The FSA and bank reserves

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The Financial Service Authority's new rules on bank reserves is bad news for business and mortgage borrowers

The Financial Services Authority is a menace, it really is. One reason we had a crash is that the FSA was more interested in how quickly banks picked up the phone to customers than whether their fundamental business model was sound. Then it decided that 'stronger' regulation was needed and that it should have more powers and more staff – at the banks' expense, of course (an approach criticised in a recent ASI report)

Now it says that the banks should keep more cash in their reserves, to make them stronger so they don't collapse again. What it means, of course, is that they should keep more government bonds in their vaults. Which is nice for the government, who will at least get someone to buy its rubbish IOUs. But it's bad for the banks, who will have to spend an extra £6bn doing so.

And that means another £6bn that won't be coming to customers in loans and mortgages, but which will be hitting them in additional charges. So in one stroke, the FSA has added to the problems of householders and businesses, who currently can't get loans, and for every other bank customer, who will now pay more for their banking. Just what you need in a recession, isn't it?

Dr Butler's book The Rotten State of Britain is now in paperback.

Feeling green while the poor starve

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Of all the insanities committed in the name of green politics, one of the most insane is the production of biofuels from food crops.  In pursuit of increased proportion of energy from renewable sources, governments have realized that wind and solar power cannot make sufficiently large contributions.  They have therefore turned to biofuels, a move that hugely delights their farming lobbies.

Left at that, this might not have done too much damage outside of a massive misallocation of resources, but in a move that compounds insanity with thoughtless wickedness, they have chosen to do so out of food crops, rather than push forward the development of fuels from biological waste products such as husks, stalks and other cellulose surplus.  

Now Robin Pagnamenta reports in the Times that "Britain's self-sufficiency in wheat will end next year because a giant new biofuel refinery needs so much of the staple crop that home-grown supplies will be exhausted."  Yes, we are now buying wheat on world markets to turn into fuel that is more expensive than that we can buy elsewhere or pump out of North Sea wells.  That puts upward pressure on world prices, forcing up the price of foodstuffs.  To affluent people this will be an inconvenience; to the poor it might mean starvation.

We have, in effect, reintroduced the Corn Laws which were abolished in 1846, ensuring that the poor have to pay more for their bread as landowners and farmers benefit from higher prices.  Well-to-do ladies driving their children to school in 4x4s can feel good that they are driving on 'green' fuel, even as people in poorer countries go hungry.  Already there have been pasta protests in Italy and tortilla riots in Mexico, as poor people protest as the higher prices.

Why in the name of sanity and decency did governments not do the obvious thing and offer huge prizes to rush forward the development of biofuels from waste products instead?  It has been achieved on small scale, and all it needs are the incentives and investment to roll it out on a larger scale.  Biofuels from food crops is a profligate waste of precious food to satisfy green consciences, and the next government should pledge itself to stop it.

Check out Dr Madsen Pirie's new book, "101 Great Philosophers."

 

Newton's laws of banking

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The IMF and Bank of England want to tax banks to pay for future credit crises. It's a bad idea.
 
Newton’s third law of banking is that every good idea has an equal and opposite daft one. We had a banking crisis because banks did not have the cash when they should have done. So it is a good idea to pay executive bonuses in paper (shares) and not cash – always assuming they should be paid at all. The banks hold onto the cash and if the shareholders are silly enough to dilute their holdings in favour of the executives, so be it. There’s also a faint chance the executives’ shares will give them a longer view of performance.
 
On the opposite, daft, side, the IMF and Bank of England are suggesting two separate new bank taxes. The IMF head, Dominique Strauss-Kahn, long-term French economics minister and previously a member of the Union of Communist Students, is planning bank taxes and also for Britain to lose its seat at the IMF top table. No hint of nationalism there of course.
 
Closer to home, Paul Tucker, Deputy Governor of the Bank of England, is suggesting taxes for the government to squirrel away until the next financial crisis when the money can be returned to the banks. Who believes any money given to this government, or any UK government come to that, will still be there in two years time, never mind 20 years time?
 
The FSA had a similar idea in their March discussion document (DP09/2) which suggested the banks themselves should hide away some rainy day reserves. For most of the 81 respondents, that exemplified the very lack of transparency which the FSA was complaining about. Secret reserves in banking were outlawed 40 years ago and rightly so.
 
Could someone please bring these regulators back to earth? Banks are businesses and should be taxed like any other business. They should not be deprived of the cash they need but do not have.

Denmark's knife

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More than 53 people have been put to prison in Denmark because they had a knife on them or had it lying in their car. This is the consequences of a new law the Danish government have implemented in order to prevent crimes committed with knifes.

In most of the cases, the defendants have been craftsmen forgetting to take their tools out of the car after work, anglers coming home from a fishing trip, or just people with a multitool in their car in case something should happen (with the car). An overwhelming majority of those put in prison are peaceful people that offer no threat to anyone else. Now they are convicted criminals because the (Conservative – Liberal) government doesn’t understand the consequences of letting the “Big Brother State" loose.

In Denmark this injustice is putting innocent people in jail. How constructive is that I may ask?

How David Cameron can reverse Labour’s unjustified attacks on civil liberties

A judicial review of Britain’s liberties would give the Conservatives a programme of reforms and help David Cameron establish his pro-liberty credentials, says Madsen Pirie.

Over the last few years, many traditional liberties which protected our way of life have been removed or compromised by the Government’s initiatives. In the name of taking more effective action against terrorists, drug dealers or paedophiles, customs and practices that shielded the citizen from arbitrary abuse by authority have been over-ridden or subverted.

We used to enjoy the protection of habeas corpus, and no detention without trial. We used to have the right to remain silent without it counting against us, or be forced to testify against ourselves. We could demand trial by jury, and once acquitted, need not face the ordeal of a retrial. We enjoyed the presumption of innocence, and could not be punished or have our property seized without conviction in a fair trial.

All of those liberties and many more have been eroded or abolished in a flurry of government and official zeal to crack down on possible law-breakers. Almost every day we read of incidents in which people are bullied or harried by police, not for criminal activity, but basically for doing things the authorities dislike. It will be difficult to regain ground lost for liberty, given a now-entrenched official culture unsympathetic to it.

It is fanciful to suppose that a consolidated repeal bill could be passed to reverse at a stroke all of the illiberal measures of recent years. There is, however, an effective measure that an incoming government could take. David Cameron should announce his intention to establish a year-long judicial review into the state of British liberties. Presided over by a senior and respected judge, the review body would hear evidence in public concerning the degree to which traditional liberties have been eroded.

Crucially, the review body would be empowered to make recommendations at the end of its enquiry, recommendations of measures to restore and entrench the freedoms needed to protect citizens from abuse at the hands of an arbitrary and oppressive authority. While the Conservative Government would not be compelled to implement its findings, there would be a moral pressure on it to do so. Through its year-long inquiry, the review body would raise awareness of liberty issues, and publicize the degree to which it has been lost or threatened. A culture of liberty would gradually supplant the illiberal culture that currently prevails. It would be difficult for government to resist its recommendations.

The announcement now of such a review would enable Mr Cameron to establish the pro-liberty credentials of himself and his party. It would not impose any great costs, nor commit his government to any specific pledges. What it would do it establish a momentum of liberty, and secure carefully thought-out and well-drafted proposals to restore our freedoms to their respected place at the heart of British law and tradition.

Dr Madsen Pirie is President of the Adam Smith Institute and author of the newly-published ‘101 Great Philosophers’.

Published on Telegraph.co.uk here.

Brown's decade of disaster

 
 

 

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In his editorial in yesterday's City AM, Allister Heath wrote:

Next year, government spending in Britain will reach 54.1 per cent of gross domestic product (GDP), up from 36.6 per cent in 2000. This devastating statistic, buried on the OECD’s website, has been largely overlooked; yet it is one of the most important facts that everybody should know about today’s Britain. It demonstrates that almost an extra fifth of our economy (17.5 per cent, to be exact) has come under state control on Labour’s watch since the start of the century.

Sadly, that's not the only devastating statistic buried on the OECD's website. Indeed, if you look at this OECD spreadsheet from July this year, you'll find everything you need to destroy Gordon Brown's absurd reputation for economic competence. Actually, I'd say there is enough there to bury that particular fantasy at a crossroads with a stake through its heart. For example:

  • In 2000, we had the 7th lowest public spending in the 30 OECD countries. In 2010, we will have the 6th highest.
  • In 2000, we were the 16th most indebted country in the OECD. In 2010, we will be the 8th most indebted country.
  • In 2000, we had the 7th lowest deficit in the OECD (in fact, we had a surplus). Next year, the UK will have the biggest budget deficit of any country in the OECD.

I've put together a few tables showing the declining health of the UK's public finances over the course of Brown's disastrous decade. If you can't see them, click here.

Profit is good

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Anton Howes is spot on. The next government must not only implement a Swedish-style school reform in Britain, it must retain its essential features. In addition to allowing parents and children to choose a school (even outside their area), it must facilitate the establishment of new schools, including ones set up for profit.

One reason why the Swedish scheme has attracted massive parental support is that nearly all applicants gain their choice of school. That has meant a huge programme of school-building, spearheaded by private firms seeking profits. Without investment and energy from that source, a British reform would be vapid and half-hearted, and would fail to attract the support needed to make it irreversible.

There is still in Britain a resentment of profit, probably surviving from wartime and postwar collectivism. There is a still-widespread view that public services should rely on a dedication to public service rather than the pursuit of more personal motives. This is misconceived. It is the profit motive that spurs people to supply goods and services that people want and need. Services that depend on motives which lack the incentive to satisfy customers are prone to producer capture, and end up with unions and administrators doing a self-serving pas-de-deux which excludes the recipients of the service.

The supply of food, no less important than education, is provided for profit. It would be very different if its supply were decided by civil servants, funded out of taxation, and available only from approved outlets. The 1980s saw many goods and services moved into the private, profit-making sector, and improve immeasurably in consequence. Now is the time to extend the same advantages and improvements to some of the areas which still lack their benign effects. Schooling will be the first and most important, but others must follow.

Dr Pirie's latest work, 101 Great Philosophers, is available to buy here.

The Irish referendum

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Ireland's Lisbon Treaty vote puts the spotlight on the Czech Republic's ratification and David Cameron's UK referendum promise

Well, it just goes to show that the European Union has no problem getting people to vote for it, as long as they are bankrupt. When Ireland was looking OK, it voted No. Wrong answer, so it had to vote again. Now it's bust, it has fallen sobbing into the arms of the subsidy providers. Britain joined in 1973, and the East European states twenty years later, for just the same reasons. They were suffering a deep economic malady and thought it might be cured, like scrofula, simply by touching.

Now it's down to the Czech Republic. I cannot imagine that its robustly free-market and Euro-sceptic President, Vaclav Klaus, will be in any hurry for his country to ratify the Lisbon Treaty. He's already taken a stand against it. If he can hold out until May 2010, he knows that there will probably be a change in government in the UK, and that the Conservatives have promised a referendum if the Czechs haven't already decided. So he can let the UK take all the flack that will surely come from Brussels (and Paris). I think both of us could live happily with that.

Dr Butler's book The Rotten State of Britain is now in paperback.

It gave him nothing

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Michael Moore has a new documentary out, titled. "Capitalism: A Love Story". An investigation into the failings of the economic system that is a central tenet of American life in light of the recent financial crisis. At the premiere in Washington, DC, Michael Moore responded to a question about his supposed earnings to date, "[you have] amassed a fortune of over $50 million, some have said and -" Moore interrupted, “Really? Are you kidding me? Seriously? Wow. Where did it go?..Well, capitalism did nothing for me, starting with my first film.."

Mr Moore never had it handed to him on a plate. He had to work hard to get to the level he has. He despises capitalism because that's what it means. Working hard to make a living. The system he wants to replace it with is one that is founded on theft, violence, a regal liberal elite that subjugates the masses, state authorised freedom and massive subsidized sectors of society.

Michael Moore's films are the only reason why illegal downloading should exist.(Some would probably want to include Michael Bay films on there as well). It is the only way his films should be distributed. He should be made to sit down and perhaps think about his wealth and what he would have been rewarded with had he made films in communist Russia or North Korea. Indeed imagine if he had made films criticizing those regimes. Mr Moore should be grateful he lives in a free country and is somehow rewarded for his dross documentary films. Freedom and free exchange has granted him untold wealth, but he fails to see it. It is doubtful he ever will if his films are a reflection of his intelligence.