cyberchugger

More Unilever and Greenpeace

2010-03-21T18:49:00.000-07:00

The Greenpeace soc media website team are superb, now they are taking on Nestle over Kit-Kat and Unilever over Dove's use of Palm Oil and here is why...

Unilever v Greenpeace

2010-03-18T03:56:00.000-07:00

Great campaign from Greenpeace highlighting Unilever's part in destroying the Indonesian rain forrest with Palm Oil plantations.

Text to blow up a tower ... or two

2010-03-09T11:29:00.000-08:00

Ellenor Lions Hospices and Kent Air Ambulance are offering some lucky person the chance to blow up not one, but two 550 foot tall towers in Kent. Just text in BOOM to 70300 to give £3 to be split between the charities and you could be pressing that button. Full tems and conditions here a minimum of £2-31 (Orange) up to £2-70 (O2 and Vodafone) to go to charity. Virgin Mobile users need not apply - your network is too mean to charities.

Sainsbury's Spin Cycle

2010-01-18T04:15:00.000-08:00

The Bishops Waltham Action Group (BWAG) had made a fair number of points against the development of a new store in their town and Sainsbury’s have responded to them in the making the most absurd arguments. It does Sainsbury's no credit.
The list is long but the highlights in the absurdity stakes are:
1. BWAG said a new store no matter how green it is must contribute to global warming. Sainsbury’s responded by saying that BWAG were wrong and they had reduced their carbon footprint last year. Well, sorry Sainsbury’s your argument is wrong. A new build store no matter how eco friendly you make it MUST add to the carbon footprint. Sainsbury’s tactic is a distraction tactic. Say the other side is wrong and then change the argument. It does not matter how much more green Sainsbury’s are this year than last... building a new store will make them less green unless it replaces and inefficient store ... which it does not. On the assumption that Sainsbury’s are intelligent people, they must know what they are arguing and that they are talking bxxxs. It does them no credit to engage in this kind of argument.
2. BWAG said that there was academic argument that new Supermarkets destroyed as many jobs as they created. Sainsbury’s said that this argument was not relevant to the case and they were creating X jobs. Under what circumstances is the destruction of existing jobs in competitors to Sainsbury’s not relevant? This is callous and heartless. Sainsbury’s don’t operate in a vacuum. A new store will take business from local shops and result in lay-offs. Apparently jobs don’t count unless you work for Sainsbury’s. Again Sainsbury’s are deploying a denial and distraction and not using any sort of logic. Clearly Sainsbury’s will bring their own figures to the planning committee and argue their corner, but they just don’t want to have the argument in public. This is an abuse of the planning process and a denial of basic democracy.
People have a right to be informed and big business does itself no service by engaging in falsehoods, distractions and a failure to engage in reasoned debate. If Sainsbury’s case was so good they would be more transparent.
The one figure that Sainsbury’s have used from BWAG is the figure for car journeys at 20k per week. Personally I think that this figure is an underestimate as I think it was based on Sainsbury’s estimate for the number of shoppers using the store each week so the correct figure should be 40,000 journeys. My own calculations based on average shopping basket size and turnover per square foot is 60,000 journeys per week, but that is probably too high.
Tesco underestimate traffic by an average of nearly 50% in their planning applications. There is no penalty for getting it wrong and no reason to believe Sainsbury’s any more than Tesco - they use the same processed to create their surveys.
I think the planning process should include a claw back from developers for external costs incurred by the council/community when they get their estimates wrong. We’d soon get better estimates then.

Planning Process

2010-01-17T04:20:00.000-08:00

The commercial property planning process in the UK has a number of flaws in it, but at the moment it seems to be the worst of all worlds. It introduces massive delays for developers and it is hugely biased against the views of local people.
The faults with the system seem to me to be the fact that the process is adversarial as opposed to investigatory.
Take the example of Sainsbury's Supermarkets trying to develop a site in the charming market town of Bishops Waltham in Hampshire. Sainsbury’s get as long as they like to prepare their case, they can spend millions and once submitted comments have to be made within a month. If Sainsbury’s lose they will take it to appeal which will cost the council lots of money.
Sainsbury’s have already spent lots of money conducting traffic surveys and surveys of the local population. They even have paid loads of money to the local schools to burnish their "caring reputation" (shame it will cease once they get their way).
It is of course hogwash. They pay for the surveys and they by in large pay to get the answers they want. They also are able to with hold information relevant to the case.
A better system would be to require the developer to pay for the surveys and for the council to do them in a truly independent way. For example the council could put the arguments for and against and allow the local population to vote.
Of course the best laid plans of mice and Sainsbury's "aft gang astray" and despite the absurd bias of running a survey to the local population that was in fact a 4 page election campaign in favour of the proposal they sometimes lose. (can you imagine a political election in which the ballot paper had a letter from one of the candidates? And no one else?). In Bishops Waltham 52% of those who were able to respond to Sainsbury’s voted against and only about 40% expressed support without reservations... of course Sainsbury's don't actually give two hoots for local opinion as there was no level of antipathy that would have stopped them.
The other ridiculousness is the fact that Sainsbury's sit on all the information and are not compelled to disclose. Of course there are commercial sensitivities, but some of the facts are extremely pertinent.
The only people who seem to benefit from the present process are the lawyers... given that Parliament is full of lawyers, perhaps it is of no surprise?

Twitter: All You Need To Know--How To Use Twitter For Your Business

2010-01-15T05:46:00.001-08:00

Check out this SlideShare Presentation:

Twitter: All You Need To Know--How To Use Twitter For Your Business

View more presentations from Vanksen.

Top 5 mistakes with Twitter

2010-01-04T16:39:00.001-08:00

Note to self and anyone else that's interested
1 Not posting regularly
2 Treating it as email
3 Talking solely about yourself
4 Not engaging in a dialogue with your followers about what interests them
5 Not using one of the many monitoring tools to detect talk about you

I make many of the same mistakes with this blog :-)

Thanks to the people at Vanksen for these points.

10 Best Practives en Marketing 2.0 - Conference BuzzTheBrand 2009 - Agence Vanksen (Digital/viral/advertising)

2010-01-04T15:21:00.001-08:00

Check out this SlideShare Presentation:

10 Best Practives en Marketing 2.0 - Conference BuzzTheBrand 2009 - Agence Vanksen (Digital/viral/advertising)

View more documents from Vanksen.

How do you test a tweet?

2010-01-02T17:13:00.000-08:00

Because I deal with a fair number of people who are new to social media marketing I'm often asked how you can test a Tweet? Usually by small charities frightened of what they think they "ought" to be doing.
Surely they say, the same message is broadcast to everyone?
Frankly, it is a bad idea to start tweeting straight away - a mistake I made - but if you wanted to you could try testing I suppose in the ways listed below, but appart from the first one - I would not recommend them. They are listed as ideas.
Firstly you can have topic related tweet accounts - you don't have to use one account. There are tools that help you mangae more than one account and importantly have more than one person accessing the same account (ie for Customer Service)
Secondly, surely if you need to say something you have to test you should consider using tiny urls - good tweeting use these anyway to measure impact and to link off to snippets of interest. In which case a Tweet is less of a broadcast and the first X clicks can see something different to the next X. I'd worry about doing this if your intention is duplicitous, if your merely testing what works and what does not it might work.
You can't use Tiny URLs to hide from the public record as there are plenty of ways to snapshot or print screen and if the public thought you were being duplicitous you'd be in real trouble. But perhaps it would be OK for standard marketing testing of different approaches and how people react as long as the level of testing is tweeking (appearance etc) not wholescale revision.
There is nothing to stop you having a testing panel that you pre-tweet to through a unique account or even via a different media.
And finally, if you are uncertain what the reaction will be... don't.
My biggest worry about brands that ask these questions is are they trying to be something they are not. There is a tendancy to naively think you "must be cool" to use Twitter and for cool read "edgy"... the truth is you have to deliver what you stand for. Be true to yourself or you'll be another dancing dad.

New Technology Quote

2010-01-02T16:20:00.000-08:00

I half heard this on the Radio today and did not catch who said it orignially or the exact words... but it is still brilliant.
"A new technology is something that does not work properly yet"

The context of the quote was a more or less
"Every media is a technology. Books and newspapers are a technology. What markes out and defines new technology is that it does not work properly yet"

I went to the Radio 4 website to listen again to get the exact quote and the programme was not available for listen again... must be a new technology then.

Using a clebrity to post or tweet as the face of your digital brand

2010-01-02T15:15:00.000-08:00

Twitter and social networking media like Facebook obviously offer fantastic opportunities to businesses and charities to "broadcast" targeted messages to supporters.
Clearly you need a brand with all the good things that define that brand identity and personality. Using the “brand” to blog and tweet is OK for most charities and for corporate information to devoted supporters – but using an abstract brand as a personality is not straightforward. We are not all working for "cool brands".
The problem is that digital media is almost designed to spot the bogus from the real, so one solution increasingly adopted is to use a "digital spokes person", someone from the A, B or C list of personalities that embodies the right set of qualities to appeal to your target audience and who encapsulates and can be the public face of the brand.

Using a person like this is a well documented practice in marketing and there is plenty written about it - but using a person like this to take the brand online offers some unique problems and solutions.
I am talking about brands that use their "faces of the brand" to blog or twitter on their behalf. If you are merely branding or endorsing a celebrities existing digital media activities you are in a different situation - I am talking below about setting up a new series of posts for a relatively unknown digital media newbie.

Lets start by looking at some of the issues:

The Celebrity: many people have a discrepancy between their public and personal personas and stars are no different, but these problems are not unique to online. What is different to online is the immediacy.
Public Expectations: Depending on the demographic/segment, the digital public will expect a dialogue and a one way broadcast will possibly damage your relationship.
Thirdly the quantity of communications is a really difficult thing to manage, judge and control.

Say for example your "face of the brand" is an eloquent intelligent actor or model. They are going to want to have control over what is said in their name or more likely to put your message into their words. Most self respecting brand owners are going to want some form of control maybe even sign off. The exact set up will vary by situation and personality - but the problems are getting the volume and timing of the messages right. There is no right answer to that - it will depend on the situation but it will need close control.

A fourth problem is the timeliness of the posts (which may not be an issue depending on the topic of interest/related to the posts/tweets). Most commercial brands are talking about timeless issues and topics, but the relevance of most charity campaigns are usually time bounded (eg. Copenhagen).
Underlying all of this is the speed with which a badly worded tweet or post can go wrong.

In my experience, it setting out on a route like this needs careful planning. The planning needs to involve at some stage all parties and be reflected in the contracts.

The solutions are many but broadly some of the important steps to go through (in no particular order) are:
1.Ensure you have senior level buy in and sponsorship, but involve all relevant departments and get buy in and make sure internal communicationplan is excellent so everyone knows what is going on,when, what it is about and what they must do to help it achieve its objectives.
2. You should start with your objectives.
3. You must always begin your plan with either a thorough understanding of your target demographics and/or you should devise research tests to better understand their reaction than they know themselves.
4. Segment your digital audience and think about their different needs. Design the frequency and subject matter to suit. Start with them. Don't start with either the personality of the star or your brand (shock horror) because if you can't make the service appeal it will do no good no matter how "on brand" it is.
5.Think about offering more than one stream of topics, don't try to be all things to all people in one stream on communication. Digital media are personal 1:2:1 media use them that way. A good example were the alerts that the Obama campaign used. You could sign up to alerts on the environment, Iraq etc he did not assume that because you supported him about X you'd be interested in his thoughts on Y. A nice by product is that this way you get your customers to sign up in a way that boosts your CRM understanding of them.
6. Even if your audience is all signed up to one stream segment into manageable chunks. You don't have to send the same message to the entire audience at the same time. Test the waters with a control group, gauge reaction then increase the numbers.
7. Prepare and agree a list of posts/tweets that you are going to do with your star before you promote the service. The posts/tweets can be a "back up" if it is a dry thought day/week/month or they can be tablets of stone to be deviated from on command of God alone. It depends on the personality and the relationship (ie the trust) but the list is vital because the personalities enthusiasm will wane and it stops you being in abad negotiating position. The topic list should be at least 12 months worth and the reasonable drafts should be done quarterly in advance at whatever the tweet or post frequency you have agreed on. ...
8. Have a good idea what your plan B is for celeb doing something like a Tiger Woods or the stars sudden death at one extreme or just managing the PR if something is taken the wrong way
9. Plan in case you get a lot of responses - how are you going to respond? In the stars name for example? Agree what happens when your star is not available.
10. Measure the impact of what you are doing. Try alternatives. Measure impact and tweak. The involvement of the "star" in this is going to have to be agreed up front and the list of post/tweet topics must include some allowance for these variants.
11. Maintain a professional relationship at all times with your star and their advisors.
12. Plan for a future without the star. When I worked at Barclaycard we used Rowan Atkinson for TV adverts and had done throughout the 80s and early 90s. I was there for the last couple of ads during his time. The hand over to a new starless format was difficult but brilliantly handled by John Laidlaw and the team. The point is that no matter how successful the relationship is, it will end some day and you have a responsibility to your own brand and to the star to manage both their reputations professionally.

Augmented Reality

2009-12-29T03:10:00.001-08:00

The first game on a mobile that I saw that was effectively using a form of augmented reality was shown to me by the now editor of Cellular News in 2003/4. It used the camera to detect movement on a shoot em up game so that you literally turned the phone to aim.
Back then the idea of projecting a keyboard and using finger movements across the projected keyboard was already around, but the reality was still some way off. The technology is almost there - it is the price that is the issue.
If price is an issue it will be overcome through volume so you then have to ask what the benefits are and if the benefits are as compelling as not having to carry a keyboard in the device design then I think it is strong enough to deliver volume.
If I was thiunking of taking on iPhone it is this direction I'd take my designs.

Building Apps For Mobile

2009-12-22T17:13:00.000-08:00

Too many companies are unthinkingly building apps for iPhones and Blackberries without asking some fairly fundamental questions first.

1. Who are you building the app for?
2. What phones do your target customer base use?
3. What needs do you seek to address?
4. Is there a need that is not being addressed by the competition?
5. What makes the company or charity feel they are in the right position to meet that need sustainably?

9 Laws of Social Media Marketing

2009-12-22T16:49:00.000-08:00

Jim Gilberts comments on the 9 immutable laws of social media marketing are a good read. Very clearly put.
I'd like to add a couple of observations
1. The argument for social media marketing is in the short run not as compelling for some brands - it depends on target markets and brand promise.
2. You have to measure the impact of social media marketing and though perfectly possible it is not easy - unless you plan carefully. What people often complain about Social Media marketing is they can't measure the impact of it. I remember the reaction of Dixons to realising that most of their shoppers in their electrical stores had already researched and done price comparison on line before visting the store... thats a good analogy to how Web 2.0 is now
3. Beware hype - look at 2nd Life - I was never a convert because I just did not see a tide of people using it.

What do Bounce rates measure?

2009-12-22T15:55:00.000-08:00

A website bounce rate measures the number of people who visit one page and leave. The formula is Bounce Rate = Total Number of Visits Viewing One Page / Total Number of Visits.
Many people reckon it is a measure of the effectiveness of the landing page, although for a news site a more effective measure would be the dwell time of bouncers.
Personally I think a high bounce rate might also mean my exclusion list for my adword terms is too short. Mind you when looking at a beautifully crafted landing page it is sometimes hard to kill your babies.

The Curse of charity Late space

2009-12-22T04:50:00.000-08:00

Fundraising campaigns are like other forms of human communication and marketing. The donor needs to be taken through a cycle of awareness, understanding, acceptance and behaviour adoption. It is not credible that even the best causes will trigger a lot of responses from just one or two adverts.
Every media company offers free or heavily discounted late space slots fo charities. It sounds like a nice thing to do... but it often is not.
So many small charities waste their time and money on a few late space slots being offered by a media company unable to sell the space to commercial companies. We advise clients to only accept late space as part of an existing ongoing campaign or to develop a specific late space strategy.
Marketing is a profession because it needs thought and rushing around chasing late space slot is not condusive to clear thought.
At Vir2, we get a lot of charities approach us because SMS must be the cheapest and fastest way to raise money if you are in a panic... I welcome the approaches, but advise against panic tactics.
And on that bah humbug not merry Christmas everyone!

Online offline convergence

2009-12-15T02:21:00.000-08:00

Google's use of QR for its Favourite Place service is a real sign for how the digital world and physical world will converge. As an interesting article in Springwise points out.

As part of its Favorite Places service, Google has identified more than 100,000 local businesses in the U.S. that are searched upon most often by users. They include restaurants, stores and other establishments in more than 9,000 towns and cities across the nation, and each one of them will soon receive a window decal from Google featuring a scannable QR code. Patrons and other passers-by can then scan that code with any of hundreds of mobile devices—including iPhone, Android phones, BlackBerry and more—and be taken directly to that business's Place Page on their mobile phone. There, they can find reviews and coupons or "star" the business as one they want to remember for later; soon, they'll be able to leave reviews as well. Apps that can read the QR codes include the USD 1.99 QuickMark app for iPhone users.
The role of the mobile phone in the convergence should not be ignored. Too many charities ignore mobile phones at their peril and should contact Vir2 to find out how they can prepare to use services like Favourite Place in their campaigns.

A Good Life

2009-12-15T02:16:00.000-08:00

Live a good life. If there are gods and they are just, they will not care how devout you have been, but will welcome you based on the virtues you have lived by. If there are gods, but unjust, then you should not want to worship them. If there are no gods, then you will be gone, but will have lived a noble life that will live on in the memories of your loved ones. -Marcus Aurelius, philosopher and writer (121-180)

Time to educate the public

2009-11-03T09:35:00.000-08:00

Given that the mobile network charges ~~(except Virgin Mobile) are all falling on charity donations -- the biggest obstacle is to convince the public that the networks are as generous as they actually are. Perhaps a campaign is called for backed by the networks and endorsed by the leading charities?

O2 slashes costs of VAT free charity short codes

2009-11-03T09:03:00.001-08:00

O2 has stolen the high ground with an announcement on charity short codes pricing that could make text donation a far more efficient way to give money thatn any other!!! Good news for www.vir2.co.uk
O2 will ensure registered UK charities that opt to use a dedicated short code will receive 90 per cent of the donation.

Time to get real about problem gambling

2009-10-16T01:40:00.000-07:00

The creation of a new national helpline and training of doctors and NHS staff were among the first recommendations of the UK’s newly-formed Responsible Gambling Strategy Board (RGSB).
The advisory body, which includes representation from gambling companies LadbrokesPortfolio info about Ladbrokes and Gala Coral, was formed in 2008. Its purpose is to advise the Gambling Commission and the UK government on possible research, education and treatment policies required to mitigate the effects of gambling addiction in the UK, as well as set out possible funding requirements to meet such a strategy.
The calls follow on from results from Gamcare one of the two main industry charities set up to control and monitor Gambling Addiction. The results showed about 50,000 calls to its help line over the last year.
Personally I am always surprised that problem gambling does not affect more players, but apparently the figures are globally relatively consistent for most ountries with less that 3% of gamblers ever experiencing a problem and about 0.6% in the UK being an addict.
The fact it only affects a small number of people should not detract from the fact that problem gambling is a big issue and problem for those that suffer and indirectly for their relatives. The average problem gambler incurs £60k of debt and that is a serious problem.
At the current time my personal concern is that the efforts of the industry to offer self exclusion and schemes through organisations like Gamcare must be made to work effectively. For every responsible site there will be hundreds of irresponsible ones - but the responsible ones must do more to share information and offer self exclusion.
It is a sign of the times that the current problem worrying the regulator are Fixed Odds Betting Terminals (FOBTs). The RSGB has called for more research - but I worry about whether there is a danger that a cosy relationship of mutual interest between the academic research establishment and the industry might develop in the long term. We need a way of monitoring the sector so that we are able to spot early when what is needed is not just research but rapid and concerted action.
In a society that has normalised remote impersonal betting, problems will occur - it is the job of the regulators and the industry to make sure it does not get out of hand and that the fun (and indeed good that can be done through things like the National Lottery and Society Lotteries) is not outweighed by the misery of gambling addiction. It is a just a moral duty and it is to the long term benefit of the industry.

Top 5 things not to do in a professional blog or email

2009-10-14T01:27:00.000-07:00

This my personal list of don'ts, which I wish was not based quite so much on the experience of myself or my colleagues.

1. Avoid sarcasm and dry wit. E-mail is just not a good medium to convey tone. It can be taken out of context – with serious repercussions.
2. Avoid professional criticisms. Always go back to people over the phone or in person. This is difficult when looking at marketing material - but then people should alway brief in person and not just circulate. Email circulating marketing material usually ends in death by committee and so many re-writes it is better to have one meeting and get it done face to face.
3. Always avoid angry responses.
4. Don't use bad language or any hint of racist/sexist language - this should come naturally, but beware unintended slurs.
5. Try to avoid sloppy writing - your image is on the line.

I would not bet on the Tote asset sale

2009-10-12T03:15:00.000-07:00

Apparently the Tote is up for sale as part of the Government's £16bn asset sale to reduce debt.
The problem is that the Tote has been for sale since 2001 and the price has been falling over that period.
The EC competition commission want to investigate any sale if it goes to any of the likely bidders.
Coral and Ladbrokes are too busy shoring up their balance sheets to be buying just yet.
Last week the Tote's CEO, Trevor Beaumount, said that the Tote's 560 chain of shops was in long term structural decline.
The trackside business is under threat from the Racecourses clubbing together and using a managed service from a US supplier.
The gaming machines business is under threat from the Government imposing higher betting taxes....

The Tote should be sold, but to trumpet the likely sale as part of a new idea that will transform the national debt makes me wonder if the cupbard is bare after all. This looks like a Government that has not only run out of money, but new ideas - it can't even remember why its bad ideas were bad ones.

Social Media marketing

2009-09-24T13:42:00.000-07:00

Sooo many charities these days are interested in social media marketing, but very few have a grip on it. It's like watching an Indian Snake charmer and his snake. Lots of drama, noise, both maintaining eye contact and swaying, but neither making meaningfull physical contact.
Here are my thoughts:
1. Focus on the purpose of the communication first - not the medium
2. Once a purpose/objective for a campaign has been agreed then decide whether SMM might fit.
3. To achieve a good SMM campaign, first identify your aduience. Focus on the 10% that already support you not the 90% who have never heard of you.
4. Identify the messages about your organisation/campaign that will resontate with the audience. Be prepared to accept that some people will not have the right motives for doing things at first.
5. Provide a context to get those messages across. Talk about the context (the event if you like or the project) not the organisation.
6. Provide the tools to give your supporters the message and trust them to deliver it, but also
7. Monitor performance (SMM is monitorable despite the myths).

Sir Bobby Robson Foundation

2009-09-24T13:17:00.000-07:00

We're providing the text donation service to The Sir Bobby Robson Foundation for the Ipswich v Newcastle match this weekend. Having been brought up in a town outside Ipswich it is something really special to be involved with. I know that they will be passing round the buckets too, but we'll see how it goes. This is the 5th match we've been involved with, but I reckon because of the ties of both teams to Sir Bob it will be a big one.
A true gentleman of the game.

Action Aid

2009-09-24T13:04:00.001-07:00

I've just received my briefing pack for a new campaign from Action Aid. Goodness me those people know about marketing. Really first class briefing. It is no wonder they are one of the most admired charities in the sector.
Too many charities don't bother to brief their suppliers about new campaigns, it makes such a difference and is so easy to do.

2009-07-16T06:08:00.001-07:00

Alistair Darling v Mervyn King

2009-06-17T16:52:00.001-07:00

Alistair Darling the UK Chancellor of the Exchequer has had an up and down tenure in his current role, but tonight's annual speech at the Mansion House was surely anticipated as a "safe gig". Instead he finds himself upstaged by Mervyn King as Governor of the Bank of England and supposedly the "supporting act". It is as if the valet had not only taken his car for a spin, but put the car up on bricks taken the tyres and syphoned the fuel tank.

Mr King's remarks are likely to prove embarrassing for the government, he said at the Mansion House tonight that: "It is not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials."

Alistair Darling at the Treasury has resisted significant changes to the allocation of regulatory responsibilities between the Financial Services Authority, the Treasury and the Bank of England, the so-called Tripartite. The Bank of England's regulatory powers and responsibilities have been largely devolved to the Financial Services Authority for some 10 years, but now the Old lady of Threadneedle Street wants her teeth back.

The approach of the UK Treasury is at odds with the proposals put forward by Mr Obama the timing of which also managed to upstage Mr Darling's speech.

As an aside: it is a remarkable achievement to be upstaged twice in one's own dinner time by such powerful figures, but then anyone watching Mr Darling's public demeanour realises he spends most of his life being upstaged... usually by the former occupant of his current position.

The problem for the Chancellor is that the current "tripartite" regulatory regime in the UK where responsibilities are split between the Treasury, Bank of England and the FSA was introduced in 1997 by Gordon Brown the then Chancellor. The Government argues that the problems in regulation are not the same in the UK as they are in the US. It is argued by the Government that Mr Obama seeks to reform a Byzantine regulatory system, to streamline and rationalise it; whereas in the UK the rationalisation (they argue) happened in 1997 the problem was that the regulator was not doing his job either because he was asleep at the wheel or because he was under resourced.

Mr Brown has a reputation for favouring abstract and complicated solutions over practical & fit for purpose ones. Mr Brown's ancestors it is pointed out were clergymen not engineers. The tripartite system lacks clearly defined lines of responsibility. Asking the Governor of the Bank of England what he thinks about a system that gives the responsibility for financial oversight and regulation to the FSA is a bit like asking a lamp post what it thinks about dogs, but he clearly thinks that the Governments proposed tinkering with the tripartite system is not enough.

The Governor appeared to differ from the Chancellor - on whether some banks have become far too big for the health of the economy.

The Governor said: "If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure."

By contrast the Chancellor told the same City audience that "The solution is not as simple, as some have suggested, as restricting the size of banks. We have learnt that you don't necessarily need to be a big bank - or indeed a complex one - to threaten to bring the system down."

Personally the Chancellor is right to say that the solution is "not as simple as restricting the size of banks", but wrong to argue that it is not part of the solution. After all Lehman Bros was both big and complex and to argue otherwise is just tosh. Neither Washington nor Whitehall is hinting at a desire to break banks up into smaller, more narrowly focused businesses, but in my opinion it may be the only way to prevent the kind of systemic unwinding of the financial system that we saw over the past 12 months. The problem is that it is probably not achievable unilaterally - how could any one nation achieve such a control?

2009-05-10T04:12:00.001-07:00

Great Ape Debate

2009-04-30T10:53:00.001-07:00

A remarkably good quality stream from Finetra for the live Great Ape Debate in support of the World Land Trust at the Linean society tonight.

A vital subject. What does it say about mankind if we make one of our nearest relative species extinct in the wild? And what is the best way to preserve these magnificent beasts.

Dog owners

2009-02-09T08:15:00.000-08:00

I am a dog owner. I have a cocker spaniel that thinks that humans were put on the planet to rub her tummy, but I am not a fan of all dogs.
Last week my 5 year old daughter was chased into the house by two Rotweiller dogs that bit her coat in the process.
Two fortunate things about the attack were that she was not hurt and that the attack started in a public place. If the attack had happened just in our garden or in our house then the owners would not have been guilty of a criminal act under the dangerous dogs act. I was amazed when I was told by the police, but that is how badly the law is drafted.
Perhaps the best memorial to the poor child killed last week in South Wales would be if some form of dog licensing were to be re-introduced?

Why Banks need bailing out

2009-01-21T04:38:00.000-08:00

Quick lesson in bank finance for beginners.

When banks lend money to you and me it is an asset in their balance sheet.
When banks take in savings then it is a liability in their balance sheet.

Banks can only lend a sum equal to all of their liabilities (our savings) + their share capital.

Banks used to minimise risk by matching the term (length of time) of their funding to the term of their lending - but more recently they made the fundamental error of thinking that because the short term interbank market was big it would always be there. So banks like Northern Rock (and far too many others) started taking deposits on the short term interbank market to fund long term lending. This is stupid, stupid, stupid. It mistakes the probability of a rare event (the interbank market not existing) for an event that cannot happen. This is sometimes called the Black Swan principle (before Australia was discovered people thought Swans were always white) - just because it is rare does not mean it cannot happen.

The complication is that when a bank lends to another bank it is treated as savings in the bank that is being lent to. So interbank lending is being used to fund further lending to the public, but you don't need to worry about that just think: Deposits (savings) + capital = lending

Banks are also limited to lending a multiple of their share capital (this is the measure of their risk savers deposits may be withdrawn but capital is permanent). This control is called capital adequacy.

Banks also have to control the amount of their assets held in relatively liquid assets like treasury bonds that can be sold quickly to realise cash but don't earn so much interest as say lending a mortgage. The amount of capital tied up in different types of asset is measured through what is called "tier 1" and "tier 2" capital adequacy - which means that in the case of tier 1 not only are the assets funded by capital but they are held in the best, most liquid of assets.

What has happened is that the interbank market dried up. The banks got rescued through an injection of capital. But the deposits (savings) on the London Interbank Market were made up of UK and overseas banks. Whilst the UK banks were rescued the priority for banks all round the world is to lend in your own country so the overseas banks are not putting money on the UK interbank market.

Remember: Savings placed on deposit + bank capital = lending

So if deposits (savings) in UK banks were UK + Overseas and are now just UK than banks need to stop lending so much money to the public. The amount of capital injected into the UK banks was OK to ensure they were sound, but it did not replace the overseas lending from other banks. That is what the UK Government is trying to restore... the problem is that if you are a shareholder the value of your shares are plummeting because the Government is taking a bigger and bigger share of the capital of the bank.

Do you trust your Government

2009-01-21T04:29:00.000-08:00

I trust the basic honesty and integrity of most people in power in the UK, however the story of the victims of the British Nuclear tests makes me question whether my belief in the goodness of people in Government is misplaced.

How the Government can after years of arguing that the victims had to be able to prove a direct link before bringing a case can now argue that it is too late to bring the case is beyond me. The victims suffering and the pain of the families who have lost loved ones has not ended just because it is 40 years since these tests happened. Indeed many of the conditions would appear to be genetic and so passed on to the current generations.

Clearly lawyers have a duty to argue their clients case, but the Government has to have some sense of decency and remorse. Do the people involved in defending the Government in this case feel proud of what they are doing?

Born yesterday

2009-01-14T13:13:00.000-08:00

Yet another scam.
Nice twist about the fraudsters then pretending to be FBI agents then asking him to fund their trips to Nigeria to investigate the scam... its almost elegant.
£150k lost. Unbelievable.

The writing is on the wall for chip and PIN

2009-01-13T11:24:00.000-08:00

I was involved in the decision to roll out chip cards in the UK and given the evidence I had then I don't think it was a bad decision. The last 10 years have, however changed the landscape and certainly the decision to use Chip and PIN is now looking dubious.
My personal opinion is that the writing is on the wall for Chip and PIN. Here is why....

Broadband and WiFi access to the internet are removing the cost barrier of making all POS terminals online - a critical plank in the business case for local PIN authentication was the cost of local calls
The cost of certification of terminals is significant

Certification standards change rapidly
There are over 50 standards to comply with for keyboards alone
POS equipment are often failing to achieve critical mass production runs due to changes in standards

3. The cost of POS Chip & PIN terminals is not falling a the rate experienced by all other forms of electronic equipment
3a. The volume of smart EFTPOS terminals is increasing and they carry the majority of volume in most countries

The marginal cost of adding internet access to POS terminals is falling
merchants running EFTPOS terminals are increasingly looking for online settlement
The majority of transactions are already EFTPOS even if the majority of merchants are standard offline POS terminals

4. The Global banking world is not keen on Chip & PIN - there is no appetite for the expense
5. Unless a global solution is found to customer authentication then the customer experience will continue to vary by territory
6. Without a global adoption chip and PIN just pushes fraud off shore
7. Chip & PIN is complex to implement and there are various points of attack
8. Putting the cardholder authentication at the edge instead of making it server based means that in the event of compromise the system cannot respond quickly so systematic risk is increased

I could go on... I probably will later :-)

Google maps finds missing girl

2009-01-09T10:52:00.000-08:00

Story on BBC today shows how a mobile signal gave away the location of a snatched child. The police even used Google maps to research the area for likely hideouts before going there... makes sense if the kidnapper sees them nd moves away that they'd want to prioritise the most important/likely places.

Bah Humbug! Who can remain optimistic?

2009-01-08T14:09:00.000-08:00

Personally I think the world has gone mad. I've said all that I've written below before ... so you get bored you can skip it and jump to the last line :-)

Mr. Obama has got onto the Corporal Jones ("Don't panic, don't panic!") routine (although with considerably more style and persuasiveness).

Some things I agree on with Mr Obama. The situation is bad. We are going to have a very bad recession that may turn into a deflationary spiral.

What I disagree on is the timing and the method of the proposed recovery efforts.

The situation with the bank lending needs fixing, it needs fixing fast, but that can be fixed with direct intervention in bank regulation and with special measures.

Suddenly we are all afraid of recession. A recession is not a bad thing. The bad businesses need to go bust. If we reflate and let them limp on we will just make the eventual downturn worse. If it leads to full scale prolonged deflation then it could be very bad. But we are no where near that stage yet. I'd rather let the economy go into recession, bottom out then start to reflate. I don't buy this "if we don't spend tax payers money now, it will be the end of days" stuff.

The UK economy has been at more than full employment for the past 5 years - with Poles and other eastern Europeans being pulled into the labour market. People are being laid off - but we are also seeing migration back to Eastern Europe. Firms are going bust. People are being laid off, but they are all firms that were either basket cases (Woolworths), go bust every time there is a recession then sell themselves at the creditors expense (Waterford Wedgewood, Coates Viyella) or just ridiculously geared as a result of over optimistic sales (The Officers Club). These are the loose cannon balls on the decks of economy rolling round in a storm. Bad, but nothing structural.

Now is not the time to be shouting about the need to reflate the economy because recession and deflation are as much about expectation as bubbles are. They are just as irrational. All the noise now is negative (as I have said before) and to shout about how bad it is and how your going to reflate the economy is just telling the public to expect a bad recession. It is sending the wrong signal at the wrong time.

My policy would be to wait. Then reflate.

The only exception is if you are a politician with Mr Obama's charisma and then you might pull off the confidence trick... but it is just that ... a confidence trick. The US, UK, World Governments are a foot pump trying to reflate the confidence of a ball the size of 6bn people all expecting a recession. Won't happen unless they all (or at least most) believe.

I can understand that Mr Obama has the credibility and the desire to change much in America. This crisis provides the political excuse to push through many of the changes he will wish to see in the way the US economy is run and the "welfare system" is organised. But I don't buy the world being on a precipice of a depression. I think it more likely that the recession will be made into a depression by the current attempts to reflate it.

Reflate now and what will happen will be that everyone will witness the Governments being unable to stop the recession. Instead if they take their time everyone says to themselves "why are they doing so little it would be so much better if..." so when "if" happens (after the worst is over) they are psychologically prepared for success.

The Bank of England's rate move today was to be expected, but actually will have little impact. Most personal borrowing in the UK is by way of mortgages, which will have minimum rates in them or be set in relation to a Building Societies standard variable rate. Building Societies being mutual institutions have to fund their loan book almost entirely by savers deposits. In order to attract savers they are not going to go that far down below 4% so the standard variable rate of most building societies will remain well above base rate.

We should also consider the savers. There are more savers than borrowers in every economy. People who live off their savings spend money in the economy too. They are being strung out to dry by these base rate cuts so the Government has actually now got base rates so low that further cuts have no affect on borrowers because of minimum lending rates and it is stopping the one of the parts of the economy that otherwise would naturally kick in against the recessionary forces, namely savers.

What makes it worse is that the savers will have to pay the increased taxes to bail out the silly buggers who borrowed like crazy in the good times!

Bah humbug! Seasons greetings and a happy new year to you anyway! ;-)

UK Government Plans For Further Bank Action Become Clearer

2009-01-04T13:36:00.001-08:00

Prime Minister Gordon Brown has given a revealing interview to the BBC this morning that shows something of the way the UK Government is thinking and Robert Peston's Blog (as always the source of a great deal of insight into the minds of the civil service mandarins) throws even more light.

The news appears encouraging. Certainly there is no lack of confidence in the UK banks on the part of the Government.

The Government's analysis of the UK economy in a nutshell appears to be
1. That the contraction of lending in the UK is caused in part by overseas banks stopping their lending.
2. The pre-crunch credit bubble was caused in part by those overseas banks
3. The UK banks can safely be encouraged to lend at high levels without risking a return to a credit bubble because of (2)
4. The UK banks can restore their balance sheets by contracting overseas lending

The plan is therefore to offer UK banks an insurance policy on UK corporate (and possibly consumer lending) whereby the first 5% of losses are taken by the bank and the next say 10% is taken by the tax payer.

The benefits are that UK banks will start taking up the slack from the rapidly dwindling overseas banks and the UK banks can do this partly because the amount of capital required to follow this strategy is reduced as the assets will be reclassified under capital adequacy requirements so that effectively uk loans will no longer have a weighting of 1 but (I guess) 0.9 (assuming the UK government is guaranteeing 10%).

The implications for the world of banking are
a) We will see (at least a temporary) cessation to the global trend towards the globalisation of banks. Whether that means recent purchases like RBS/ABN might be disposed of is another matter.
b) The outlook for a bank based in a G8 economy is looking better.... up to a point.
c) The long term returns from the UK banking sector just contracted, but the risk profiles have also changed. UK banks look to me more like a buy on Monday than they did on Friday.

My concern is that we don't have access to the figures on which this analysis is based, but if it is right then ok it sounds like a plan that can achieve a turn round without absurd levels of tax bail out. We'll now have to wait for the unforeseen consequences. :-)

The most interesting question is does this set any precedent for Mr Obama's team?

UK Gov considering plan to inject more money into banking sector

2009-01-03T12:58:00.000-08:00

According to the BBC the UK Chancellor is considering a new package of measures for the UK banking sector.
The BBC report talks about a possible further "bail out", although the objective of the "package of measures" will be to restore lending back to pre-credit crunch levels to stimulate the economy and not because there is pressure on the banks from bad debt. The government has already pumped £37bn into shoring-up struggling banks. Whilst the amount injected was sufficient to preserve the banks with their current balance sheets it was not enough to fund an expansion - and certainly not at the pre-credit crunch rates. The consequence is that despite pressure from ministers after the part-nationalisation of Royal Bank of Scotland, Lloyds TSB and HBOS, the institutions have yet to ease restrictions on new lending.

A fresh cash injection is a possibility. Treasury Sources say no decisions have been made but creating a "bad bank" where "toxic assets" could be left, or exchanged for government bonds, is being considered.

I fear the genie is out of the bottle and Alistair Darling will now have to act quickly. Who ever leaked this to the press should be given the Admiral Byng treatment for "failing to do his utmost to do his duty" to keep his mouth shut.

Assuming the banks are not still in dire trouble but simply restructuring their balance sheets to reflect the trends in underlying asset prices, then the leak of this story is bad news on many levels
1. If the package is not ready then the people involved should not talk about it as the expectation of a fresh injection will could create a run on bank shares (again) and put the government in a position where it has to act with an ill thought out plan or act at all when actually it was only the possibility of action.
2. The fundamental weakness in the pre crunch economy was a credit fuelled bubble economy... I can't see that the Government borrowing money to give to the banks to give to the public by way of loans is anything but the economics of the madhouse. We have an asset price bubble. The only way to cure it is to reduce asset prices.
3. The reported objective of a restoration of lending to pre-crunch levels is not a desirable or credible objective - of course the more likely objective will be to simply restore growth in lending - but getting the balance will be difficult and statements like these only fuel false expectations which will back fire politically.
4. Fresh spending on bail outs will further weaken sterling and cause jitters amongst overseas investors. The UK economy is particularly dependent on overseas investors.
5. It will be harder and take longer for the UK tax payers to have their investments repaid. I have concerns that the level of borrowing once bank balance sheets are factored in takes the UK well outside prudent levels... but even more concerning (to me) is that it makes it easier for the UK Government to hide its real borrowing and to try to control the economy through other means.

Government intervention to stimulate the economy through the banking sector is fraught with difficulty and risks. Banks forced to lend to people and businesses that don't have a good reason to borrow, will quickly results in marginal lending decisions, rate reductions and exactly the same conditions that got us into this mess. We'd be sat on a bubble which would still have to burst - but this time the tax payer would have spent umpteen billion to create the bubble.

Back to the future

2009-01-03T08:02:00.000-08:00

Building Societies (UK Mutual organisations where savings are invested in more or less one class of asset (namely mortgages)) seem to be doing well in the credit crunch.

The businesses that have suffered most Bradford & Bingley and Northern Rock were ex building societies that de-mutualised and became banks in the 1990s.

Why?

The main argument against remaining as a building society in the 80s and 90s was that the additional access to the interbank markets meant they were less prone to funding problems and could be "more efficient".

The truth was that the ex-building societies were they failed to diversify out of mortgages. Adding short term loan funding actually made them more risky by the fact they loan for long periods.

Another strength is the ability in a market where interest rates are falling to set their own margins between savers and mortgages. I doubt many will be doing much lending, but the rates they offer savers will be falling with base rates, but not as much as the base rates fall as they build up their cash reserves.

The regulatory regime for building societies is far stricter there are limits on the types of asset they can invest in as well as the percentages that they must retain in cash reserves. It has been built up over a long time and is based on common sense.

Perhaps a lesson for the future is that institutions should have more limits on the asset and liability types that they are allowed to trade in.

123-reg support

2008-12-24T06:51:00.000-08:00

I use 123-reg for a few personal sites I run and I have always found their customer service to be worse than it is possible to describe. If you are considering using them please DON'T !!!

As an example their customer support pages say you can ask them a question by clicking the "ask a question" button, but the button disappears whenever they seem to be busy.

Just don't go there!

SMS for charity

2008-12-22T11:02:00.000-08:00

Most of my charity business is providing SMS marketing services to charities. Mostly inbound numbers linked to call centres. See an advert text a keyword to a short code and get a response call from a call centre. You speak to someone you agree to make a payment by credit card or direct debit. We then supply direct debit and card services to both charity and business clients.
A minority of the charities I supply use premium sms to bill by return SMS. I don't supply anyone but charities with premium sms and it is not something that they should do ill informed. Before premium SMS can be relied on as a means of giving a lot has to change with the way the service works. The networks need to get their act into gear and it needs to start with special short codes for charities.
Watch this space.

Charity Funding Crisis

2008-12-22T10:03:00.000-08:00

The Times on Saturday had a headline about a funding crisis in the charity sector. To be honest it took me by surprise. I have not been talking recently to a wide number of charities - so perhaps my perspective is wrong.

The signs I can see of a downturn can't really be seen in my own results. Giving appeared to be down by about 30% in September compared to July, which is big - but much of my turnover is due to TV campaigns that it can also be explained by the overlapping of different campaigns. Since then giving has picked up back to near Juluy levels. Today 22nd Dec has (so far) been our most successful day in the year to date for public responses - so it is hard to determine a general trend.

Generally the story for charities is bleaker. The size of legacies will fall with house prices, the income from investments will also fall with interest rates and corporate donations will also fall. Many charities will also be busier with more demands for their services as poverty is linked to many social problems. So some charities will be struggling.

Overall the British public will probably be no less generous as a proportion of their income when it comes to giving, but the amount given will fall in line with income. The real problem is not the personal donations sector, but the squeeze on other forms of income especially investment income.

Bank of England eats humble pie

2008-12-22T02:44:00.000-08:00

Sir John Gieve the current Deputy Governor of the Bank of England is due to step down next year and has given the kind of reflective and frank interview to the BBC that only people in his position are able to do with impunity.
In the interview he admits

1. The Bank knew there was an asset price bubble in the UK housing market
2. They also knew there was "crazy borrowing" going on against the asset price bubble
3. They thought that the resulting downturn would be less serious than it has turned out to be

He then goes on to say the problem is in part caused by use of interest rates to control the economy. He feels that interest rates are a "blunt instrument" which impacts to many sectors of the economy, so that raising rates to control a housing bubble impacts exporters etc etc at a time when inflation in the non housing sectors has been relatively benign.

"We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy... and individual supervision and regulation of individual banks," he said.

"We need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand."

The implication that I read into this is that the Bank are considering some kind of direct controls on bank lending in the future the type to be decided but by implication the tools that might be able to "sharpen" the banks control of the housing market are
a) A minimum lending rate for mortgages and/or
b) Some kind of constraint on the amount banks can lend by way of mortgages and/or
c) Some kind of minimum Loan To Value ratios and other controls

The full interview has yet to be broadcast, (it will be available on BBC iPlayer at some point later today after 9pm UK time), but the criticism I would have about the analysis revealed so far is that it is too parochial. The recession is in part caused by the collapse of the UK Housing Market, but that has been brought about by the reduction in the flow of credit to the market (just like the car market) it is a secondary effect. The primary event that caused the restriction in credit was the US sub-prime market and (from a UK perspective) uncontrolled exposure to that market through interbank lending/securitised assets.

We have been through a UK housing market cycle once every 4 to 8 years for the past 30 years and although they cause minor recessions they are just blips on the upward growth path. What makes this recession different has been the restriction in credit caused by the reduction in bank capital from bad debt write offs from loans to US mortgage institutions and investment banks re-packaging US mortgages. This recession has exposed some appalling lending by the now nationalised Bradford and Bingley and Northern Rock - but many of these marginal decisions are made bad decisions by a recession caused by exogenous events. It is perhaps now doubtful that in the ordinary course of events both institutions might have been able to trade out, but that is not to say that they would have triggered the crisis in confidence in the banking sector that the US sub-prime crisis caused.

Catz Litter

2008-12-21T02:38:00.000-08:00

The charity known as Catz is under investigation for donations made to the Labour Party. ... again. According to an article in Charity Times.

When something goes wrong - full disclosure is the best policy. It looks like the accounting systems are either inadequate or they have made an "error of judgement".

One has to wonder how it is that the Labour party came to accept these donations.

Impact of recession on charitable giving

2008-12-21T02:28:00.000-08:00

Charitable giving in the UK normally remains at about 0.9% of the GDP through out an economic cycle.

The recession will have an effect in the average size of transaction. The difference between large donor Average Transaction Value and small donors will widen, the middle donor will reduce the size of their donation and the biggest difference will be the volume of small donors will increase.

In short charities will have to work harder and receive a lot more smaller donations.

The new Charity legislation allowing charities to merge could not have come at a better time. Unfortunately many of the small charities are not taking advantage of it and it is only the big charities that seem to be merging - but perhaps that is the result of media reporting bias. A merger of Age concern with Help the Aged is bound to resonate more than the merger of two small charities.

No recovery for at least 2 years - Varley

2008-12-21T02:26:00.001-08:00

John Varley was interviewed on BBC Radio4's Today Programme. Perhaps the surprising thing about the post on the BBC website is it is headlined "No Recovery Soon in Bank Credit"... "well duh!" as my 14 year old would say. The gap in understanding between public and press understanding of what the "bank bailout" meant remains as large.
John Varley came on the radio with the following messages
1) The banking world should apologise or its mistakes
2) Barclays was still making new advances to small business and that it was "growing its market share of new mortgage lending" (a clever political answer given that the market is so near zero that Barclays could currently grow its relatively small market share by the smallest of additional commitments)
3) The UK banks could not start to expand lending to normal levels until "asset prices recovered" which he felt would take at least 2 years.

Varley is right on the first point. The banks only have themselves to blame.

I must admit I am prone to blame the regulator - but the regulator is not there to stop the banks making mistakes it is there to protect the public. The public can complain about the failings of the regulators - and boy have they failed - but bankers can't blame the regulatory regime for their own inability to kick their addiction to approving marginal lending decisions in the past 5 years let alone their ability to kid themselves that they "understood the risks" of some of the more esoteric interbank products.

Frustration with the banks is not new, especially in a recession.

I am old enough to have been in banking in the recession in the early 1990s - then one branch of Barclays bounced a cheque on a local builder (of Irish origin) who took revenge by coming in over the Easter Bank holiday and repainting shamrock green all of the outside bits of the branch that were blue. It was a lovely job, carefully done - looked beautiful. He then invoiced the bank for his services. When asked by the judge why he had painted the branch green he replied "Why? 'tis my favourite colour!"

The follow on to that story it that despite being awarded damages against the foolish, but plucky, builder... Barclays are still his bankers. Perhaps the foolish ones were the bank - the damages they sought only added to his overdraft - though I believe the publicity (and public sympathy) he received from his story appearing in the press meant he was probably the winner in the end.

Textlemmings

2008-12-15T05:39:00.000-08:00

Great article by Cellular News about idiots who cross the road whilst texting right in front of on coming traffic. The solution is to create a derisive term Textlemmings. If it catches on it will soon make sure that people remember and stop doing it... my only complaint is it should be applied to use in the car too!

Is David Cameron right?

2008-12-09T15:20:00.001-08:00

I am as surprised as anyone to find myself agreeing with David Cameron. He may be right on this one.

Initially his stand against the prevailing wisdom certainly looks brave and principled, although as a long term strategy it is pretty shrewd. By saying something different he will in the long term pick up support as we all get fed up with recession.

Is he right, though?

I think he is. Public spending is getting out of control and although almost all the worlds economists have overnight become Keynesian, it is not a proven model. The last major recession was NOT cured by Keynesian policies. FDR lost confidence and in 1936 largely stopped following the "spend your way out of recession" line. What got us out of the depression was World War 2.

The experience of Japan has not inidcated that Government spending on infrastructure (building bridges to nowhere) achieves anything. Although at least the first round of Government spending can be targeted at UK citizens instead of VAT reductions (40% of which go straight away on imports - bah!).
My fears are that

1 The timing of the spending is wrong. You don't get much benefit if you boost an economy when we are going into a recession if everyone sees it as a signal of how bad the recession is going to be. Better to wait until things are relatively stable and then give a boost. Recessions and depressions are about confidence.
2 The government debt burden hanging over u all is so big that the recession may well be pro-longed as everyone knows there will be taxes to come.
3 The governement risks a run on sterling and a cost push effect on inflation resulting in a stagflationary spiral.
4 At a time of falling income reducing un-necessary government spending (eg Id cards) is just plain prudent. The Government needs wriggle room and it has none.

The one cause for optimsm is the extent to which the borrowing is the impact of showing Northern Rock and RBS in the government's balance sheets. Whilst we may not get out of those shareholdings with a profit they most certainly wont realise the full level of losses shown in the governements accounts.

Having said that last point, Government borrowing is still too high after 10 years of badly managed boom Gordon Brown does not inspire me with confidence that he will handle the bust any better.

Vodafone launches remittances pilot using M Pesa

2008-12-09T15:18:00.000-08:00

Source: Amol Sharma, Total Telecom & WSJ

U.K. pilot scheme will enable consumers to send money via handsets to Safaricom users in Kenya.

Vodafone Group PLC plans to announce a partnership Monday with Western Union Co. to allow international money transfers via mobile phones, as the wireless carrier seeks to tap into the increasing flow of cross-border remittances.

Cross boarder remittances is a market all of the mobile networks are hugely interested in seeing it as a way to tap into their comparative competitive advantages in banking in the developing world.

The service is building upon Vodafone's successful M Pesa service also run through Safaricom. The M Pesa service uses SIM PKIs to digitally sign SMS instructions to move money between agents in Kenya and is typically used on long jounreys to move money ahead of the traveller as it is safer than carrying cash in a country with little banking infrastructure.

The companies are initially launching a pilot program that will allow residents of Reading in the United Kingdom to send money to family members and friends in Kenya, where Vodafone is the 40% owner of local wireless operator Safaricom Ltd. If that program is successful, the companies will expand it to other countries.

There is growing interest in using cellphones as a conduit for money transfers, with financial institutions such as Citigroup Inc. and Visa Inc. taking steps into the business. Wireless carriers in the U.S. and in emerging markets such as India and the Philippines are having some success with programs that let users transfer money domestically via cellphones.

Research firm Aite Group expects that by 2010 global workers' remittances will amount to $465 billion, up from $369 billion last year. To be sure, the World Bank said in a recent report that growth in international money transfers has begun to moderate in the past few months as a result of the global financial crisis.

Remittances are a big contributor to gross domestic product in many emerging markets as workers migrate around the globe, maintaining ties to family in their native countries. Most of these transfers are in the range of $300 to $350 and happen a few times a month, but Vodafone wants to encourage much smaller and more frequent money transfers via cellphone. Not all of the transfers are from the developed world to the developing, indeed the UK is a net recipient of funds as friends and fa,ily put students through college or otherwise support relatives!

Vodafone, which owns or has stakes in wireless operators in Africa, the Middle East and India, sees mobile money transfers as an attractive add-on service in markets where users generally just buy prepaid phone minutes."It's got the backing of the company to take into our emerging-market footprint," said Nick Hughes, Vodafone's head of international mobile payments.

Expanding the service to allow cross-border transfers through Western Union agents allows Vodafone to not only increase the volume of cash it is handling, but also move into a higher-margin business: It charges only 18 U.S. cents for domestic money transfers in Kenya, but the charge for international remittances from the U.K. will be GBP 4.90 ($7.22) for as much as GBP 100, and GBP 6.90 for larger amounts.

Western Union, which processed $64 billion in cross-border remittances last year and has 365,000 agent locations in 200 countries, is hoping to expand its reach through cellphones."Mobile financial services have tremendous potential in places where people don't have other choices," said Matt Dill, head of digital ventures for the company. He said Kenya has relatively few workers with bank accounts, yet 10 million cellphone users. Western Union only has 400 agent locations in Kenya, mostly in urban areas.

In defence of social workers

2008-12-05T02:23:00.000-08:00

The UK has an enviable record when it comes to child abuse. Fewer kids get killed or harmed in the UK per 100,000 people than in most of the western world.

OK! OK! I have friends who are social workers as well as some friends who are bankers and my address book reads like the who's who of victims of media witch hunts. But the point I want to make is serious.

The media is currently on an almighty witch hunt against social workers over the "baby P" and the Shannon Matthews cases.

The result of this witch hunt will be more children will get harmed.

1) No one in their right mind will want to be a social worker
2) The response of local government will be more paper work not less as they try to produce the audit trail for every decision that social services take in order to prevent legal action.
3) The reason social workers presume against taking a child into care is that a massive 30% of kids in council care come out into lives of crime and social failure.

The scandal of the baby P case is not the decisions of the social workers in the case, but point 3 above.

The political truth is that the residential and foster care system for kids in the UK needs an overhaul and more money on it... but that is a long term solution and does not satisfy the editors need for a short term solution like calling for sackings.

It is outrageous that we are failing 30% of the kids taken into care! That is a scandal, but everyone ignores it because the answers are complex and can't be summed up in headline font.

Beware a thin Queens Speech

2008-12-03T05:17:00.000-08:00

Most political commentators are surprise that the Queens Speech contains so few new bills only 13.

Could this be a sign of an impending Spring Election?

M Pesa

2008-12-03T04:43:00.001-08:00

M Pesa the Vodafone/Safaricom payment service is showing impressive growth. No banker can affor to be complacent about the emergence of this technology and its ability to set up payment handling in territories that are insanely risky like Afghanistan.

I have two concerns about M Pesa
1) Are the business costs such that the model can only work in high risk territories
2) Are there security flaws in handling PKI through the SIM

The solution which as far as I am awar relies on PKI management and SIM Toolkit type solutions to handle authentication worries me.

I remember the problems when O2 and Phillips launched the Phillips Pay As You Go Hansdset which stored value in the chip rather than in the network. They were pretty soon "chipped" meaning that as people talked the phones did not decrement and the network was losing millions in call revenues.

The strength of M Pesa is that the value is stored in the network servers and the only activity on the chip is local authentication which is a much better model, but over reliance on chip based PKI is problematic because

a) Your secuirity tokens are in the cloud waiting to be compromised
b) You have real problems recalling them and upgrading them

Of course the same problems apply to chip cards on credit and debit cards, but these are re-issued every 2 years and you know where your customers live. Vodafone might well point to the ability to Over The Air configure the SIMs to rewrite the keys, but if the problem is in the PKI ie the infarstructure itself and not the keys then their solution is at risk. The danger is that once compromised the security solution for M-Pesa may require wholesale reissue of SIMS which means the system will either run with a period of risk whilst the SIMs are re-issued or close down until the new infrastructure is in place.

I think this is just my perenial concern about any infrastructure that requires the security to be at the margins of the network and not at the centre. I hope I am wrong MPesa deserves to succeed if only for empowering millions of the unbanked.

SIM PKI authentication

2008-12-02T09:59:00.000-08:00

"Gemalto has announced that Turkcell is using its SIM-based mobile signature solution to launch new applications in the fields of e-finance, e-commerce and e-government.

According to Gemalto, the solution allows subscribers to securely access online services which require strong authentication using their mobile phone to sign their transactions and documents by legally binding electronic signature. Furthermore, its PKI-based strong authentication solution ensures the highest levels of security for online operations.

Gemalto noted that the users authenticate themselves at login with the digital signature generated by their SIM card and they can sign secure e-commerce transactions through their handset. Turkcell subscribers can carry out stock exchange operations and, can sign official documents such as tax or custom declarations, wedding application forms or patent registration requests."

I used to think this kind of solution using SIM based PKI to generate a digital signature was a bit of a dead end, but Vodafone's experience in Africa with SIM Toolkit based mobile banking applications proves that in countries which lack a sufficiently flexible payments infrastructure this kind of solution can work. In Africa the Vodafoen solution is used to post forward money between effectively post offices so that the user does not have to carry cash on them on long journeys.

OTA configuration of Java SIMs is an old but not necessarily mature technology. Java SIMs were firt introduced in 2000 but PKI management of third party keys requires more than just a server there are a lot of business processes that go with them. The networks have not had much need to develop those processes in the developed nations.

Turky does not seem to me to be a country with a particularly backward banking sector so it will be interesting to see how it gets adopted here compared to Africa.

Pressure on UK Banks to start lending

2008-12-02T09:54:00.000-08:00

Imagine for one moment that your friend owned a bank. He has made some really stupid loans and paid himself some silly ostentatious bonuses and has got into financial trouble. You think it is his own fault, but your trusted uncle persuades you to bail him out for the sake of the economy by buying a 70% stake in his bank for a few billion. In order to finance this purchase you borrow heavily secured against your future income. The next day you go to withdraw some money from what is now your bank and your friend refuses to serve you because he is worried that you might have over extended yourself. How would you feel?

This is the position that the average member of the Great British public perceives themselves to be in.

Fortunately being Britain, people are not reaching for their guns, but their pens. They are writing letters to Members of Parliament and to their newspapers. Who in turn are making noises about "holding the bankers feet to the fire" until they start lending again.

Having stumped up £37 billion of taxpayers’ cash to rescue the banks from their own folly, and offered guarantees worth a further £450 billion, the British tax paying public is surprised to be rewarded by the "ungrateful bankers" by lending limits that are being cut and interest rate margins being increased.

The public were told they were "bailing out the banks". The truth was that the boat which is the british banking sector had such a big hole in it that all the £37bn did was plug the hole. The bail out of the water already in the boat (the excessive marginal lending that was financed by interbank deposits) will take the next 3 years.

How have we got here?

The Financial Stability Report, published by the Bank of England, gives a surprisingly readable and clear explanation. It includes the Bank’s new estimate that losses on securitised credit instruments and corporate bonds since the start of 2007 are now $2.8 trillion, (£1,700 billion), equivalent to more than Britain’s annual gross domestic product, or 85% of the banks’ pre-crisis Tier 1 capital.

Not all these losses will be realised, though a good half are likely to be, and not all of them will be borne by the banks. But these are big numbers.
Seven years ago, Britain’s banks funded lending almost entirely out of customer deposits. By the first half of this year they had a funding “gap” — the amount they funded mainly from international wholesale money markets — of £740 billion.

The Bank does not expect this gap to close entirely, still believing there will be a place for wholesale funding in the long term, but it does suggest it needs to narrow to 2003 levels of about £265 billion.

Achieving that over a year, which the banks might have had to do without the government’s rescue package, would have required a sharp drop in lending and a very deep recession. Achieving it over three years will “smooth this slowing in lending”, the Bank says, but not prevent it. There will be no return, in other words, to past rates of growth of lending.

Meanwhile the politicians and the bankers are caught between reality and the public perception of reality.
Having told the public they had "rescued the banks" the politicians are blaming the bankers for not "playing fair". Last week Peter Mandelson (Minister of Trade) declared: “It is completely unacceptable to the government and to business in this country for banks indefinitely to stop functioning as banks.”
MPs have called for the ministers to "hold the bankers feet to the fire" (such a colourful "Tom Browns School Days" sadomasochistic metaphor was worth repeating if only to prove that the values of a public school education are still very much to the fore in British public life ;-) and that was from a Labour MP)

The truth is that the lack of willingness to lend is more than a political issue. It is a self fulfilling economic paradox that without lending the economy wont recover and without an economic recovery the banks wont lend. The risk is that the Government is so over committed that borrowing and hence future taxation could spiral as the economy spirals downwards. This is the very real risk of a deflationary spiral that haunted the Japanese economy in the 1990s.

Mervyn King, governor of the Bank of England, called the lack of lending the “single most pressing challenge to domestic economic policy”.
He is not wrong.
The political question is having claimed to be the "hero" that "rescued the banks" how long will the UK public wait until they lose patience with Gordon Brown and demand firmer action. Gordon Brown has a lot of political capital invested in the rescue plan. The party he heads is socialist at its roots. He may not be able to just talk tough, he might actually have to act.

Most UK banks are nationalised in terms of ownership, it is only the degree of control being exercised that prevents this being called a "full nationalisation".

Running a UK bank is going to be a tough job for the next 3 years... they'll deserve a big bonus... :-)

Damien Green follow up

2008-12-01T01:58:00.000-08:00

I have seen a written confession from a former Tory minister that he was involved in "grooming" a civil servant to reveal vital MOD assessments of aircraft production and other matters relating to the defence of the realm.
The grooming took place over a number of years and only ended when riven by shame at what he had done the civil servant committed suicide.
The MP in question used the statistics involved in the House of Commons to ask questions of the government and revealed many of the statistics.
Shocked?
The time was the 1930's the MP was Winston Churchill and the questions helped to force the government of the day out of the torpor and to start to re-arm to meet the threat of Nazism.
Apparently, these days Winston Churchill would have been arrested. Apparently he would be described as "grooming" the civil servant in a disgustingly pejorative phrase that trivializes a truly dangerous pedophile activity that has nothing to do with persuading a civil servant to do what is best for his country.

There is a line that needs to be taken to protect the interests of the state, but there are enough threats to the livelihood of the civil servants who leak that arresting MPs should not required.

Is there a future for sterling?

2008-11-30T03:00:00.000-08:00

As the UK's North sea Oil reserves dwindle the arguments for keeping the UK outside of the Euro zone might start to fall away.

A friend of mine just transferred money from his UK euro account to his German one using the Single Euro Payments Area (SEPA) Credit Transfer (CT) in the same day. The cost was less than 10% of making a sterling to sterling bank account payment by CHAPS. Admittedly the Faster Payments initiative means that a similar price can be achieved for £ to £ as a SEPA CT, but surely treasury departments of most of the major pan European businesses are going to start mandating payments in euros first to all suppliers and then all employees?

The economic arguments are the same, but many of them are starting to be answered.

1) The mobility of labour in Euro zone has been significant and proven capable of absorbing some of the strain caused by a political inability to transfer capital in the opposit direction
2) The ECB with its German culture has proven capable (so far) of fiscal restraint. There are tensions within nations more used to fiscal lenience like France and Italy which will be tested over the coming recession, but no one can say the more dire predictions of those against the euro have proven true.
3) The recent credit crunch has shown that the UK cannot isolate itself from the world economy and that sterling is a bit part player.
4) The credit crunch - through the contrasting fortunes of Iceland and the USA clearly shows the advantage of being in a larger economic unit
5) The ability of the UK to manage its way out of the recession by borrowing is being constrained by concerns of causing a run on sterling.

The semi-Economic semi-politico/structural argument against the euro is the lack of a co-ordinated responsive out of the euro zone. The ECB/central regulation is not strong enough for the EC to make any co-ordinated responses (beyond the setting of interest rates and euro system capital flows) without many intergovernmental meetings. This is absurd. In a world where capital flows at the press of a button, the EC moves at a pace where continental plates come together almost as fast as co-ordinated EC policy and structural reform. Look at the Lisbon Treaty of 2000 still in chaos. The counter to this is that the euro has remained strong because the economic power of the eurozone is unquestioned and through luck more than judgement the euro zone banks have not been as exposed to the worst excesses of over reliance on the inter bank market and exposure to syndicated sub prime loans.

The political arguments remain strongly stacked both against the euro and to the further integration with the EU project that it implies

1) Asking national Governments to pass control of a significant part of economic policy to the European Central Bank (ECB) remains electorally unpallatable - even if it is only passing control of inerest rates from unelected Bank of England Monetrary Policy Committee to one advising the ECB
2) The democratic deficit in the EU is a pronounced as ever. The EU Parliament just does not have the power that it should have. The European Commission and member nation states through the Council of Ministers continue to drive policy, whilst maintaining a successful but highly mendacious public stance of "it wasn't me" when faced with questions form their own national electorates.
3) The euro implies a strengthening of the power of Brussels without an increase in federalism. Federalism remains a dirty word as does "subsidiarity" its eurospeak equivelent in the UK.

Point 3 is a fascinating example of the two main UK parties having coinciding policies for conflicting reasons.

The Labour party knows that federalism would lead to a very real risk of break up of the Union and without Scottish MPs the Labour Party would be relgated in the rest of the UK to third party status. The Conservative party hate the the broadly Socialist policies of the European Parliament and fear their voice would be weakened by transferring power to Brussels.

In my view, if Europe manages to address the issues of the speed of response and the strength and independence of the ECB/central regulation then the future of sterling will no longer justified economically and the only reasons to remain outside are purely political.

Damien Green

2008-11-30T02:37:00.000-08:00

The arrest of Tory MP Damian Green on Thursday is shocking on a number of levels unless there is more in this story that has yet come out. Arresting an opposition MP for collecting stories from whistle blowers is bizarre paranoid behaviour and the police should not be involved.

Surely a civil servant going to an MP with concerns as a whistle blower is an important part of the democratic process? If it contravenes the official secrets act then it is the official secrets act that should be changed.

The concern I have about Gordon Brown and the way he runs Government is that he seems to see everything in the prism of his career and the fortunes of his party - which to an extent is understandable - but surely to goodness there are some issues where country and democracy come first? I remember being taught that the difference between a statesman and a politician is that a statesman puts the interest of his country over those of his party. I just don't see Gordon Brown in the role of a statesman... he could not even put the interests of his party over those of his personal ambition during his time in Tony Blairs cabinet.

I have just read the biographies of Oliver Cromwell and Charles II so perhaps I am too steeped in a 17th Century view of the importance of preserving the privileges of an MP - but there is something fundamental here about our relationship with our Government. To search an MPs office to arrest him for getting stories from a whistle blowing civil servant .... these are things that the pig headed and insensitive Charles I might have done.

I hope I am wrong, but I suspect that the Government is already "stepped in ....so far that to go back would be as tedious as to go o'er." We are committed to a party fight on this one with dug in party heels.

What happens to Damien Green may be a litmus test of Gordon Brown's commitment to the principles of democracy, free speech and good government and I am shocked it has come to this.

Why the budget is wrong headed

2008-11-30T02:26:00.000-08:00

Mr. Darling says he wants to stimulate the economy. He says he intends to inject £20bn by a VAT cut of 2.5% and allowing business to delay paying corporation tax.
The flaws in this argument are
1) The UK's marginal propensity to import is estimated to be over 40% so giving a tax cut directly to the UK consumer of £20bn means that immediately £8bn goes on imports and has no effect whatsoever on the UK economy.
2) 2.5% off the cost of consumption is not going to affect the real problems in the property sector and will not make anyone feel more secure in their jobs.

Removed posts

2008-11-30T02:19:00.000-08:00

I couple of days ago I took down some posts I'd made in the heat of the moment about Alistair Darlings plans for stimulating a recovery to the economy. I took them down because someone pointed out that I was on a rant and the tone was overheated. I don't want to be compared to the conspiracy theorists of this world.
I think that the job of Government is a tough one and our politicians are due more respect. I will however lose all respect for anyone in the government if Mr. Brown calls for an election in the next 6 to 9 months.

Market stats

2008-11-20T01:22:00.000-08:00

Interesting market stats from the Guardian showing that the UK is one of the most tech savvy places on the planet especially in relation to mobile phone use.

Chip and PIN is not the answer

2008-11-19T04:56:00.000-08:00

Chip and PIN is not the answer to card holder authentication at point of sale.

It makes POS Terminals expensive, delays queues and exposes consumers to all kinds of risk. The biggest issue s that the card issuers need to issue mag stripe plus chip because the ATM infrastructure is still largely mag stripe based. This means cloning fraud takes place off shore whilst exposing the card holder to greater risk from shoulder surfing.

Strategically, the problem for the card compaines with C&P is that it weds them to building expensive infrastructure to protect the PIN making it harder and more expensice to take the physical infrastrucutre into new markets.

Take one example C&P requires a 50 point authentication of the PIN Entry Device, but at no point is the PED authenticating itself to me the cardholder. The result has been the growth of Tamil Tiger funded attacks using false PIN entry devices in petrol stations.

A much better system would be to use a system like PIN Optic's solution for one time pin that works across an open network and reduces the risk of shoulder surfing. It requires no PED beyond a screen and the simplest of keypads.

David Wooding RIP

2008-11-17T16:10:00.000-08:00

When my one time flat mate and frustratingly always right friend David Wooding died on 1st June 2004 it kind of threw me into a mid life crisis. In 38 years he'd packed more meaningful contribution into his life than I would if I live to be twice that age.
Dave's impact on those that knew him was profound. He also had a role in helping about 6000 women a year have their cancer detected early enough to prevent death.... kinda hard to match that really. The stupid thing was that Dave was the kind of guy who inspired those around him to match the impossibly high standards he set himself.
Dave knew he was dying and more or less came to the conclusion that the meaning of life is in the infinitesimal changes you bring about through others because you existed. He was also very religious, but we will put that to one side for a minute. The point is that view makes his friends who out live him think about how he has affected them... its kind of what we owe him.
Three years ago after a year of thinking, I left the job I was doing and founded Vir2 partly as a kind of response. Starting up a new business has meant those that I love have had to put up with sacrifices and the pressures of making sure the business is successful means I am still leading a half life. My goals and pre-occupations have become more work and money focused, not less. Its time for a re-orientation and so in a small way this small part of the world changes. They are little ripples of change, not a tsunami - but my world is different, not least because I miss him.

Has the BofE gone too far

2008-11-06T16:31:00.000-08:00

What were the Bank of England thinking about when they cut interest rates by 1.5%?

Their argument is that the UK risks inflation falling below 2% as it slips into recession.

These are the reasons why they could be wrong

Oil, food and raw material prices are no longer falling
The interest rate move is a full 1% bigger than the ECBs cut and the relative shift means that sterling will fall against the euro and dollar and ... well most major currencies. Falling sterling will push up the price of imports.
The UK is more dependent on international trade and imports for supplies than most other countries (except Japan)
Labour costs are not necessarily going to fall quickly in a recession. We have lots of migrant workers who will bare the brunt of the recession and who will go back to eastern Europe. We have more or less full employment amongst uk workers ... everyone is worried, but wages are not likely to fall.
The Economic Policy Committee have in one swift action destroyed their reputation for caution and for predictability in rate setting - they were seen as a steady hand on the tiller. Investors from overseas will think twice before putting money into the UK
The EPC have sent a very loud signal to the markets that things are going to get a lot worse before they get better.
They have used up all their powder in one shot ... prematurely.
The government has signaled its intentions to borrow its way out of this recession.

Reputations take years to build up and moments to destroy.

What happened

2008-11-06T16:15:00.000-08:00

Over this whole banking crisis the figure that shocked me most was that whilst 98% of US bank deposits were lent out, 146% of UK ones were. Basically the UK banks have been funding far more of their lending books on the interbank market.
UK banks got sloppy, they thought the market would always be there and started to fund growth from the interbank market without a fallback plan. What happened when Northern Rock and Lehemans went down was that the "lender of last resort" role played by the central banks was suddenly in doubt and panic took over.
This means the UK banks have to contract their loan portfolios very quickly or expand their equity base. The new rights issues will go a long way to do that and the best way to make lending decline is to raise prices on renewal facilities and stop making new loans.

The interest rate cut today will not be fully passed on... at least not for a long time.

Broadband Penetration In Europe

2008-10-27T05:13:00.001-07:00

Source: Kleinwort Benson/Total Telecom

The latest KB survey of broadband household penetration shows that the growth in BB penetration is slowing everywhere except Greece.
The overall levels for Europe average at slightly over 50%
Given many people have Broadband at work, it is probably going to take time to get much past the current levels. The next spurt will probably come from combined telephony/ISP/mobile access packages. The fragmentation of European TV is a barrier to continued growth of quad play where TV is bundled as well.

SEPA Card Framework

2008-10-27T03:44:00.000-07:00

I don't think I know anyone in the payments industry who thinks the Single Euro Payment Area Card Framework is going to work on time. The proposals in respect of national debit schemes is good news for Visa and MasterCard and that is about all. There are some huge impacts from the Payment services Directive that will probably have unforseen consequences - like the payment insitution rights.

Apology

2008-10-27T03:30:00.000-07:00

Sorry for the last post about the US election. Its a map showing the sum of all online predictions made by private individuals. It is not a realistic forecast IMHO as it is way way way too self selecting a sample.
I do think it is a a great insight into how clever it is possible to be creating apps that spread your message/brand around the bloggosphere.
I don't labour under the illusion that my blog is a place where people come for news on the US election... from the comments it is not a place where anyone visits full stop (or period as people in the US might say).

US Election

2008-10-27T03:29:00.000-07:00

<p><strong>><a href='http://projects.washingtonpost.com/2008/pick-your-president/'>2008 Election Contest: Pick Your President</a></strong> - Predict the winner of the 2008 presidential election.</p>

Will SEPA make the £s demise inevitable

2008-10-24T18:14:00.000-07:00

Todays fall in sterling shows how even the UKs economy is weak in the face of global cash movements.
Would joining the euro solve the problem?
Well certainly not until the Single Euro Payment Area has become a reality. There seems little point to having a shared currency if sending it from one country to the next costs the same and takes as long as an international payment. The SEPA logic of making euro payments the same cost as domestic is inescapable.
Ignoring the political problems, the detractors would argue that the economic problems with the euro are that a one size fits all interest rate and exchange rate does not really work for such a diverse economy as Europe. I think that ignres the real mobility of labour that has ocurred in the last 10 years. Labour flows are a significant factor now in Europes economy. Cushioning downturns and promoting/sustaining growth. The USA is a big country with one currency ... why not Europe? The argument detractors put forward is that Europe is somehowm more diverse. I don't buy it frankly. I think the problem is political.
What is also true by the sound of things is that Europe will use the current banking crisis to strengthen the role of the ECB and the eurosystem in not just managing cash flows but monitoring banks.

Keep skipping

2008-10-24T01:44:00.000-07:00

Walking my 5 year old home yesterday she started skipping along with a big smile on her face and I suddenly realised that despite all this talk of recession ... life is OK, things will change, but so long as your kids can keep skipping home from school, life is not too bad.

Recessions "aint what they used to be"

2008-10-24T01:24:00.000-07:00

Recessions are a natural part of the economic cycle (whatever G Brown says) and a regular recession is good for the economy as it re-allocates resources.
The UK economy is in good shape going into this recession with low inflation, low unemployment and a relatively low government borrowing compared to GDP. Compared to 1990 this one should be OK. The banking crisis has also been overplayed. The size of the write offs to date is not significant compared past banking problems.

The problem is confidence and a hugely over leveraged investment sector. We will now start to see two things happen which will continue to delay the return of confidence to the markets

1) Developing Economies will see a run on their stock markets and currencies as US and European investors unwind their positions
2) Hedge funds will start to un-wind their positions. Huge borrowing to invest in illiquid assets works in a boom but fails in a bust. The hedge funds will "hit the buffers big time" as my teenage daughter might say. As investors pull out and banks refuse to renew facilities so the hedge funds will have to sell positions. The trouble is that most invested in illiquid assets and their positions were massive - so their exit will have a profound impact on the price of those assets.

The impact on "real economy" confidence is also profound, but we are in more danger of talking up the recession than it actually deserves. The impact of this finacial sector turmoil will be on the ability to borrow and on our pensions. In the long run pension funds will recover, but many good businesses might fail because the banks have lost the their willingness to lend.

Back to Long Term Capital Management

2008-10-15T14:59:00.000-07:00

John Maynard Keynes, is said to have warned investors that although markets do tend toward rational positions in the long run, "the market can stay irrational longer than you can stay solvent."
This is what brought down Long term Capital Management in 1988 and it is what is threatening the system at the moment.
Essentially the point is that anyones capacity to survive a down turn is determined by gearing (borrowing compared to equity).
It is always true.

A little perspective

2008-10-06T15:15:00.001-07:00

The banking world staggers from bail out to collapse like a drunk looking for the next lampost as he walks home at night.

The situation is mad. Take a look at this graphic from the BBC. I find it hard to believe that Northern Croak was bigger than Fannie & Freddie, but that asside - look at the size of the economies to the size of the ones that have gone bust so far. It is all manageable.

If what is happening now continues for much longer, then perfectly sound banks are likely to go under because their share price means their capital base is too small. What is needed in my opinion is to stop playing about and for the Government to take an additional equity stake in the banks... yes it is a dilution ... but I think the share holders wont mind if it restores confidence :-) More to the point it solves the real problem at a lower cost and with a potential exit. £10bn of capital now is better than £100bn of depositors guarantee money in a few weeks time.

One of the best commentators throughout has been Robert Peston at the BBC and Vince Cable has called it right from the Lib Dems. Alistair Darling seems to be growing into his role. Perhaps because the Germans have recently performed soooo badly and Mr Darling has learned more caution.

I listened with interest to todays announcement in the Commons from Mr Darling and then watched the markets collapse again. I think the markets wanted action, but Darling is right, concerted action at a European level may be the best way forward.

I don't like the suggestion to abolish mark back to market. I realise it has weaknesses but the only thing to calm nerves now is more transparency not less. It smacks of shooting the messenger. Temporary suspension might be ok, until a better system is introduced.

Anyway that is my two penneth not that anyone listens to this old banker. :-)

Crisis what crisis?

2008-09-22T15:00:00.000-07:00

The crisis in the banking sector raises questions about how such institutions will be regulated in future. Forget the arguments about rewards and city bonuses that's just envy, the points that really need to be addressed are

Beefing up the regulatory staff to a level where supervision is credible
How does the regulator limit and monitor inter bank exposure?
How will the regulation of future products be managed?
How do national regulators regulate in a global economy?

What went wrong with the global banking sector was too great an exposure to a single asset class and a dependency on inter bank lending. Achieving a balanced loan book is not rocket science unless the rocket scientists start trying to move assets off balance sheet. The problem is that the financial instruments got complex and instead of understanding the problem, Governments and the regulators stuck their heads in the sand.

Achieving a method of managing interbank exposure may be difficult to achieve given interbank lending has been the engine room that finances much of economic growth for the past 3 decades - but it should not be above the wit of man to control.

President Pelosi ?

2008-09-22T14:53:00.000-07:00

I've made the mistake of commenting on the US election before, I'm a foreigner what do I know?
A current article on the BBC website raises an interesting spectre of Nancy Pelosi becoming the next US president in the event of a tied vote. Ridiculous? Perhaps no more than deciding a vote on the basis of a few hundred hanging chads.

Mashup - Enterprise 2.0

2008-07-18T08:20:00.000-07:00

The mashup* event last night was very enjoyable.

The networking was very good and the speech by JP Rangaswami - Managing Director, Service Design for BT Design or "JP" as everyone seems to refer to him was particularly entertaining.

Unfortunately the subject matter Enterprise 2.0 was more popular with IBM and CAP Gemini consultants than it seemed to be with business people. I suspect because there is a lot of Government consulting contracts relating to the subject matter.

I think enterprise 2.0 is an interesting subject area, but whilst the theory is good and when applied to a particular problem of innovation it might be very useful - as a topic for discussion itself it is very nebulous and does not meet an identifiable need unless applied to a tangible problem.

I also suspect a lot of tax payers money is being wasted on consultants hot air.

I saw Simon Grice there - he is looking very energised these days - must be up to something clever.

MoMo Location

2008-07-15T03:03:00.000-07:00

MobileMonday London last night was very good. Perhaps because I did not have high expectations. I have not done anything with location based services since a very bad experience trying to localise callers into Dominos Pizza central ordering line in 2005. We used the mobile networks geolocation services and to say it was about as accurate as it was expensive is an understatement.
I'm afraid I kind of wrote off location technologies. I knew they were coming, but I thought they'd be too bleeding edge for a little while to come. Location seems to have moved on a lot since then. I'm not convinced that they are not still bleeding edge - but when people like Google and Yahoo are seriously engaged then it is going to happen sooner than I thought.
The interesting thing is the way that the mobile networks have again shot themselves in the foot. They had the lead on providing location based services but have thrown it away by trying to monetise a nascent market. You can't charge for something that is not yet adding value. The mobile networks have all this potential value as a by -product of providing their core business, but they keep trying to charge too soon. They need developers to create the business models that use data like LBS to create value that they can then share in. The MNO approach has been to charge at the outset, but in reality that puts all the risk on the developer when in reality this is largely an economic free good to the MNO (Yes I know there are costs - but get them in perspective).
Anyway it seems irrelevent now as people like Skyhook have been forced to deploy innovative work arounds - clealy solutions that map WiFi networks like Skyhook are going to be frought with all sorts of problems - but instead of the MNOs being the defacto standard they are now marginalised to be one of many ways LBS can be delivered even before the market has begun to add real value.
Doh!

Measured tones

2008-07-15T02:44:00.000-07:00

I am beginning to sound like Cassandra at the gates with all my talk of recession. Partly the act of a smug so and so who got out of property when he heard 2 years ago about the looming sub prime crisis.

At last someone is talking in more measured tones about the future for the charity sector. Research firm npfSynergy are saying not only that the top charities will not see much of a decline but also that it will take 10 months or so before any slow down to impact. Plenty of time to prepare.

Also the recession is not yet a recession. Agreed we are talking ourselves into one, but we are not in the same place we were in the 70s. Inflation is still historically low despite the exogenous cost push fsactors of Chinese and Indian demand and the oil/energy price surge. Also the economy is at full employment. Yes consumption is falling and people are pulling in their horns, but this is an adjustment. Interest rates are not at the levels they were even in the early 90s. Consumers need to adjust, savings at 1% of GDP are no where near what they need to be and we have lived a grwoth fuelled on debt, but we are tlking a decline in growth possibly a short recession - but nothing catastrophic - provided we don't get a collapse in one of the major uk or us banks.
So far bad debt now looks containable.

We should however learn... regulators need to be strengthened and more bullish in their activities. You can't stop banks collapsing. You can try to limit their exposure to any one sector and you can stop them from being too big in any one territory. The unregulated free market is not good for banks because they get too dominant. I am not against allowing banks to get bigger - particularly internationally - just the spread of exposure has to be managed and regulated to limit the exposure to any one sector, asset class and territory.

Bye bye A+L

2008-07-14T06:23:00.000-07:00

There has always been a lot of whispering about A+L in the UK banking community. Historically, it was one of the more aggressive ex building societies in its attempts to get out of "just" mortgage lending, but it had not had a lot of notable success. A+L has been flirting with acquisition for a long time. Even in the good times people baulked at the price. Always the bridesmaid as they say.
This caused a lot of people to question whether its balance sheet was as sound as it appeared to be.
Now that Santander is bidding, suddenly it is being described as an undervalued asset.
According to the BBC, David Cumming, head of UK equities at Standard Life Investments, described it as "a gorgeous deal" for Santander, saying the bank was acquiring Alliance + Leicester "on giveaway terms".
In David Cumming's position I'd say the same, but the truth is that A+L have been looking to sell for such a long time that a sale in the current market conditions was inevitable.
I doubt A+L would have been able to get a rights issue away given current market sentiment.
The sigh of relief from the treasury and the FSA is almost audible.
The logic of buying A+L and merging with Abbey is inescapable especially given the advent of the single european payments market.

Oi Oyster!

2008-07-13T15:03:00.000-07:00

So Oyster had to close down for a brief period because it was inadvertantly taking too much money off customers cards.
It is one of the big issues with all forms of electronic purse. The customers awareness of their personal balance is much less than with physical cash. The opportunity for things to go wrong is significant and the cost of putting it right depends on the nature and the place of failure. The most significant risk is actually PR for a low value scheme like Oyster.
Using cash people get over charged all the time. In research people seem to feel that with cash they win as much as they lose. What makes electronic purse threatening is the lack of transparency.
But in the real world, the risk with credit and debit cards is actually greater because of the transaction size. My favourite pass time is spending my hard earned money in DIY stores. I rarely get charged the amount I expect because items have been moved into the wrong section or wrongly labelled. Last week I got charged £120 for £60 worth of items. I did not even get an apology.
So cheer up Oyster card holders ... it could be worse ;-)

Fannie Mae & Freddie Mac

2008-07-13T14:51:00.000-07:00

Odd that the two institutions set up by Teddy Roosevelt to get the US out of the great depression could be about to bring about another.
It would seem to this observer that this is another failure of regulation and political will.
The systematic risk of any organisation that lends over 30% of any nations mortgages to the housing stock makes a mockery of any security it holds. The risk is the foreclosure and credit tightening on its customers on such a scale erodes the value of the security it holds. Even the good loans start to look bad when you look at loan to asset value. Furthermore more house owners facing rising interest rates and falling house values start to think it better to hand back the keys than to continue to pay for the loan.
A truly independent regulator should be prepared in the good times to break up quasi state institutions like this and sell them off as small independent and self financed concerns. Big is not always good, but the political will is not always there.

Thought for the day

2008-07-01T01:44:00.000-07:00

It is the greatest of all mistakes to do nothing because you can only do a little. -Sydney Smith, writer and clergyman (1771-1845)

Interest rates and inflation

2008-06-17T09:34:00.000-07:00

The Governor of the Bank of England is, even as I write, probably, scrabbling around looking down the backs of the office arm chairs for the 28p needed to send his letter to Gordon. Officially, UK inflation is above the 3% threshold.
I only hope that the Governor and his monetary policy committee know the difference between exogenous and endogenous causes of inflation.
The current bout of inflation is cost push caused by external factors. Raising interest rates will not squeeze out inflation - it will raise business and wage costs still further. The current inflation is not caused by excessive demand.
The MPC has spent the last 5 years with interest rates too low because it failed to take account of the fact that real inflation was lower because of external factors - falling costs from goods supplied from abroad. It allowed interest rates to be too low which resulted in a property bubble.
Now that inflation is caused by food and oil price rises from outside the economy - why should it be cured by raising interest rates?
The trouble is that when the only tool in your hand is a hammer, every problem starts to look like a nail. The MPC can only set interest rates higher in the face of inflation and so it does. It doesn't mean it will work or make things better. In fact it will exacerbate the cycle meaning unemployment will be higher. Higher interest rates will result in faster reduction in consumption meaning higher unemployment which in the long run might... I said might, result in lower wage rises. In the short run they probably will not, unemployment is not an issue at the moment it is the wrong point in the cycle, so higher inflation will result as workers demand higher wages.... more inflation... more loss of competitiveness... bigger slump in the long run.
The best advice to the MPC is "do nothing".

David Davis

2008-06-12T15:07:00.000-07:00

Despite being heavily involved with the introduction of chip cards to the uk I am against their use in the national ID cards and the creeping spread of centralized information held on us.
I can therefore only applaud David Davies for taking a stand on these issues.

One only has to look at the timetable to see why he might have done this

The House of Lords will reject the 42 day rule this time round.
Gordon Brown will re-introduce it next year and use the Parliament Act.
David Cameron with an election possibly less than 12 months away may well have given ground on the issue because it is electorally unpopular.
David Davis stand means David Cameron cannot back down so easily, why? because Cameron in order not to appear to be presiding over a split party now has to back David Davis in the by-election like he was his first born son.

I don't think it will win David Davis any friends in the Tory party, but I think it is shrewd if you accept he is not doing it for personal advancement.

If personal advancement is David Davis motive then that will be determined by how much Gordon Brown is let off the hook by the diversion of media attention. In the long run he will have corrected the impression the public had of him as an out and out right winger. If the country is fed up of polish and spin and want consistency integrity and grit then it could be a move of Churchillian political strategy. If Cameron does lead the Tory party to victory at the next election then it could be a move of extreme folly, unless David Davis was already so fed up with Cameron that he no longer cares. Todays example of Cameron back tracking on David Davis saying that the Tories would revoke the 42 day rule if they were in power may have been the moment when David Davis thought --- "I don't want to be in the next cabinet if this is going to be done to me every time I do anything"

I think David Davis is not counting on personal advancement, but is actually sincere. Either that or he knows something that will take David Cameron out of contention in about 18 months time and is positioning himself for that time.

It is also shrewd of Nick Clegg not to fight the by-election .... but for entirely different reasons that I am surprised the media have not really picked up on.

The big unanswered question is will Labour fight the by election... perhaps not.

Cuckoo

2008-04-28T00:54:00.000-07:00

I heard my first Cuckoo of the year yesterday. About 2 weeks later than last year. Probably because April has been so poor compared to the glorious sun we had last year means I am not in the garden as much.
Summer should be here, but it doesn't feel like it weather wise does it?

American Elections

2008-04-27T04:15:00.000-07:00

It is not for people in Europe to elect the next US president, which is a good job as the media over here is as biased as possible in favour of the Democrats. I'm not against the Democrats, but I think media bias is always a bad thing.
The lesson from Mr Bush junior is that from a global perspective, the issue is not the party that wins, but the extent to which the president is in debt to the oil, arms and pharma industries.
Looking at the current race, you'd have to say McCain owes less to them than the two democratic parties, because his nomination process was over quickly. I fail to see how it is a good thing that the future leader of the western world needs to raise 30m to 40m USD a month for 6 months to fight a campaign before s/he even gets to run for president.
But it is probably good job I don't get a vote in the election.

Love Music Hate Racism Carnival

2008-04-27T04:13:00.000-07:00

The Love Music Hate Racism carnival is today, see website for details.

Love Music Hate Racism

2008-04-25T02:27:00.000-07:00

Interesting article about one of our clients Love Music Hate Racism.

I remember the Anti Nazi League and the Rock Against Racism campaign from when I was a teenager and actually, I think it achieved more than the original organisers realise. Of course it is naive to think a few musicians can end racism, it is a bit pompous and self important, but it does not mean that standing up as a role model does not have its place.

It was part of a climate that made black music culture cool and demonised racism and fascism at a time in Britain that due to economic circumstances things could have been different. RAR may not have brought about instant racial harmony, but their work was one of the trends in culture that was pushing in an inclusive direction.

I can remember seeing the likes of Madness play the Brixton Academy for RAR/Anti Apartheid and what a weird event that was! Loads of skinheads and rastas not knowing where to look at first and then mellowing as the night wore on and the bands got going. It did not change the world, but it said that people had a choice and unthinking racism was made more difficult.

I also attended the rally in Hyde Park to celebrate Nelson Mandela's birthday ... and in a small way that did change the world. It was an event which FW De Klerk mentioned came to symbolise in his mind the international opposition to apartheid it helped to crystalise his thoughts. He recognised that the tide of history and the demographic growth of the black population meant that apartheid had to end and that Mandela was possibly the only man who could hold the country together. If the whites waited until after Mandela died there may be no one left to negotiate with who could unite the Black factions enough to come to a peaceful agreement.

Change is not an event it is a process. Processes are brought about through forces and trends.

Apartheid was dismantled because the forces were too great for it to hold together much longer. A concert seen on Television from a few thousand miles away came to symbolise in one politicians mind the forces aligned against the system he ran.

That's worth attending a free concert for.

Bailing out the banks

2008-04-16T10:46:00.000-07:00

We await details of the Bank of England/Government plan to accept mortgage backed loans as collateral for borrowing off the Bank of England.
Although the amounts might be small, it seems to me that the way to encourage the mortgage market is to make sure that only new mortgages qualify :) otherwise there is too much moral hazard in the scheme.

To explain the plan a little in outline. Under the requirements of an international agreement known as Basel II, Banks have to keep certain proportions of their balance sheets in tier 1 qualifying assets. The intention of Basel II was to make sure that banks maintained certain ratios to preserve their liquidity. In effect to stop them lending too much on too little capital/liquid assets. The temptation in good times is for banks to avoid liquid assets because illiquid assets offer higher rates of return. In bad times banks need liquid assets. The government lets banks swap short dated treasury bills for mortgages it has the effect of providing tier 1 qualifying assets in return for illiquid non qualifying assets. However, it is the financial equivalent of allowing banks to put nitrous oxide in their tanks. In the present circumstances there is little risk that it might swing the other way very quickly and lead to the sort of reckless lending that got us into this mess, but the moral hazard is in the belief that the bank of England is "always there". Bailing out past mistakes without penalty is a bad idea. Heads should roll at the worst offending banks at the very least.

Banking led slump: recession or crisis?

2008-04-08T03:20:00.000-07:00

We live in interesting times. The borrowing fed boom of the last decade is rapidly heading for either an adjustment or a full scale slump. What will determine whether this is a temporary adjustment or a serious recession is about expectations and inflation.
The UK banks exposure to US property bad debt is causing them to contract their lending books. The first to go are the high loan to value mortgage lending. This in turn is causing the property market demand to dry up and prices to fall.
Economists are looking at the current affordability of debt and saying that currently debt is not excessive given the level of average incomes, but real average incomes are being squeezed by raw material, energy and food price inflation. If the average citizen decides to cut back substantially on discretionary spending then we could be heading for a full scale round of stagflation that we have not seen since the 70s.
The drivers for inflation are exogenous (ie outside the UK economy namely Chinese) demand for raw materials which in essence creates cost push inflation in the UK and so there will be (at best) a time lag between falling UK consumer demand and a decline in inflationary pressure. At worst the UK economy as the worlds 4th or 5th largest is not big enough to have any impact on demand in China and India for raw materials... result long term cost push inflation is here to stay.
On the demand side consumer spending has been fueled for some time by borrowing based in no small part by feeling good about house prices. Falling house prices changes this prospect. If the lack of available credit plus a change in consumer expectations causes consumers to reduce spending then we could quite easily enter a period of recession.
The UK economy is heavily dependent on finance and services. More traditional economies can export their way out of a crisis, their currency will decline in value and create an export lead boom, but tertiary or service sector led economies find that decline in value may have greater inflationary pressure on the economy. Most economists argue that in the long run a decline in the value of a currency always leads to inflation. My view is that sterling will not decline so heavily because it is in part still a petro currency, but that if it does it will lead quite quickly to inflation because we are heavily import dependent and near full employment.
The only solution open to the government may be a wages and prices policy - part of which we are already seeing through the implementation of the 2.5% cap on public sector pay deals. This is in my view at best a short term policy. The impact of a public sector wages and prices policies in the long term is make the public sector is to drain talent from the public sector. The short term cost in terms of the public perception of strikes and civil unrest is also substantial and may be politically unacceptable.
The government is left with one tool left. Monetary policy. Trying to squeeze out cost push pressures using tight control of the money supply ala Margaret Thatcher will result in even more pain for the economy in the hope that the forced reallocation of resources is worth the short term pain.
In principle because the capital investment is lower a knowledge based (finance & service sector) economy should be easier to turn round than a skills based (manufacturing) economy. In practice however, a knowledge based economy turns round at the personal level not the economy level.
In other words, a recession in a western knowledge based economy runs the risk that the educated people emigrate, leaving the uneducated behind. The cost of providing the welfare state becomes a burden borne by a decreasing proportion of society, leading to increased taxes and more emigration and could throw the economy into a long downward spiral. This is a very Malthusian view and the reality is that the decisions of thousands of individuals will be taken over time and will be the result of many nuanced factors and at the end of the day Britain with its currently large healthy economy and tolerant, multicultural society is a pretty good place to live - it would take a lot to change all that... but these things are about trends and spirals.
My view is there is a need for a global adjustment in the distribution of intellectual and financial capital. We will also see the re-emergence of global inflation and periods of stagflation. But I think that whilst the main global engine of growth remains demand in Western economies - any adjustment will be a long term process and that th ride whilst bumpy will not be catastrophic. The optimist in me thinks we will continue to see long term growth punctuated by short term recessions and that this current recession will be a relatively short ones. We are coming into recession off the back of a decade of plenty of profit in the banking sector, if the recession does not cause significant systematic risk in another sector that the tier 1 banks should remain adequately capitalised and the regulators will just have to deal with one or two tier 2 bank collapses.
In the long term the relative growth rates of the developing world will continue to erode the current differences in buying power between the West and the rest of the world. The pressure on resources will result in inflation and currency adjustments which may result in a relatively painless reallocation of wealth/comparative buying power. The big risk is that the west experiences more than just periodic adjustments, but one that requires resources to be made redundant for a long period of time.
Britain has historically chosen to retrench, to give up ground in those sectors (say manufacturing) where it cannot hope to compete head on with say Indian labour costs.
The result is that Britain is now a so called knowledge economy. The key resource of such an economy is the "knowledge worker" who is by definition a very mobile resource capable of moving elsewhere.
The core sustainable competitive advantage of the UK in retrenching to a knowledge based economy is that because the individual is by definition well educated, they tend to demand personal rights and freedoms. In the long run it may not be possible for non democratic countries to compete head on in the knowledge sector, but in the short run China has proved to some extent it is capable of developing say a vibrant computer software industry without granting personal freedoms to the majority of the population, but can it do so in the long run?
In a world where value is created by knowledge the state has less power and the individual more, but ultimately, what value do you place on the kind of society you live in compared to your own place in that society? The UK has plenty of home grown terrorists who seem to think they have not been given every opportunity and that their personal freedoms have been in some way curtailed. I am not saying they have, but I am saying the West has problems about social inclusion. China on the other hand has huge problems granting personal freedoms, but most people in that society seem willing to forgo personal freedom for economic prosperity. Yes there is ruthless suppression of human rights in China, but the big question is how willing are the educated people to make a compromise between personal and intellectual freedom and prosperity in the short run and just how long is the long run?
My own view is that the next 20 years will see a great deal of uncertainty but that the trend we have seen towards greater personal freedom and liberal democratic society in the West will not prove to have been a high point for a privileged elite - but the inevitable direction of travel for the rest of the world. I think we will see an economic shake out over the next 2 to 5 years that will see a period of stagflation, but that the cultural and democratic freedoms of the west will see them continue to be attractive places to live. Some educated individuals will then start the process of resource re-allocation on a global scale, but hopefully it will be a gradual process and not an uncontrolled spiral. I think they will chose to move to liberal democracies like India rather than oligarchies like China. But it will be possible for tyrannies to extend privileges to elites in ways which will allow them to continue to suppress the majorities. The rich will continue to get richer and the poor relatively poorer, but on a personal level the difference between economies and nations will erode.
The big economic questions are:

Whether China in the long run can continue on its current economic course without introducing more democratic freedoms and if it can't whether the adjustment will result in confrontation?
Whether we can continue to grow without destroying the ecology of the planet?
Whether we can continue to sustain the population growth of the planet on future agricultural production?

Perhaps the most important question of all is what period is the long run?

Protecting the online public from Sex Offenders

2008-04-04T02:02:00.000-07:00

Who is going to be fooled by plans to make sex offenders register their email addresses to allow social networking sites to block them?
Only parents who have no knowledge of the internet.
Of course the ability to punish sex offenders who have an unregistered email address allows pre-emptive action to be taken, which is no bad thing at all; but the reality of being able to police and successfully prosecute this law is surely suspect.
It seems to me that the way to make people safe on the internet is to raise awareness of the risks (which are not huge) and the proper way to deal with them.
Lulling people into a false sense of security by publicizing ineffective legislation is very, very wrong.

Confused messages

2008-03-12T05:54:00.000-07:00

The article today in Third Sector is unfortunate to say the least.
Maria is a good person, but she has been quoted completely out of context. She was talking about a historical situation.
Unfortunately, she has somewhat implied that mobile networks wont change their VAT policy. They will and they are.
The point is that mobile networks are moving to introduce VAT short codes. The alternative is not an option that they are even considering - mobile networks could never just ignore VAT issue and hope it will go away. There is no exemption for mobile networks from VAT legislation.

They might have decided not to accept payments made as donations to charity, but Charity donations are not the only thing at stake for the mobile industry. For example if mobile networks charge VAT on every transaction then they cannot process payments for gambling, which whatever one may think of it morally is a significant market opportunity for the networks. If I were an investor in a mobile network I would want to know why a "spokesperson for O2" thinks that the cost of implementing a change to an invoice is worth throwing away the opportunity in such important sectors. But the truth is that Mobile networks are large IT lead organisations and it is often the case that the voice from the IT department is initially the loudest when asked a question about technical change, before the voice from wiser council is heard in public.

At its simplest this is about changing an invoice to say VAT rate = 0% not an expensive technical change.

As it is I and a number of others are working towards the introduction of VAT free short codes for charity.

It is happening. It will happen. It is in the mobile networks interests and even if it weren't they can't stand Kannute like and hold back the tide of the HMRC rules.

The next steps on the VAT on text donations campaign

2008-03-07T02:07:00.000-08:00

The VAT Free short codes campaign was started by myself, Mark Oaten MP and others but is now being co-ordinated by the Mobile Data Association (www.themda.org) It is a European campaign although the UK seems to lag most of Europe on this one and what I am writing below is UK focused because that is where we are making progress at the moment.

Basically, the position has always been in practice that VAT was waived for certain high profile campaigns, but in practice very few. From a VAT status perspective, giving to charity has always been outside the scope of VAT, but in practice the networks and HMRC have hidden their heads in the sand and not been public or explicit. The statement by Jane Kennedy MP, Secretary to the Treasury makes it clear that donations made by text to recognized charities are outside the scope of VAT. VAT can still be charged on the mobile networks charge. So to take an example of a £3 donation with a say 50p charge by the networks , VAT used to be charged on £3 it should now only be charged on 50p.

The next step is to implement this change in a way that can protect the charity sector and give the sector confidence.

To do this the generally agreed plan is that 3 issues have to be addressed

A definitive list of charities needs drawing up and agreed with the networks, charity commission, the regulator and HMRC
Charity short codes need to be agreed upon by the SCWG (the body that organizes these things)
An audit mechanism needs to be established to allow the networks, regulators and HMRC, but more importantly the public to have confidence in the new short code range

On the European front we have got an ongoing study underway of treatment across Europe by some Brussels consultancy which is being put up on the MDA website – we will then approach each country in turn to get the policy sorted or we will go via Brussels.

If you want be kept informed please contact me.

VAT on text donations

2008-03-06T08:53:00.000-08:00

At the seminar (see post below) yesterday the major topic of conversation was VAT off short codes. I have'nt time to post anything longer, but if you want an update please contact me. Big things are happening

Seminar on Charity Fundraising

2008-03-06T08:47:00.000-08:00

I was at a seminar yesterday called Charity Fundraising (Competitions, Lotteries and Donations) using Premium Rate Phone-paid Services – Building Trust and Confidence.

It was organised by BWB solicitors & PhonepayPlus, in association with Institute of Fundraising and Third Sector as the Media Partner, and it was intended to discuss the opportunities and issues associated with using premium rate services as a further option for charity fund-raising.

Those speaking included:

• Sir Alistair Graham, Chairman of PhonepayPlus, the regulator of Premium Rate Services
• Tom Kavanagh, Deputy Chief Executive, Gambling Commission
• Rosamund McCarthy, Partner, Bates Wells & Braithwaite LLP
• Paul Whiteing, Director of Policy & Innovation, PhonepayPlus
• Megan Pacey, Director of Policy and Campaigns, Institute of Fundraising
• Mike Short PhonepayPlus Board member and Vice President O2
• Andrew Bud PhonepayPlus Board member and Executive Chairman, mBlox

Taking Text Donations forward

2008-03-03T12:46:00.000-08:00

The next steps for charity donations via text has to be a proper way to accredit charity services.
The last thing that anyone wants is abuse of the VAT free status of these texts.
My own belief is that short codes need to be dedicated and devoted just to text donations. Charities do more than just collect donatiomns and it is not all VAT free.
It would be better for all concenred to just have a limited number of charity short codes that the public could learn to trust. Something like the second digit always being a specific number might help.

VAT on charity donations

2008-02-29T08:16:00.000-08:00

The Treasury thinks there should be no VAT on charitable donations.
This is a majorstep forward achieved in no small part by Mark Oaten my MP, but also with the support of

Peter Bottomley MP
Mike Short chairman of the MDA
Mike Grenville, Chair of 160 Characters
David Davies MP for Monmouth
Gwyneth Dunwoody MP

This is a fantastic result. Now we need to implement it in a way that works

Tim Hetherington

2008-02-25T03:53:00.000-08:00

Congratulations to Tim Hetherington for winning news photo of the year
Tim is a friend of my wife's brother, Tom and his wife Rina. Although I have met Tim, I can't say I know him, but I admire his work and the personal bravery which takes him to all parts of the globe to the most dangerous places. His work is always has great profundity mixed with a compelling and arresting visual images. Each photo tells a story, but also makes you want to know more... what happened next, who is this person.. etc etc
It seems that in his hands the still photograph reaches an ability to tell and to move that longer narratives cannot.
Tim has a great site that rewards exploration.

Fundariser disclosure

2008-02-22T03:53:00.000-08:00

The Governments rules on disclosure of income for professional fundraisers are coming into force from 1st April and in my opinion the sector will not benefit.
I have no axe to grind as I don't currently benefit from a percentage of the amount donated and the rules do not affect me other than positively. The regulations will probably result in more remote methods of fundraising and less personal.
What this shows is a lack of thought on the part of legislators. Of course the public want to know how much of what they pay goes to charity, but will the rules result in more money going to the sector or less? The answer has to be less. The public is not in a position to judge because they don't know all the facts, what they will do is use the little information they are given as an excuse not to give. They may do it with good intention of giving directly, but the reality is they will forget or inertia will take over. More will just use it as an excuse.
A better solution would be more effective legislation and enforcement by an informed regulator so that the public could be confident that no more than x% can be taken by the fundraiser.
Of course this will do nothing to stop the scams, because scam collectors will just lie... so no protection for the public and less money for the charity sector.