Liberal Eye

One of the curious features of the sub-prime crisis is why no-one in authority seems to have spotted what was going on and stopped it before it got out of hand.   After all, it doesn’t take a financial genius to realize that something is wrong when loans are made with complete disregard for ability to pay - hence the description of some borrowers as “NINJAs” (No Income, No Job, No Assets) - coupled with widespread evidence of predatory lending practices ranging from gross misrepresentation to illegal kickbacks.

Whether the primary motivation is consumer protection or regulating the financial system the answer has to be the same: this is dangerous, possibly even criminal.

Now it turns out in an article written by Eliot Spitzer shortly before the events that cost him his job as Governor of New York State that the growing sub-prime scandal was spotted in good time.  In fact the authorities in all 50 states took action to curb predatory lending ranging from litigation to legislation but unbelievably were prevented from doing anything by the Bush Administration.

Indeed the Bush Administration went so far as to promulgate new rules based on old legislation enacted for an entirely different purpose to prevent states enforcing their own existing consumer protection against national banks despite determined opposition from state authorities.

In the final analysis government must be a deeply moral activity; amongst other things, it must protect the weak and not allow itself to become a tool of the rich and powerful.  Without a moral compass it will loose whatever mandate it might have started with AND will also screw things up for everyone - including the rich and powerful.

If you’re apartment-hunting in Paris “contre services” is what you hope not to see in an advert - especially if you’re an attractive female student.  It can be perfectly innocent, but all too often it’s a not-so-subtle code meaning that the rent will include sexual favours.

This is the iniquitous result of a housing crisis that the French Government admits is the worst since WW2 with money rents (never mind the ‘extras’) rising far beyond the reach of most ordinary people.  The BBC has more here.

No doubt many lessons can and should be drawn from this but what strikes me is what it tells us about markets.  All too often we forget that the undoubted beneficial power of markets is subject to some rather restrictive but crucial conditions like, for example, that there are ‘many willing buyers and sellers’.  When this is not so, when the one of the parties is not so much willing as desperate, then the balance of power becomes too unequal and the market becomes dangerously perverse.

In other words, a market can malfunction just as dangerously as the brakes on your car if they are not properly maintained.  Such maintenance is a core responsibility of government in a complex modern economy and it neglects it at the extreme peril of the more vulnerable members of society - the old, the young, the poor, the sick.  Labour is, of course, neglecting it which is why they are finding inequality, child poverty etc. so intractable.

Reform of political funding is very much on the agenda with the main parties deadlocked on positions that just happen to suit their traditional funding base – unions for Labour; big hitters for the Tories.  Here at last is a new idea (well, new to me at least) from the good old US of A.

It’s known as ‘Voter-Owned Elections’ or ‘Clean Elections’ and here’s how it works.  All supporters contribute an equal $5 – and only $5 – to their favoured candidate over an interval governed by the electoral timetable and up to the ceiling set for that election.

Result: no covert obligations to be paid back in government contracts or ‘difficult’ planning permissions awarded and, according to this account greater public engagement in the system.

Does anyone know more about it?

It seems that Bush has ambitious plans for, errr, change.  Click here to discover more.

Some industries (air travel or motor manufacturing to name but two) are intensely competitive – it’s in their DNA so to speak.  Others, like most of the formerly state-owned monopolies that have been privatized over the years, operate in markets where there is little or no competition and monopoly is the rule.  So, from Thatcher onwards, successive governments have invented a whole raft of regulators to represent the public interest and substitute for the discipline of competition when these firms were privatized.

Sadly, it is abundantly clear that this strategy has failed, that regulators have suffered regulatory capture and that the new private operators are up to their collective necks neck in rent seeking from a long-suffering public.

BAA was privatized in 1987 and since then there has been growing dismay among airlines about its poor service and lack of customer focus which continued after it was acquired by Spanish group Ferrovial in 2006 for £10 billion of which a whopping £9 bn was debt - apparently with the intention of refinancing the deal once the new Terminal Five was completed.  Unfortunately for Ferrovial life is full of uncertainties – in this case extra security measures have raised costs and the credit crunch has put paid to hopes of a refinancing on advantageous terms.

 Also infrastructure costs are proving problematic. As the BAA website rather plaintively puts it:

“BAA believes, however, the Review does not recognise sufficiently: the scale of the task we are embarked on; the pressures of handling such large infrastructure projects; the full cost of the increased security requirements; as well as the impact of the credit market turmoil.”   

Are we really to believe that when Ferrovial acquired BAA they didn’t notice the half-completed Terminal Five or the dilapidated and under-invested state of some of the other assets?  It must have been quite a shock to the poor dears to find out! 

Fortunately for Ferrovial shareholders all is not lost.  The Civil Aviation Authority (CAA) has, like the proverbial US Cavalry, come galloping to the rescue with a bail-out at public expense and BAA is to be allowed to raise charges by 23.5% at Heathrow and 21% at Gatwick.  Ferrovial will make a killing at our expense as much of this increase will inevitably filter down into ticket prices.

This is scandalous in every way.  Firstly, there is the little matter of moral hazard - that individuals and businesses  should take the rap for their own miscalculations.  Secondly, there is the cost to the public; multiply this around the economy and it soon adds up.  Thirdly, there’s what it tells us about running a business in Britain today; don’t bother with research and development or making widgets or whatever - the really juicy returns are to successful lobbying and getting the rules rewritten to order.

Labour may talk the language of commerce but they really don’t understand it.

Hello World!  Welcome to the first-ever post on my shiny new blog which comes to you courtesy of the good people at WordPress.

It took some time but eventually I settled on ‘Liberal Eye’ as my online moniker - casting my eye over things that interest me and commenting on them is a pretty good description of what I aim to do.

As for a slogan, ‘Power to the People’ neatly summarizes my political philosophy which is that people should be trusted and given control of their own destiny wherever possible and hence that both political and economic power should be devolved as far as possible.

Or, as Gladstone put it, “Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear”.