the state / central bank to lend money to the lenders. That should enable the lenders to keep trading, as their confidence of surviving problems is increased and the whole system stabilises. There are still a lot of loans that will take time to become worth what was lent, as property prices can take years to normalise, or they can be normalised quickly but catastrophically for some. Unfortunately, the government doesn’t have any money to lend, in fact it is itself a big borrower. So as neither has any immediate money the government has offered bonds (which currently are sufficiently sound to be considered as good as money) in exchange for quality debts of the lenders, proving certain guarantees are made. This is following the drawn out normalising process, rather than the rapid normalisation process. The former has the advantage of apparent stability in the short term, but the disadvantage of producing a tardy correction for the medium term and so slows the economy as a whole. The latter is better in the medium term as it affords all parties more time to recover, even the worst hit, but is worse in the short term for those in the worst positions and for general confidence if the effects are not well isolated. Both approaches will be equal in the long term as normalisation must occur.
One feels bound to ask here: who has the money. It seems that everyone is borrowing money, somebody must have some. An interesting question and to answer it one needs to remember that money is just a vector for production i.e. work done multiplied by efficiency; twice as efficient gives twice the production for the same amount of work. So the question should be: is there enough production to pay for the debt. One buys things with ones own productivity, but that includes recycling the productivity of others; specifically in creating the basic inputs to ones own work. If there were a finite amount of productivity in the world then clearly there could be no growth and so any debt should remain static. However, increasing populations and efficiencies, particularly in currently low technology economies, provide the continued growth in productivity. That is likely to continue and so debt levels can also increase, but they should not increase faster than the rate of increase in productivity.
Whether productivity is increasing or not, what level of debt can be sustained? Can it be as much or even more than the level of production? I think the answer to these questions is in confidence in the stability and predictability of the economy, markets and debt arrangements. As long as we have confidence that a debt will be repaid as arranged we can increase debt. If sufficient confidence exists then there is no reason why debt could not be arranged that could span whole lifetimes or even generations. The obvious inference from this is that we can have more debt than earnings, so long as we can sustain confidence in the stability and predictability of the economy, markets and debt arrangements. I would suggest that we are already in such a position and that explains the state / central bank conservative tactic of protecting the status quo as the least risky but otherwise least sensible option. Clearly a strategy for preventing the situation is preferable. That would imply a clutch of strong measures and checks to provide the required stability.

What are the consequences of this fix

Normally the government sells bonds to raise money. Bonds are a promise that the government will repay the money in the future; in the interim they will pay interest on the loan. The government (tax payer) must pay interest to the bond holders and in this case gets in exchange for those bonds another less reliable form of debt from the lender, rather than money and that makes the lenders more confident. Unfortunately, the country now owns the poor quality debt instead of money and is paying interest on it. In fact as we know the value of the mortgage debt the country has now acquired is over rated, not only is the country paying interest for these loans, it will have to wait years for them to be worth their face value. The net effect of all this is that the profits of the lenders in the bubble years have been protected by the government at the expense of the tax payer. Greater government debt must be paid for by taxation or cuts in services. Although this is a terrible deal for the people as a whole the government is essentially arguing that it is better than a collapse of financial institutions with potentially catastrophic ramifications. However, it may be that a better deal for the tax payer is a tactically managed collapse where the worst institutions are isolated and made to carry the whole burden.
A proper strategy to avoid us getting into this kind of situation would of course be preferable and that needs a slew of measure to check for abuses and imbalances. Unless such a system is put in place we face the probable repetition of this situation in the future.

English Nationalism

The fact that English Nationalism has been weak in recent history should be a cause for celebration. Nationalism creates a division, an ‘us and them’ mentality that breeds mistrust and that tends to encourage confrontation. Nationalism is a throwback, something to be avoided, a sign that one is not mature.
Although it is difficult when you are provoked by people like Alex Salmond and French politicians, remember you are an individual first before you are English. Strive to be an individual before a member of any group and you will feel a far greater sense of pride than comes with nationalism.

Easy Target

The good citizens among us have felt this sense of injustice; if you never felt it then you have been incredibly lucky, or perhaps you are just thick skinned about these things, or maybe you are one of life’s corner cutters, not an easy target. For example, you get a fine and points on your driving license for driving 1 mile per hour over a speed limit, but some reckless driver you have met never drove under a speed limit in their life and boasts they have a clean license. Or, perhaps you always declare all your income and pay your tax on time, but are chased relentlessly for a trivial amount missed by accident, when someone you know does not declare huge amounts they earn, because they got paid in cash. Or, perhaps you are a father from a failed marriage and you pay your child maintenance dutifully, but when you are a little stretched through no fault of your own, you get no latitude; but you know another father who skips most of his payments and always gets away with it.
The problem is target based metrics used to measure success that don’t value the difficulty of the job or its wider impact. It is difficult to ensure value is placed on these two features throughout society, but government has the opportunity to lead by ensuring they are used in the public sector. If they added these two criteria to any metric used to measure public sector performance, I think this would go some considerable way to making many of us feel happier with our society.

Prognosis for the Economy

What is the prognosis for the economy?
There are three fairly obvious possibilities:
Firstly, some people think that most of the problems for the financial services have happened and so are we are near to a turnaround. This sentiment is evidenced by the current vacillating of the share markets.
Secondly, other people think that the financial services have precipitated a wider economic recession and now that will take over to drag down the economy into a deeper hole. As the economy is enabled by financial services that could certainly be true and consumer spending is changing, showing increasingly parsimonious spending patterns.
Thirdly, others believe that recent activities by central banks have staved off a potentially deepening crisis. Certainly, making more credit available to banks reduces the risks of further banking problems, which would pique the lack of confidence. However, has enough been done and are there other techniques that could be employed.

Which View is Correct?
The fact that the financial services sector was jointly at the heart of creating the problems and the fact that they are vacillating now over its depth means that they don’t have a clear vision of if we are at an economic low point, even though they are the ‘experts’. Central bankers seem to be at least as much in the dark as the financial services gurus, because they didn’t see the problems coming either. They have made increasingly strong efforts to avert a cascading of the problems into the wider economy and this indicates they too don’t know how far this will go. A preponderance of others have commented that they expect things to get worse before they get better. It would seem that the ‘clever money’ would be on a deepening of the current macro economic problems, exasperated by falling property prices along with rising food and fuel prices.
The full effects of problems on this scale do take time to ripple through an economy, so it is likely that even if we have reached the nadir of the original problems for the bankers, they may yet be revisited by their wider effects. So although none seems to have a full understanding of this problem plexus, we can expect the shockwave to ripple through the economy for some time. An important question is: will the after shock feed back to the financials strongly enough to initiate a new vanguard of problems.
My own view is that this crisis will deepen. Lending is constricted by tightening positions in financial services leading to tighter loan conditions. Many people have become comfortable with living at the edge of financial solvency and have started to find their newly restricted position forces them to cutback hard. This pruning of expenditure will denude businesses at marginal operational viability, which in turn will feed costs to the economy through unemployment. Fortunately, the businesses that are least viable and able to ride out a slowdown will tend to be small and although there will be a constant flow of them, they will have less of a confidence damaging effect than mass employers making redundancies. Also, people love to buy stuff and have a short memory for problems. As soon as their positions stabilise they will be back with what credit they can get and there will be creditors with money to lend. Further, service dominated economies are quicker to respond to demand, so for example the US and UK economies should bounce quicker than manufacturing based economies. Therefore, although I expect things to worsen, I also expect that they will flip back quickly to growth. Financial stability and solvency are less of a concern for many today and that combined with faster and more free flowing information than ever will resolve to a faster turnaround in the economy. We will soon return to the consumer dream, not because I want it, or think it is a good idea, but because most people want it. Given the desire for something and the opportunity for others to make money from that desire, there will be a race to make sure they get it, as soon as possible.

What should central bankers do?
Firstly, they must restore confidence. Confidence is the most important factor for a healthy financial services sector and central banks have moved to improve it. So much of the economic success of a country now depends upon its financial services sector that it must be unencumbered. Therefore, improving the stability of financial institutions with government backed loans is a possible scheme. However, this tardy tactic is essentially printing money and hence inflationary. Central banks know that the excessive valuations placed on residential property must be normalised. Price growth has exceeded wage growth and that leads to a bubble that draws in a disproportionate percentage of overall income to service that debt. This is not good balance and balance, after confidence, is most important. The central bankers should be encouraging the rapid normalisation of this over valuation to quickly restore parity. Drawing out normalisation will only delay the return to a balanced growing economy and I am concerned that a government statement about preventing people from losing their homes could do just that. They have not detailed how they plan to do this and it could be empty rhetoric, but if not and they start to intervene at this point they could stifle recovery for some time. An interventional strategy would have been much better to prevent the bubble. Intervention now should be to encourage a property market decline.
Secondly, they must address the root causes of the original crisis. They are manifold, but two stand out as significant: Excessive speculation using residential property, especially by people who do not understand investment markets. A poor pension system which encourages people to look for other ‘stable’ savings vehicles, in this case property investment was used.

What can we do as individuals?
As a general strategy, buck the trend. Be a saver when all about are spending big. The best time to spend big is when everyone else is not, you get the best deals then. Particularly, you should be looking at the big things: buying a house or moving to a better one, buying shares and a nice car at a bargain price. So, property will soon be a much better deal, shares already are, but will probably become better still and slightly used luxury cars will soon be everywhere at great prices. Simple really, just difficult to do.

On dumb = cool

I originally posted this in June 2006 as a comment on a post that bemoaned how it was not cool to be smart; worryingly, I think the situation was in school. Anyway, by chance I came across it again a few days ago while searching through my documents and thought it deserved one more mirthful outing, this time on my own blog.

It may be cool to be dumb, but only amongst the dumb. Those of you who are not dumb can pretend to be so if you wish, because the truly dumb will never guess. So we can all be cool, but the not so dumb can in their angst eventually find less dumb things to do with their smart brains than pretend to be dumb. If you don’t find better things to do, then you must in fact be dumb anyway and ergo cool, even though you never realised it. You people should stop worrying about being cool or dumb because you are both, apparently. If you are deeply dumb you were probably lost somewhere a couple of sentences ago and are very cool anyway; you lucky people. If you read this far and are not confused you are probably not dumb, or at least have plenty of time to figure out what un-cool people talk about and are now laughing with your cool mates. If the latter you may want to consider the possibility that you are borderline dumb or have non-dumb tendencies and should perhaps check what you are wearing, in case some of it is un-cool. If the former you can congratulate yourselves on not being dumb, but you mostly likely look a terrible sight. However, in a kind of inversion of the deeply dumb you won’t care and are wondering what all the fuss is about having speed read this or just skipped it because you could see where it was all going. As for the majority of you that think those dumb people and smart people are lucky not to have all this cool and dumb stuff to worry about, consider yourselves lucky. You can choose to look fairly cool or be reasonably smart and have found a distraction at your level, that is why you are the ones most likely to be reading this.
If you respond to this post what does that say about your dumb / cool credentials? Would it be smart or dumb? Everyone will know!

Financial Insecurity

The current money market and housing market problems are underpinned via a common root problem, so I will treat them together. Government plans to solve the woes of the money markets and housing market are short term tactics, probably designed largely to get the government past the next general election. These plans don’t recognise the underlying problem and its causes. Also late in arriving, they instead treat some of the obvious symptoms. So, as it is unlikely that the government will do what is needed, we must recognise how best we might adapt our plans. Although the root problem for both market systems is the same, the symptoms are different.

The Symptoms

The housing market symptoms have increasingly been affordability issues for first time buyers and recently price falls leading to the infamous negative equity trap for some. Government plans to tackle affordability for first time buyers by allowing them to own a fraction of a property exasperate rather than alleviate their problem. People will commit what they can to get a house, so enabling fractional ownership simply allows the same financial commitment for a fraction of a house. Obviously, this in turn increases the price for the whole house. No one wants to spend any money on buying a house, prices are dictated by how much people are allowed to spend by lenders. Fractional ownership simply increases that allowance. There are no direct plans to help those in the negative equity trap, which reduces the mobility of the workforce and so is bad for the economy.
The financial services industry has a crisis in confidence that has stifled the free flow of money. Money is a vector for the flexibility and growth of an economy, so this impediment will have far reaching implications for the UK and is the biggest single problem we face now. Government plans to restore confidence to the money markets using bonds in exchange for property backed debt are not solving the root problem. Instead this tactic dilutes the problem by spreading it over time and distributing losses to the public purse. Another possible tactic seeks a quick correction of the problem by compressing the problem in time and localising its effects. The latter tactic, although less intuitive, has a number of advantages, prime among them is returning the economy more rapidly to a better state. As a result, even those most impacted have time to recover and more obvious measures can be enacted to restore confidence, which is certainly one of the most important qualities of a market based system. Now the problem exists one of these tactics must be employed, as the over valuation of property has to be normalised, implying losses for those that bought in late. The only question is how much to dissipate and slow those losses. It should also be noted that as the government does not in fact have money reserves to back these bonds, so their effect is ultimately inflationary. Also the drawn out tactic using bonds disengages the debtor from the consequences of their poor judgment, which has obvious negative effects.

The Root Problem

The use of residential property as an investment vehicle is at the root of both the money markets and the housing market problems. There is a complex interplay of many causes, but the two most prominent are: Firstly, pension savings are inflexible, not protected and are subject to means-testing. The lack of confidence people have in pensions has encouraged them to find alternative savings vehicles. Secondly, poor understanding of investment markets by amateurs who have access to them with residential property. Profiteering using markets is as old as humanity, but amateurs using them with residential property is a bad idea. Stability of residential property supply is too important to allow it to be used as a tool for speculation which inevitably leads to the decoupling of prices from earnings.
So how should the government tackle this twin causes. Firstly, they must introduce a government backed flexible pension scheme linked to contributions that is not means tested. Importantly, these savings must be ring-fenced and protected in law to prevent misuse. This will provide a safe haven for people with savings and reduce the tendency to use inappropriate savings vehicles as pensions. Secondly, the residential property market is too important to be used as a speculative investment tool by people with a poor grasp of its consequences. Strong controls need to be applied to the total percentage of income and its sources used to repay residential mortgage debt. Naturally, to discourage the inevitable attempts to circumvent these controls significant penalties need to applied to transgressors. It will be difficult to fabricate this control and it will need continual tinkering with to perfect, but it is essential. The ideal time to apply these controls is approaching when we reach the bottom of a property price dip. This root problem will keep recurring until it is addressed by providing a sensible pension scheme and controls designed to strongly correlate residential housing prices with earnings.

What Can We Do

Given that the government is unlikely to see the light and tackle this problem correctly as I outlined above, what can we do for ourselves.
On housing, timing is important. There will be a bottom to the housing market price falls. If you are planning to get into the property market or move, the best time to do so is at the bottom a price slump. In the end it is not the relative price of a house that matters to you, it is the amount you borrow to pay for it. That amount is always going to be lowest at the bottom of a price dip. If you want a house that costs twice as much as your current house is worth, that is easier to fund if for example your house is worth £100,000 rather than £200,000. Naturally as we get further from the bottom the less good a deal we get, but caution need only be exercised where there have been years of house price rises above wage growth. This is very difficult to do when prices are rising rapidly, but that is the time to save until the inevitable price crash. Those who are brave enough, or have no choice can get in and try to get out when they feel a good profit has been made. However, this is a very risky venture because typically the sums of money involved are large relative to income. If you do try this approach, a mercurial nature is essential. On sensing the market is topping out, sell fast and strongly discount your price to ensure a quick sale. If the price is not good enough and you are left holding the property too long you will have to discount even further later.
The financial sector has experts that understand their problems well enough. Unfortunately, those experts are not directing the businesses and so short-term and badly formed strategies still get used. It is in the interests of their directorships to ensure that directors and senior management making strategic and significant tactical decisions are well enough educated in the fundamentals of their business. General businessperson and salesperson types without the correct background simply do not have the depth of understanding required. In addition the board should sponsor multiple technical reports on the viability of any significant shift in strategy. They should also have clauses in the contracts of the most senior figures that prevent severance payments in situations where it is considered a poor strategy has lead directly to losses. This will not discourage good people from competing for these positions, in part because nobody takes one with the expectation of failure.

Embryology Bill

Embryology Bill

WARNING: If you are religious and intolerant of other people having a negative view of religion, don’t to read this post.

The discord around this subject fits a pattern I have seen before. Some people, I will call them moral fundamentalists, think they have the right to try to impose their moral systems on everyone. Their guidance and edicts should be directed only toward people who have agreed to adhere to their moral code. They have no mandate to affect anyone else. In this particular case religious moral fundamentalists also presume to know better than anyone else the correct treatment of complex issues concerning genetics, despite having no expertise in the area. They have extrapolated some principles from ancient texts that they have been able to associate with the issues. In truth they have no original text guidance on these issues, the associations they make are loose, the extrapolations fanciful and containing surreptitious motives, and they are made by contemporary administrators, not deities or prophets. Like all fundamentalists, they are a danger to themselves and everyone that comes into contact with them, because they have an uncompromising extreme stance that they insist on everyone conforming to and they cannot see that they are fundamentalists. If you are disagreeing with this now you are probably a fundamentalist, but you will also deny it.
These religious moral fundamentalists are using this issue to support the supposed currency of what is an anachronistic and mostly static system in an increasingly sophisticated and rapidly evolving world. As ever more complex new issues arise this overextending of their original texts becomes increasingly obvious, so that today a smaller proportion of well educated people than ever are interested in their views. Their problems are rooted partly in the need to imply authority through the use of absolutes, tradition, longevity and divinity, and partly in using static texts as a basis for all their views. For those views to be taken seriously they also must either be static or evolve very slowly to give the impression of considered authority. Obviously, this requirement is out of step at a very basic level with an increasingly rapidly evolving world.
Good science can prove itself and delivers tangible benefits, where religion cannot prove it is correct and its benefits are mainly intangible. I suspect that most modern religion is a way of obtaining power and money and to do this it takes advantage of the less well educated in society. As the quality or at least the pervasiveness of education has improved there has been a corresponding decrease in interest. To survive they need to change their strategy to provide other services.
One would think that members of the Catholic church would have the sense to keep a low profile on science based issues, having an extremely poor track record in this area. Are we still supposed to be at the centre of everything according to them, or has that changed now the scientists have shown this to be false? One member of the Catholic church cynically appealed to the least well educated in society with scare stories of Frankenstein creations, shamelessly courting publicity. Worryingly a number of politicians who are supposed to running this country turn out to have sympathies with religious groups. Gordon Brown should remove anyone from government that allows any such views to influence their roles in government; mostly because promoting a religious view is not in their job description, but also because they have a dubious grasp on reality, probably because of a deficiency in their education. Why is he allowing them a free vote anyway? They were given office to serve the people and that includes the people’s well being, not to promote their respective religions. Members of the government need to adhere to government principles and they should be to promote the health and wellbeing of all the people, not the influence any religious group.
Some religious groups believe there is one fundamentally important and valuable aspect of a person, often referred to as ‘the soul’, which is present even in an embryo. The concept of soul is useful to provide differential status and hence treatment, between for example people and animals. Disproving the existence of a soul is probably an intractable problem and a battle that need not be fought. One may circumvent this issue by encouraging the religious to reinterpret their own texts. A new interpretation could extricate them from their moral dilemma. For example, selective divine intervention to prevent misuse of souls, whether retrospective or proactive. One could also envisage a special case where addition of a soul is conditional upon a priori knowledge of the embryo’s destiny. There are probably some other schemes that could be employed, but the latter has the advantage that it could be applied in tragic cases such as prenatal death. All they need do is pick such a scheme and use their talents for interpretation to find some text to support it. Then they can gain even more publicity by announcing that in fact their religion was in already aware and prepared for these discoveries hundreds of years ago and that science has just caught up. Sadly, some people will believe them. Hopefully they will reinterpret, then we can all move on peacefully and the scientists can continue to save lives.

Deification of Youth

Postulate

Youth and its concomitant culture and attitude has come to dominate all media output to the point of deification, despite the increasing average age of the population. This increasing discordance has a negative social impact for at least three reasons:

Firstly, youth deification tends to encourage the empowering of young people and the granting of rights to them, despite the fact that they are the least well equipped to wield power and use those rights. For example, recently there was a proposition to confer voting rights two years earlier in life at 16. Although I doubt most people are well equipped enough at 30 to vote in an informed way, age is not the correct criteria. The criteria should be: experience, knowledge, intellectual balance, intelligence and sanity; all (except perhaps the last) characteristics that tend in increase with age. In another example 16 year olds are allowed to have children of their own, this is almost certain to be a disaster. The criteria that I suggested in the first example also applies to this, but one can add to them: financial security, compassion and emotional balance, emotional stability and social skills. Again these extra criteria tend to be more prevalent in the mature person. Handing out power and rights temerariously to people who are ill equipped to have them (predominantly the young) leads inevitably to problems. This fashionable lust for youth is too widely applied and indeed is misguided in almost all aspects of life. Society and its administrators are too quick to see the value in youth.
Secondly, youth deification distorts people’s ability to make unbiased judgements about their life. People are encouraged to make decisions that tend to portray them as youthful. Clearly this will have the largest affects at the margins, where a balance of judgement could be tipped by the pressure to be youthful. For example, the attitude toward responsible drinking. Alcohol is a drug that has social acceptance and its youth informed over use is one of the most negative features of modern British society. People are swayed too easily to see the value of youth in their own lives.
Thirdly, ageism favouring youth consigns useful members of society to minority roles when the have great experience to offer. People are too ready to see youth in others as an advantage over experience and stability.

Justification for the Postulate

How and why Youth Deification came about and spread

The visibility of youth in media output began as a result of the increasing economic independence of younger people being targeted as a distinct group by enterprising businesses. For obvious reasons youth combines easily with the pan-generational preoccupations of health, personal hygiene, beauty, sport, fitness and optimism about the future, amongst others. So naturally usage of young people was extended to marketing using lifestyles and images which have those preoccupations as important elements. As most popular lifestyles and images employ some of those preoccupations, most tend to celebrate youth.

How Youth Deification became dominant

People like to be optimistic and popular, so naturally they are attracted to popular trends that promise a better future. As more people like something it tends to inflate its popularity. This inflation process has occurred with some images and lifestyles and so by association has the significance of youth. Youth is also associated with some negative and failed images and lifestyles, but they tend to be forgotten more easily because peoples focus for their own aspirations is on the optimistic and popular. Youth is also obviously associated easily with the future. Combined these factors tend to emphasize youth as a positive human state, even though in practice its virtues are mostly trivial.

Exaggeration

Competition in marketing tends to encourage exaggeration of what is popular. So inevitably utilising youth led also to the use of youth culture and youth attitude, all of which are exaggerated in the advertising arms race. For example, it is often visually manifest in advertising images as people who are carefree enough, that they have their mouths agape and are laughing so hard they have lost control of what they are doing. Another example is juvenile attitude and behaviour, such as drinking so much it can do you harm. This attitude is portrayed as a normal or even aspirational in some subcultures and yet must (or should) be considered extreme behaviour by the majority of society.

Unrepresentative

There are few areas of popular culture that youth, youth culture and youth attitude are not applied to. However, pervasive youth culture in marketing is not an accurate reflection of the composition of society. In fact, the average age of the population is increasing and so omnipresent youth culture is increasingly incongruent. This contradiction implies that youth culture is far too prevalent and important, one might even say it has become deified.
The dominance of youth culture in popular culture is in part a reaction to the increasing, sometimes onerous, complexity built into our lives. Managing complexity requires application, experience and responsibility, which are not easy to obtain and difficulty is not popular. A youthful carefree attitude helps to differentiate from the unpopular aspects of social complexity. Hence, by differentiating ones self from unpopular facets of life one possible inference is that one is associated with the popular facets of life. This can be reinforced by adopting other features of popular culture. The need to be popular may in turn be a dependency of insecurities.

Conclusion

The progression toward younger customers is still continuing and the internet provides a relatively easy means to allow it to continue. At the same time older people, although representing a larger fraction of society, are becoming marginalised. Eventually perhaps we should expect a correction to the status quo, when the large unattended mass of older people become tired of the continued dominance of youth culture and flex their voting and collective financial muscle.

The meaning of life

I have recently been pondering a big question again, usually expressed as “what is the meaning of life”. Being a little older and more experienced I could not ask the question in that way. It is clear to me this time that it must be asked in a less flippant and more constructive way if I hope to make any progress.
On this particular revisit I also thought I might gain more traction by enlisting the help of the rest of the biggest human community that has ever existed, via the internet, the greatest communication tool so far. Do you feel you have some insight that may help progress on this question and would like to share it? If so please reply to this post.

The Question (provisional)
Is there now, or has there ever been, a purpose for life, intended or not, particularly human life and especially an individual human life, whether from an objective or subjective point of view?

Anatomy of the question
Obviously this question has several related parts, but in framing it this way I intended to highlight some possible points of discussion and confusion from the outset. The traditional form of the question uses the word ‘meaning’ rather than the more tightly focused ‘purpose’ or ‘objective’. Using one of those words helps narrow the question a little, while not diverging significantly from an acceptable form of the question. Also, the traditional form of the question is implicitly understood to be concerned mostly with individual human life, but to some extent all human life. Broadening out the question to explicitly include the individual, all human life and all life may help by identifying general patterns for all life first and analysing how they might be transposed to and augmented for the more specific categories. In addition the traditional question is unconcerned with intentionality, that is it does not discriminate between life with intended or unintentional purpose. This can be clarified with an example: A pebble used under a garden table leg to prevent the table from rocking may be considered to never have had an intended purpose, although it gained an unintentional purpose. We may extrapolate from that example to emphasize the viewpoint of the observer. It may be that the pebble has an unintended purpose, but for levelling individual it has an intentional purpose. Further, to another individual the pebble, table and person doing the levelling may all be considered to have no purpose. The example also highlights another component of the question, temporal status. That is, the pebble may be considered to have no purpose except for a window of time where it is used to level the table. Whatever the status of anything in the question is at an instant, we can not assume it is so throughout time. Lastly, an implicit thread through both forms of the question is the identification of distinct entities that are independent although impinged upon by each other. This may be the normal mode, but it may not be a reasonable understanding of reality and thus may be material to the answer. However, it is difficult to include this concept directly in the question without obfuscating it and so I have not included it in the current version. Rather, I hope and expect to include it in a subsequent elaborated version. I also feel that the issue of the observer is a rather weak addendum in this version of the question. Quite probably the question needs to be reframed without the artificial constraint of trying to include all relevant aspects in a single sentence. Clearly the form of the question needs further work and I expect to enhance it as thoughts on it evolve and clearer language emerges. The most important facet of the question is the inclusion of all the component concepts as described above. The actual form of words must be subservient to that and this understanding has informed the effort so far. I welcome any suggestions on how to better frame the question to embody all the important concepts identified so far as well as suggestion for new concepts to be included.

Rules
I don’t like to impose rules, but I think three are necessary to keep this discussion in order.
Firstly, I will exclude religious answers from this discussion. They resolve to faith in something which is not testable and non-provable, at least not to those without the right flavour of faith. However, I do not exclude faith itself. A legitimate faith for consideration might be in a scientific or research process or a living individual. The important element of a viable faith for consideration is that whatever the faith is in, it must be evolving toward some evidential state or may be questioned or tested directly. Ultimately we need empirical evidence or the prospect of it for faith to be allowed as an immediate surrogate answer.
Secondly, I will exclude answers that in whole or part have unreasoned and unequal treatment of subsets of what may be considered as life. A non-parity status for subsets of life needs to be rationally justified.
Thirdly, although I have reservations about some basic elements of this discussion, such as the nature of time and accuracy of language to represent cognition, unless there is a compelling reason to the contrary they are considered tangential and should not be offered as a part of this debate.

Advanced mathematicians required by the public sector

Wow, what a lot of people got involved in this debate.
It must be so important, or vote worthy!
I would be pleased if we could just find some people who can count.
Can it be that complex to organise counting people on and off an island?
Another bloody shambles!

Lets hide the debt problem!

The Master Liquidity Enhancement Conduit (MLEC) fund has been created by several big US banks with between $75bn and $100bn (depending upon who you believe) to buy up debt from Structured Investment Vehicles (SIV) which in simple terms are mortgage providers. The debt is largely in the form of Residential Mortgage-Backed Securities (RMBS) and Collateralised Debt Obligations (CDOs) - i.e. mortgages. SIVs, which own about $400bn of assets, are investment pools used by banks, but most enthusiastically by Citigroup who originated them in the 1980’s. It is now clear SIVs have been too keen to offer debt to financially dubious property buyers. The MLEC is an attempt by the private sector to mitigate some of the risks associated with bad debt incurred during the US property price bubble. That bubble was inflated by the poor lending strategies of the SIVs and ultimately those that initiated them. The MLEC fund will be accepting only the best risks, leaving the worst in the SIVs, so they will flounder rather than the banks. It is interesting to speculate as to why this cause was not taken up by the IMF, whose role it is to promote international financial stability. Perhaps they do not see it as a big enough problem.

So can this fund help? Well as an attempt to reintroduce confidence to the market and hence stability, to some extent that is going to happen, especially as it has the tacit approval of the US treasury. However, ultimately the problem is rooted in lending money on the basis of economic growth that was not there. Now that position has to unwind and the costs of the overestimate will have to be dissipated. This fund can only act as a buffer, trying to spread and slow the normalisation cost, it still has to happen. So in that sense it is more like an attempt to convert a painful punch into a protracted uncomfortable pressure. The problem has to be handled and it seems that somewhere someone has made the decision that the drawn out normalisation approach is the better option. So as we get used to the inevitable slowdown, the remaining market confidence will be subdued rather than demolished. In that sense it is a better strategy as stability and confidence are perhaps the most essential assets of a reliable economy. Ultimately the costs of this failing will be carried by everyone, the banks will ensure that, rather than just their shareholders.

Iranian thinking

War is coming, again!
If I was working at a nuclear facility in Iran right now, I would be looking for a new job.
I don’t want to take sides on this issue, enough people already do. So regardless of the rights and wrongs of each side in this fracas, I have to wonder what the Iranian leadership thinks it will gain by provoking the Americans into bombing them. Do they really think the Americans will become coy when it comes to the deed? Do they honestly believe that some giant omnipotent hand will reach down and turn back the bombers? I really don’t see how this will end well for them. They have been pulling the hair of the biggest bully in the playground for some time, they should not be surprised when the bully turns its attention fully to them and behaves according to type. Yes, there are examples of how things don’t go too well for the Americans when they engage in war. However, I must point out that they go considerably less well for targets of American aggression. This will set back Iran by decades and all their effort will have been for nothing.
Does anyone out there have an insight into the mind of the Iranian leadership? I would honestly like to understand how they think they will benefit from this. Remember though, this post is not about who is right and wrong, it is about how the Iranian leadership expect this to turn out for them. I think we know how the Americans expect it to turn out; with some big holes in Iran where there were once nuclear facilities.

Unpaid police

Why should the ISPs have to take on an unpaid policing role? It is for government to arrange policing. Laws exist on copyright and patent, but they are not effectively policed by the public sector. I think the ISPs should be paid for checking and again for each infringement they find. Lawyers are also required to act as unpaid police. They must apply money laundering checks to their clients.
The UK government is increasingly making business carry the costs of policing laws. This effectively makes services and products more expensive and is yet another stealth tax. It also makes those products and services less affordable to the lower income members of society and so discriminates against them. However, in principle I like the shift of policing to the private sector, as they will doubtless do a better job of it than the public sector. So to make it work well and discriminate less against the economically poorer members of society, there need to be incentives to catch law breakers. The current approach is to penalise the unpaid enforcer for any failure. If there is some benefit to this kind of work then it should be reflected in compensation for doing it. Payment is also likely to encourage a better enforcement process. The well known carrot and stick approach!
Ultimately we must decide if policing laws should be funded by public taxation or fees applied to those who seek the protection afforded by them. Clearly some enforcement is for the good of us all, where some is only for the good of a few. I would suggest for example that enforcement of fraud laws be publically funded, where copyright of music be privately funded. The latter need not be mandatory, but non-payment = no protection.

Power corrupts

The cash-for-honours affair is an example of how too much power rests in the hands of the morally and mentally feeble. We have a governing system that has existed for hundreds of years, yet still our politicians find ways to corrupt and misuse it. They probably think they are clever with their antics, whereas they demonstrate how very ordinary they are. To have a great vision and not be diverted from it by temptation demonstrates a nobleness of character which is lacking in the current crop of politicians. I hope in my life to see a prime minister worthy of the task, rather than these self aggrandising smart-mouthed children. They should feel ashamed of themselves for what they have done, but they will probably write books to make more money from that portray it as clever manoeuvring. I am ashamed for this country, to have leaders with such weakness of character.

Intelligent Cowards

The real intelligentsia in the worlds advanced societies are allowing the lunatics to run the asylum. The example of Professor Watson being denied a platform after articulating an axiom about racial differences in intelligence, is just the latest in a long history of failings by the intellectual elite to take control of human destiny. I can not count myself among that elite, but I know enough to know they should stop being cowards and lead humanity out of this insane state, where any fool with a small minded agenda, a loud voice and some populist policies gets to run a country.
I want our world to be run by intellectual giants, not petty bigots. It is the weakness of inactivity in the intelligentsia that has doomed humanity to its current state of endless war and injustice. You intelligent people, it is time to stand up and take control. Stop allowing the children to run the household.
I did an experiment today. I posted comments that supported the views of Professor Watson to articles in both The Times and The Telegraph. As I suspected, neither published my comments. It is possible that they thought my comments were not worthy of publishing. It is also possible that they censored them because they did not kowtow to the prevailing pseudo-intellectual PC fascist views. People are silenced by fear of reprisals from aggressive dogma peddlers, we do not have freedom of speech. It is sad that we have to faun before the mental midgets and let our battles be fought by old men because we do not have the courage ourselves. Most of us do not even have the courage to endorse Professor Watson’s right to speak and remain open minded on the subject.
On the matter itself. Firstly, I would point out that in all the quotes I have seen (I have not read a transcript of the original) Professor Watson talks about a different intellectual ability, not that Africans are stupid. Secondly, it is clear that African countries are not as successful as non-African countries, by many measures. Now the out-of-Africa theory suggests that sub-Saharan Africa was the root of humanity, from where all peoples migrated. Indeed recent genetic research backs up this view by pointing out that genetic diversity decreases as we move further from that root. Also recent linguistics research backs up this view. So Africa has had the longest time to be successful, but has conspicuously failed. I would like to suggest that the reason is that those that had the gumption to move and also the skills to survive that choice were naturally selected to be better achievers. This is unlikely to be due solely to a differential in intelligence. More likely it is a combination of factors, among which I would suggest that physical endurance, social and language skills, adaptability, compassion and empathy are likely very significant. That filter of surviving and prospering through the rigours of migration has recently been destroyed by commercial movement of people, whether by their own volition or another’s. The remaining filter is the self perpetuating of an elite successful class through their adaptability to whatever obstacles are put in their way. In practice this equates to promoting the interests of one’s own offspring through the advantages and insights one has gained. It is difficult to denude this last process and those societies which have tried to have failed.
The relatively new field of epigenetic inheritance may also have something to say about how our success in life is determined by our ancestors. However, I don’t like the idea of using any inherited or environmental disadvantages as an excuse for not trying. To try ones best is a noble ideal and should be seen as an end in itself.
I can understand why people are reticent to stand up and be counted, but I hope that some of those great minds also have the courage to bring the debate forward. A prerequisite for progress is a desire to understand.