Saturday, May 8

My thoughts on the HSBC Bank Levy Plan

As you might have heard, the world seems to be moving towards a direction of levying a bank tax to cover for the cost of bank bailouts. In other words, like we have with other industries (such as the travel industry), every bank has to be taxed and the proceeds will be used for monies already been spent or that might need to be spent on bank bailouts. The IMF has proposed a plan, Germany is talking about a banking levy, the politicians in the UK are saying that they want to tax the banks and US President Obama is talking about imposing a bank levy. The G20 will be discussing it although some countries seem to be against the idea. The ECB is also a bit cautious about all this.

As you can imagine, the logistics of something like this is horrendous. Imagine HSBC, which works in more than 90 countries, is regulated by the FSA, but is pretty big in almost every country. What kind of levy are we talking about? Will it be applied in the UK on worldwide income or just UK income? Who holds the moneys? If we have a situation in Uzbekistan and there is a banking crisis there, how does the funding work? Which parts of the financial sector be affected? What about firms like HSBC which have both insurance and banking products? I am sure the big grand poo bah’s will work on this, but there is a bigger conceptual issue at stake.

What will the money be used for exactly? Will it go into the general taxation pool as suggested by France? Or should it go into a fund which will be ring-fenced and only used when a crisis happens as the travel industry emergency fund operates? I can see both ways, the current huge government budget deficits in so many countries has been primarily caused due to the government needing to bail out the banks, so the French proposal to push the bank levy funds to reduce the deficit is understandable. Then again, the flip side is the cynical side, where general tax pools belong to everybody and are the responsibility of none. The next time when we have another bank crisis, will the funds or the government fiscal situation be good to have a bail out? In other words, if the money raised by the bank levy is spent on say subsidies or the defence services or the health services and the welfare state which are not strictly investments (a quite possible situation), then the fiscal strength will not be powerful enough to get more monies to bail out the banks. Then again, I am unfortunately very cynical about politicians and their will power when it comes to taxes, spending and non hypothecated funds.

Which is why the HSBC proposal sounds very interesting. I quote:

HSBC is seeking support for a plan to direct any industry-wide bank levy into government-sponsored venture capital agencies, as part of a rearguard mission to change the terms of the ongoing bank regulation debate.

The bank has toured Europe seeking support for its ideas that include varying the capital buffers that banks are required to hold, depending on economic conditions. It believes banks should hold higher capital cushions in good times to absorb losses when conditions decline.

The HSBC plan would inject equity into capital-starved small and medium businesses. That would remove a big obstacle to lending – banks only lend to businesses that can prove they have sufficient equity in place. Critics say venture capital financing is not the business of government.

Now I think this is a ‘bloody’ good idea!The bank levy is thus used to encourage value addition, the investment in productive places, such as small and medium sized enterprises. Given the fact that currently the UK economy has 52% sunk in the public sector, the situation is crying out for investment to go into the private sector.

As for the critics who say that venture capital financing is not the business of government, could I point to some examples?

1. In the USA, the government has a range of funding bodies which assist in giving funding for firms, heck, the US government, in the form of Freddie Mac and Freddie Mae, assist in mortgage lending. If that isn’t capital financing, then what is?

2. In the UK, we have a similar situation. Do people remember 3i? Sounds like the HSBC plan is similar to this.

3. The French Government has funds and is definitely deeply interested in investments in industrial policy and funding for firms.

4. Then we have the whole industry of sovereign wealth funds. The wiki entry lists tens of countries which have this kind of a structure to invest national funds.

So I really don’t think that the critics are right to criticise this. If people are indeed concerned that the Governments cannot figure out the best way to invest, well, look at how the 3i firm works. Another way of looking at how to manage these funds is to look at how Sweden structured its pension fund system. Setup 4-6 different funds, ask fund or private equity or professional managers to bid for the right to run these funds transparently under a strong clear regulatory framework. If the managers don’t do their work properly or the returns are rotten, then switch them out.

I came across another post which talks about some more challenges with the plan: I quote (spelling mistakes are his):

· The first is I’ve run a venture capital backed company and I’ll happily say that some supposedly very good VC funds I dealt with knew nothing at all about running businesses. They’ve got wonderful MBAs. and not a clue how business works. Read Obliquity by John Kay if you want to know why. Entrepreneurs are foxes. VCs are hedge hogs - and poor ones at that.

· Second VCs screw entrepreneurs into the ground. There are few people on earth betting at devising disincentives than VCs.

· Third, they charge the earth for this privelige, and so requitre rates of return that usually prevent any useful business getting funding.

· Fourth, the vast majority of returns end up with the VC managers.

I am not sure how appropriate these criticisms are. Besides that rather gratuitous slagging off of MBAs (I am one myself in the interests of disclosure), the idea that Venture Capital funds have no clue about running businesses is rather interesting. All over the world we have VC funds merrily investing away, PE firms do the same, and quite often are providing business assistance to entrepreneurs. Finally, quite often the PE/VC firms are themselves run by entrepreneurs. As for the MBA’s asking for cash flows and plans, a bit of that discipline for running a business would not go amiss (again, in the interests of disclosure, I have run my own businesses).

VCs screwing entrepreneurs into the ground - hmmm, I am not really sure that this is indeed the case, because the economic incentive for a VC is to build the business, not plonk disincentives into the mix. Charging the earth is also fine, nobody is asking the entrepreneur to go ask for capital now, are they? But then, I am curious about the statement about VC’s not funding businesses. So I went looking for proof. Here’s a report by the British Venture Capital Association on how private capital injections and insolvencies work. The report finds, using a good quality quantitative study, that PE backed firms are stronger than other businesses. Also, they have over twice the debt recovery rate of publicly-owned companies. So I think we can categorically put paid to the objection that VC’s are useless in running businesses.

Now about the returns. Well, it’s a commercial arrangement, but here’s an interesting study on this situation. Good VC’s get start up equity at 10-14% discount. Now is that bad or good? If you ask me, the fact that the VC is bringing management and funding resources to the game means that a return has to be there. Here’s another study and I quote its abstract:

 Using two complementary theoretical perspectives, we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies (VCCs) located in five countries. Consistent with resource-based theory, we find that early-stage specialists require a significantly higher return than other VCCs when investing in later-stage ventures. Consistent with financial theory, we find that acquisition/buyout specialists require a significantly lower return than other VCCs when investing in expansion companies. Furthermore, in comparison to specialists, highly stage-diversified VCCs require a significantly higher return for early-stage investments. Independent VCCs require a higher rate of return than captive or public VCCs. In general, higher required returns are associated with VCCs who provide more intensity of involvement, have shorter expected holding period of the investment, and being located in the US or UK (in comparison to those in France, Belgium, and The Netherlands).

But I couldn’t find anything which corroborates the point being made that the VC grab all the returns. So I am not sure about the objections, I am afraid.

To conclude, it’s a good idea and needs to be pushed much more. I am quite impressed that the bank came up with this idea and is pushing it. It will do our reputation as a prudent bank thinking about our society and productive sectors a world of good.

Friday, May 7

Sound bites in the UK election and what they really mean #ge2010 #ge10

From here.


“I’m not a racist, but . . . ” – I am a racist and I’m voting for the BNP.

“Nick Clegg was good in the TV debates” – I haven’t read the Lib Dem manifesto.

“Gordon Brown doesn’t come across well on TV” – Gordon Brown is a walking, talking political disaster zone. He is the Deepwater Horizon of British politics.

“I don’t follow politics” – I’m poor, and I’ll stay poor, whoever gets in.

“I’ve always voted Labour in the past” – Voting Tory will make me feel dirty, but sexy too.

“I’m worried that the recovery could stall” – I’m worried about losing my overpaid public sector job.

“I’m worried about the deficit” – I envy my neighbour’s generous public sector pension.

“It’s time for a change” – I want to pay less tax.

“I’m undecided” – A plague on all your houses, I’m staying in bed on polling day.

Thursday, May 6

When judges say legal system incomprehensible, you are in trouble

Thanks to the lovely politicians in our midst, we have ended up with a shocking number of 2,629 laws per year over the past three prime ministers (both Labour and Conservatives). I quote some joys:

A new government should call a halt to the “torrent” of legislation that has made the legal system incomprehensible to judges and the public alike, a senior judge has said.

Judge Charles Harris, QC, president of the 600-strong Council of Circuit Judges, told The Times that the criminal law had become so complex that judges had to have it explained to them by academic experts.

As for the civil law, that was so complicated that some laws were “completely beyond the grasp of people to whom they apply”.

“Law which is not readily comprehensive is unfair law, because those to whom it applies have to spend time, money and anxiety in finding out by litigation what their obligations are.”

Is this what the country has been reduced to? Something that we are unable to even comprehend? Forget about the common man, even judges are not able to understand the laws. But more importantly, when the common man does not understand laws, how can you ask them to obey them?

“Some substantive civil law is so complex that it is wholly inaccessible to the laymen to whom it applies and not much easier to understand for lawyers.”

One example were the consumer credit laws, he said. “Academics graze contented in its thickets, while the people to whom the law applies have no choice but to sign contracts which they do not understand.”

As for the criminal laws, the editor of Archbold, the criminal law compendium, had described its state as a “disgrace”.

And this is slowly further strangling job creation, productivity growth, artistic freedom and and and because the crucial third pillar of society is just becoming so convoluted and complex that it simply is no longer fit for purpose.

This is why I like what the tories have proposed, to create a bonfire of all the useless and crappy laws that have accreted over the past so many years.

Wednesday, May 5

Muslim minister-designate calls for state school crucifix ban

Germany, for all its talk about secularism, is still a strongly Christian country. The Bavarian based CSU (which is the sister party to the CDU which operates in the other states) wanted to place a reference to Christianity in the European constitution. And a tax system which has definite leanings towards Christianity with its concept of the church tax. While one can opt out, this system was explicitly designed around Christianity. Then one also wonders why no other religion or sect has managed to get their system of getting tithes through the tax system.  Then, if you dont want to pay the church tax if you were already paying it and declare that you are no longer a Christian, then you have to pay a fee. Now that’s not really freedom of religion, is there if there is a fee attached to changing the religion?

I was drawn to this issue by a visit by few German MP’s to India where they visited Gujarat and made some really interesting comments. Like, and I quote:

"It is the emergence of the Hindu nationalists, who want to make India a country which has no religion other than the Hindus'," she says. "This is, of course, contrary to the constitution. India is a democracy only on paper, I would say, because it lacks an essential feature of democracy: the rule of law."

Hmmm, a bit debatable, but ok, I wouldn't quibble. More:

"The major opposition party, the Bharatiya Janata Party, is virtually the political wing of Hindu nationalist ideology, which has certain connections to National Socialism and Fascism. It should be pointed out in Europe and across the West that one can not simply speak of a democratic, booming, economically prosperous India. One must also say that the country also has human rights problems."

Hmmm, yes, there are connections, but they are fairly minor and not really sure that I see major implications of that kind of stuff, admiring Hitler and all that. Oh!, and obviously Germany has no links to National Socialism, Neo Nazism and and and. But yes, actually all countries have human rights problems and India is no exception.

During their trip, the German MPs claimed that the Chief Minister of Gujarat, Narendra Modi has been described as dictatorial.

But this is where it goes cookoo, Narendra Modi is dictatorial? Ok, this made me think that the German MP’s are a bunch of wooly headed gits, lol. The MP’s take a look at 1-2 instances and not the vast majority of other places where there is NO issue, yes, we do have intra religion issues, but its getting under control. But Dictatorial? get away. So I wrote back on an email when somebody responded that they cant see the irony of a German talking about all this:

A Christian mp from a Christian party from a state which has Christianity as the official state religion coming to India funded by a Christian NGO talking about freedom of religion calling an elected chief minister as a dictator. And you can't see the irony?

But back to Germany. German school rooms also have Crucifixes in them. You as a teacher are not allowed to wear a headscarf if you are a Muslim or wear robes if you follow Osho. And then I read this, this promises to raise the proverbial brown organic matter storm in Germany. I quote:

“Christian symbols do not belong in state schools. School should be a neutral place,” said Aygül Özkan, who is a member of the conservative Christian Democratic Union (CDU) and will be made Lower Saxony's social minister next week. She also stressed her support for the ban on headscarves in such schools – as well as accepting that church schools would be an exception from a crucifix ban…..

She also has asked the Turkish Muslim minority to integrate even more, and what was the result? Pretty typical..

She has received several threats since being picked to become social minister by the CDU, prompting the state police to provide her with protection, including body guards.

But anyway, I think this issue is going to be fun in Germany.

Monday, May 3

This transformation would be of a philosophised, a priori, transhistorical subjectivity - which is constitutive of a representative modality of knowledge creation that is contingent on the alienating and hierarchical rift between the subject and the object - into an autonomous expression of the concrete where subjectivity is nothing but the organic expression of the singular, synthetic, processual concrete

I came across this article on Academics, Politics and Class Struggle by Pothik Ghosh on a mailing list. This was heroic. The first sentence itself is bloody good.

"The Owl of Minerva flies only at dusk" is a Hegelian maxim that permeates our reflection on the everydayness of our modern living.

Eh? everydayness? what?

The first paragraph is a masterpiece of obfuscation. Here’s the last sentence.

The flapping of the Owl of Minerva's wings in flight should, in fact, be envisaged not merely as the thought on an event that has occurred thereby anticipating its return, but as the re-enactment of the event - which occurred in the moment of so-called political action - and its singular, synthetic, critical processuality in the moment or condition of human thought itself.

I was left gasping for breath, and just in the first paragraph itself. This is not a compound sentence, it is a masterpiece of throwing words together. Look at it, dear reader, just look at it. Wonder at the sheer mind which put this together. I can see your jaw dropping. There are gems like this scattered all over the essay (if that is what could be termed as such). I had visual examples of a big howitzer loaded with exploding word shells being aimed at a collection of dictionaries. Then the explosion happens and then a giant shredder in the sky pulls up all the words and syllables and based upon a totally demented algorithm and gears, puts them together in this collection of words.

I am in awe of a mind which can produce this

This transformation would be of a philosophised, a priori, transhistorical subjectivity - which is constitutive of a representative modality of knowledge creation that is contingent on the alienating and hierarchical rift between the subject and the object - into an autonomous expression of the concrete where subjectivity is nothing but the organic expression of the singular, synthetic, processual concrete.

Here is another brilliant sentence:

This imposed transmission of the conceptualised form through which the revolutionary logic manifest itself determinately in the moment of theory destroyed the singularity of universality, for real universality is possible only when there is no alienated duality that implies a struggle between competing particulars intrinsic to the horizon of alienated duality

My duality is shrinking into a tiny whimpering walnut. Mommy. But his true genius comes up when these sentences are strung together into a paragraph. It is like the difference between a single firecracker and a MIRV (Multiple Independent Re-entry Vehicle Intercontinental Ballistic Thermonuclear missile) Here is the best one.

The working-class struggle is, not surprisingly, caught today between the rock of chronic quietism, as far as the relation as it unfolds from the moment of theory to the moment of pragmatics goes; and the hard-place of dogmatism, as far as the unfolding of the essential relation from the moment of pragmatics to that of theory is concerned. The result, for the project of reconstituting a revolutionary theory, has, as a consequence, been dismal. Theory, in the specificity of its moment of theoretical practice, has become a deconstructionist game of constantly proliferating pluralities, which certainly talks of power but means nothing as it refuses to ground that power in the relations among its various configurations of materiality. On the other hand, pragmatics, in the specificity of its moment of various practices and thus also positing the theories of those various practices, has fallen prey to the tyranny of pragmatism, which has repressed all possibility of constructing a revolutionary theory.

And when one puts it together, it is like a supernova. Wonderful. I just love it. This was presented apparently at a workshop entitled: Dismantling Democracy in the University". I wouldnt be surprised if the University closed down and democracy ran away whimpering :D

btw, he is a professional journalist. Love it :)

Sunday, May 2

Marco Polo’s comments on Brahmins

From Marco’s book: he hails the Brahmins of India as being "most honourable," possessing a "hatred for cheating or of taking the goods of other persons. They are likewise remarkable for the virtue of being satisfied with the possession of one wife.

go read the chapter 20 of Marco’s book, quite an interesting set of observations from the old man. Mind you, this Komroff’s edition of the book is at variance from the one which I found in Gutenberg. But far too tired to go check.