Wednesday, 27 September 2017

Trade Deals and Disputes Portray the Consequences of the Brexit Referendum Decision

This week in the world of business has been dominated by massive trade deals and bitter trade disputes, with this post suggesting that a link between the two is that the outcome of these developments portrays a vision for those British voters who voted to leave the E.U. of what post-Brexit Britain will look like. In what is proving to be a great advert for the E.U. and its members not following the path of the British (a message sharply delivered by the French and German electorate this year, despite the rise of the AfD), the plight of Canadian company Bombardier is, for a variety of reasons, bringing the reality home to the British in a remarkable way. In this post then the focus will be on the ongoing trade dispute between Bombardier and Boeing, which is quickly elevating into a political catastrophe, and the merger of French company Alstom with its German Counterpart Siemens (leaving Bombardier in the cold), which in itself demonstrates the capability that exists within a conjoined economic bloc to counteract the effect of a larger foreign rival.

Firstly, it is worth starting with the case of the rail network, because the merger between Alstom and Siemens demonstrates the sentiment that the British electorate voted to leave last year. Then, in the next part, we will look at the effect that the decision is having, with Britain being cast out into the wilderness without support and her trade ‘rivals’ recognising that fact. Alstom is a French company and one which carries a lot of nationalistic pride, with its consistent breaking of barriers within the rail industry with its trademark ‘TGV’ trains that any visitor to France will recognise. In Germany, Siemens’ ICx trains are also recognisable across the country, and represent a push by the German company to put itself amongst the elite companies in the field. However, these two European pillars of the rail industry recognise, quite rightly, that on the horizon stands a foreign player that will, undoubtedly, alter the rail industry beyond recognition, and that company is the Chinese State-backed ‘China Railway Construction Corporation’ (CRCC). The CRCC is much bigger than its two European competitors, and that standing is set to rise significantly with CRCC’s involvement in Xi Jinping’s ‘Belt and Road’ project. This is a fact that has weighed heavy on the Boards of these two European powerhouses, and as a result they have decided to make use of their proximity and legal/political connections to merge, in a deal which sees the German company take a slight majority in the new company and also sees the French Government liquidate its 20% share in Alstom; the looming threat of CRCC is clear to see in the statements of connected officials today, with Siemens CEO saying that ‘the facts are that there is a dominant player’. For Bombardier, which has a considerable interest in protecting its position from the irrepressible CRCC, talks between it and Siemens had broken down during initial negotiations, which led the way for the Siemens-Alstom merger, although reports at the time of writing suggest that the French Government are keen to facilitate a deal which sees Bombardier join forces with the new merged company to ward of CRCC. For the rail industry, the perceived dominance of CRCC and its impact upon the market is absolutely real, with its rate of production over the last few years far outweighing all of its competitors and its revenue streams being projected as accounting for double that of the new Siemens-Alstom company. However, this post is posing the scenario that this deal represents the benefits of staying in the E.U., which it does in terms of the company’s positions but, to provide some balance, it must be acknowledged that the deal has had a particularly poor reception in France, with opposition politicians and Trade Unionists denouncing the deal as ‘selling us down the river… [the deal has not created] a European champion, but a German champion’. Apart from clearly representing a mistrust in Macron’s pledges that the deal is set up to protect French jobs, the sentiment expressed by the French opposition shows that there is certainly no unity in the French adherence to the European ideal, despite Macron’s impassioned speech on his vision for a greater and more unified European Union earlier this week. Yet, the membership within an economic bloc does make these sorts of economic and political moves easier to complete, which translates into an ability to be flexible and protect oneself against the actions of a foreign state that owes no such loyalty to one’s position – the U.K., and particularly Theresa May, is this evening contemplating that very sentiment.

A trade dispute between Boeing, one of the world’s leading companies and one half of the aerospace duopoly (alongside Airbus), and now Canadian-owned Bombardier has been brewing for some time, particularly since Bombardier signed a deal with Delta airlines in the U.S. to provide them with up to 125 single-aisled ‘C-series’ aircraft, with the contract suggested to be worth upwards of $5 billion. However, shortly after the deal was announced Boeing claimed that Bombardier were ‘price dumping’ which describes the firm selling the aircraft to Delta for an incredibly low price which then, according to Boeing, distorts the market for other participants. Boeing also asserted that Bombardier had benefitted from state aid, from both the State of Quebec for $1 billion and the British Government for a £113 million loan. As a result of these processes, the complex claim was recently heard by the U.S. Commerce Department and, as a result of their findings, the Commerce Department found that Bombardier was in breach of a number of aspects and as a result would be subject to a duty of 219.63% on its products sold in the U.S., which effectively prices the firm out of the market and raises the cost of their products by almost three times. The case is being deconstructed by onlookers at present, but for us the political angle to this particular case provides for a fascinating insight. Bombardier was founded in the 1940s in Quebec, but in 1989 it acquired the Short Brothers Company which has a huge presence in Northern Ireland, which means that now Bombardier employs over 5,000 people in Northern Ireland. It is at this stage that the haphazard political environment in the U.K. comes to the fore, because the Democratic Unionist Party (DUP), a party which Theresa May had to incentivise to prop her Government with £1 billion after her catastrophic decision to call a snap-election, recently pushed Theresa May into attempting to force this ensuing issue with Donald Trump, in order to protect Northern Irish jobs. However, Theresa May found that as the U.K. propels itself into the political wilderness, her political standing is in tatters and a friendly d├ętente was no match for Trump’s adherence to his nationalistic ‘America First’ set of policies – the decision of the Commerce Department revealed for May, in one foul swoop, the sway she holds with her American counterpart and, in admitting that she is ‘bitterly disappointed’, it is clear that she knows this. Britain has responded by threatening Boeing with its access to British defence contracts, but whether this particular Government has the fortitude to see that threat through is another matter entirely. One thing is for sure however, and that is someone who voted to leave the E.U. and was not sure of the outcome can be in no doubt now that the decision has caused a set of events which leave Britain at a distinct disadvantage.

Overall, the claim will be made that these sorts of events demonstrate that the Conservative Government are not handling the Brexit process well, and that another route is preferred. However, the result last year set in motion of chain of events which will lead to the deterioration of the U.K. on the world scale, and as Theresa May would have read the decision of the U.S. Commerce Department, she would have known that explicitly. In a world where there are a number of competing geo-political pressures like the advancement of China, the BRICS nations, and the increasing nationalism in the U.S., the British decided that they could navigate such choppy waters alone. Whilst that was clearly a dangerous decision, the lack of common sense referenda principles i.e. two referenda spaced apart so that people like Nigel Farage and Boris Johnson could be held accountable for their lies, is proving to be the biggest decision in recent British history. Perhaps, thinking ahead slightly, the position of the City of London in these U.K.-E.U. negotiations and the system created once the U.K. formally leaves the E.U. will be the clearest indicator as to how the U.K. will survive post-Brexit; the City is the only thing that will keep the country afloat because, politically, the Country is losing its clout on an almost daily basis. Yet, a recent survey that suggested that up to 10,000 jobs will be departing London as a result of Brexit should make for particularly uncomfortable reading. There is a blind adherence to the decision taken last year without any questioning of the process involved, and moving forward that must change; Brexit is the clearest example yet that those in charge do not have the best interests of the Country at heart, and no amount of downplaying of one of our political elites standing in front of bus portraying an absolute lie will change that fact.

Keywords – Trade, Brexit, Bombardier, Boeing, Alstom, Siemens, China, CRCC, Politics, Business, Macron, France, Germany, Canada, Donald Trump, Trade Disputes, State-aid, City of London, Referendum, @finregmatters

Tuesday, 26 September 2017

The Continuation of ‘Government Sachs’ – A Focus on Gary Cohn

Earlier this year here in Financial Regulation Matters, we took a look at the confirmation of Steven Mnuchin as Treasury Secretary in the U.S. from within the concept of ‘Government Sachs’, which is a phrase that has been adopted to describe the continuous presence of former and prospective Goldman Sachs employees within the top offices of the United States political framework. The previous post focused on Mnuchin as he ascended to one of the most crucial jobs within the American political framework, but in this post the progression of Gary Cohn, who sits as the Director of the National Economic Council (NEC), will be the focus. Whilst the existence of ‘Government Sachs’ will not be questioned because, quite frankly, it cannot be questioned, assessing the effect that Cohn is having is an important endeavour because, as is generally accepted, these are currently quite extraordinary times.

We saw in the last post on ‘Government Sachs’ that Goldman’s stranglehold on these societally-important positions is extensive and historic, with the connection dating back to Roosevelt (and likely much farther back). Yet, the formal departure of another Goldman alumni – Steve Bannon – has slightly reduced the perceived hold that the Company has upon the Trump Administration, so the question is what effect has that move had upon the Goldman/Trump dynamic? Well, in Gary Cohn, it is clear that the Goldman/Trump dynamic is going from strength to strength, with Donald Trump proudly declaring, in relation to Cohn, that he wants ‘people that made a fortune’ in charge of policy, not ‘poor people’. Whilst it is not even contentious anymore to state that Donald Trump has kept very few, if any of his campaign promises, the promise to ‘drain the swamp’ is probably the most obvious lie he presented to the American electorate. No one epitomises that ‘swamp’ more than Gary Cohn, and his record whilst at Goldman provides more than enough evidence to suggest that rather than him being heralded for taking a job that pays ‘peanuts’ ($180,000 a year of taxpayer money). If we consider Cohn progression and superimpose that onto a chart of the financial crisis and its creation, the synergy is clear to see. Starting in 1990, Cohn would navigate Goldman so that in 2002 he was name Head of the Fixed Income, Currency and Commodities division, which paved the way for Cohn to be named as co-Head of the global securities business in 2004 – as we know, just three years later Goldman would be at the centre of the system that brought the world to its knees on the back of its securities business; Cohn was paid more in 2007 than the Boss of Goldman, Lloyd Blankfein.

If we look at Cohn’s relationship with Trump, we can see, bar two media articles, that Cohn is particularly important for Trump and his attempted policy revolutions (which are consistently being defeated). The first article which paints a differing picture comes from the ultra-right-wing and Steve Bannon mouthpiece Breitbart, which suggests that his place within the Trump Administration is crumbling. Whilst a publication like Breitbart is particularly distasteful, it worth mentioning that its attempts to ramp up pressure on Cohn comes from his denunciation of Trump’s remarkable and extremely unpleasant lack of support regarding the events in Charlottesville recently, which they are stating is the reason that Cohn is not being considered for the role of Chairman of the Federal Reserve. Yet, to look at Cohn in relation to the Fed is missing the point entirely, because his role in ‘Government Sachs’ can be achieved from his current position, one which did not need Congressional approval. If Cohn’s tax policies are to be adopted because, it is generally understood that Trump’s economic-related policies are in fact Cohn’s economic-related policies, then it is being suggested by onlookers that Goldman stands to save more than $1 billion a year in taxes alone. Additionally, another notable element of Trump’s apparent economic policies is to ease the restrictions and regulations surrounding the Initial Public Offering process which is, coincidentally, a Goldman specialty dating back over 100 years.

Ultimately, we can be confident that whenever we hear Trump talk about economics, what we are hearing are Cohn’s words. Trump’s aiming for Dodd-Frank, when viewed within the Cohn-perspective, makes a lot of sense when we consider that Goldman will immediately and greatly profit from any deregulation. In reality, whilst Mnuchin was having his Congressional confirmation delayed over missing assets on his disclosure, Cohn was already in the White House and, if we remember, the crosshairs were targeted on Dodd-Frank almost immediately after Trump took office (in a more systemic way than the haphazard campaign promises anyway). It is being suggested by onlookers that whilst Mnuchin sits in the Treasury Offices blocks away from the White House, Cohn sits in the office a couple of doors away from the Oval Office, and this makes sense. There is a reason that Cohn was paid more than Blankfein in 2007 and that is because he is a consummate professional, or a ‘company man’ if you will, and can be trusted to enforce Goldman’s will in a manner which is required so soon after the Crisis. The progression of Cohn from the Senate hearings to the White House seems remarkable, but in reality it simply is not. ‘Government Sachs’ is real and is clearly evident, but with quite some time left in Trump’s term, the ‘end-game’ for Cohn needs to be considered. A pragmatic view would be that he is in that position to protect Goldman as the economic cycles career away from the Financial Crisis, but a cynical view is that Cohn is playing his part in readying society for the next onslaught, and the conclusion as to which one of those views is correct can be clearly found in monitoring the tearing apart of Dodd-Frank. If Dodd-Frank is deconstructed so soon after the Crisis, which in itself is a truly remarkable consideration, then we should know that the system is gearing up for another wave of extraction; in that sense, Cohn’s actions over the next few years are probably more important than Donald Trump which, although may seem surprising considering the day-by-day degeneration of political standards in the U.S., signifies the importance of financial regulation in this modern society.

Keywords – Donald Trump, Gary Cohn, Goldman Sachs, Government Sachs, Economic Policy, Politics, Financial Regulation, Deregulation, @finregmatters

Friday, 22 September 2017

Politics and the Housing Problem: The Effect of Indirection

In this co-authored piece, Jake Richardson helps me assess the recent increase in the adoption of the 5-year old ‘Build-to-Rent’ initiative which is being peddled as a potential solution to the Housing issues being experienced within the U.K. at present. The piece finds that one of the key outcomes of the recent moves is a demonstration that housing policy is too divided, which the piece suggests lays at the core of the issues within this particular marketplace.

Earlier this year it was declared in the mainstream media that ‘solving the housing problem is hard to deliver, hard to explain… [and] is an example of the weakness of our political system’. This sentiment, which was used as a platform to suggest that cutting ‘stamp duty’ could be the most viable short-term fix, represents the difficulties that surround housing in the United Kingdom. In this piece the concept of the housing ‘problem’ will be used rather than the housing ‘crisis’, because even though finding solid definitions in this field is particularly difficult, the difference between the wider ‘problem’ facing all sections of society i.e. first-time buyers, long-term renters etc., and the more acute ‘crisis’, which describes an impending increase in the rate of homelessness due to housing policy, for example, is a differentiation that must be acknowledged. The impending crisis facing those living in private accommodation is extraordinarily important to consider, but for the purposes of this piece will form just one part of the analysis. This is because the purpose of the piece is to present an overarching review of the major problems so that a wider perspective can be found; the result is that we can see that a solution is available if there was a reduction in political wrangling in the U.K., with that same political obstruction being the direct cause of the problems we see today.

One of the most obvious symptoms of this housing problem is the sharp divide between regions in the U.K. Whilst it is not surprising that the capital city will be the home of the most expensive homes in a given country, the extent of the divide highlights the problem at hand. In fact, the margin of that divide is so much that it makes developing an average of the national housing situation incredibly difficult, mostly based on the understanding that whilst the London housing market accounts for only 15% of the U.K.’s national housing stock, it also accounts for almost 30% of the value of that market (a similar scenario to the City’s economic impact upon the Country moreover). Yet, successive Governments have aimed to redress that balance, somewhat, as part of a larger approach to housing policy within the U.K., with there being a number of initiatives developed over the years to meet that supposed aim. In assessing these initiatives, however, a broader picture emerges that condemns the impact of politicians upon the health of the Country.

One of the most visible initiatives has been the so-called ‘Help-to-Buy’ initiative that was developed and established in 2013 by the previous Coalition government. The scheme, which aimed to increase housing demand by developing programs related to equity loans, mortgage guarantees, shared ownership and lower percentage deposit arrangements, became one of the central tenets of that particular government, with the Government proudly announcing in 2015 that the scheme has helped nearly 90,000 people buy a new home since its creation. However, onlookers have noted that the systemic aims of the initiative has arguably not been met, with it being suggested that pledges to build more houses on the back of that increased demand have not come to fruition which represents an inactive and inflexible system. Additionally, there are a number of other connected issues with the imitative in that the scheme, arguably, encourages increased lending and therefore increased risk, with the associated increase in the potential for borrowers defaulting on their financial commitments being widely recognised in the field. Also, the vulnerability of those in the scheme to external shocks like financial crises and political shocks i.e. Brexit needs to be considered, as elevating those without adequate resources fundamentally increases systemic risk. The cultural aim of increasing the amount of homeowners, and all that goes with that concept, can be additionally witnessed in the proposed reintroduction of the ‘Right-to-Buy’ scheme that was originally developed by the Thatcher Government in 1980 and allows for social-housing tenants to purchase the home that they currently live in. However, it has been particularly difficult to maintain the pace of this cultural approach, and with the economic environment proving so uncertain, there has been a conscious move towards the rental side of the housing problem.

The ‘Build-to-Rent’ initiative was launched in 2012 but has recently witnessed a dramatic increase in its adoption and popularity. The Government provide subsidies for the development of homes that must be subject to the rental market via the ‘Home Building Fund’, and currently the scheme is attracting plenty of interest from large institutional investors, chief amongst which is the Duke of Westminster who, having succeeded his Father in 2016, is now investing considerable sums into sites in London with the expressed aim of converting them into multi-resident rental properties. The Urban Land Institute go through some of the ‘best practices’ with regards to investing in the scheme, and starts its report with the British Housing Minister affirming that this scheme forms an important component of the Government’s aim to build a million more homes by 2021. However, there is something that is missing from the mainstream support for the scheme, and that is the acknowledgement of the life of the tenant.

An article in The Guardian states that in a new residential block in Wembley, London, 16% of the tenants already living there are ‘key workers’ like nurses and teachers, but the positivity in the article ignores the plight of those ‘key workers’. Nurses are currently protesting against the maintenance of the 1% cap on their salaries, particularly after the same cap was lifted from the salaries of the Police and the Prison service, whilst Teachers are embarking upon precisely the same fight against the Austerity Government. Whilst some stories may shine a positive light on the situation, the uncertain times being faced by these socially-vital workers is actually being met with a wave of anti-tenant rhetoric and procedure, which only adds to the problem. In September, Landlords were given new powers to access more in-depth information regarding their prospective tenant’s ability to meet their financial commitments, whilst they are also being warned that a raft of regulations coming into the rental market will fundamentally affect their position; although it is positive that regulations to enhance the tenant’s position are being brought in, one of the effects will be a reduced appetite for landlords to develop rental properties. These issues are in addition to a rise in reports of widespread discrimination against E.U. nationals in the rental market, signifying an increase in the anti-tenant sentiment being displayed at the moment. Whilst this aspect of those in work navigating the rental market is an important one to consider, it is actually the plight of the unemployed that is the biggest concern.

If we accept that the Government is attempting to garner a more long-term vision with regards to creating a facilitative environment for rental builders and landlords (to a lesser extent), then that belief will be severely tested by the widespread concern regarding the impending roll-out of Universal Credit. Universal Credit is amalgamated process for those in receipt of benefits, and there are two particular elements which are causing alarm. The first is that for those in receipt of the relevant benefits, the changeover to Universal Credit is leaving people without income for an incredible six weeks (on plenty of occasions), which is the direct cause for the rate of rent-arrears sky-rocketing within this particular sector; those who are in receipt of benefits, but mostly housing benefit, are simply unable to pay their rent. However, the more concerning element is the Government’s blatant disregard for the plight of the most vulnerable in society. Only earlier this year did the Financial Exclusion Committee, amongst a whole host of other bodies, confirm that the levels of financial education amongst the poor are unerringly low, and that a number of initiatives must be put in place to counter that lack of education i.e. a reduction on the ability of short-term lenders to peddle their high-interest products to poor. However, the Government’s response to this has been to remove the process of a benefit claimant’s Housing benefit being paid directly to the landlord, and instead have it paid to the claimant themselves. In what is a clear demonstration of the Government’s lack of empathy, the DWP declared that the move is intended to ‘encourage claimants to manage their money’, which flies directly in the face of expert opinion and consistent feedback from concerned landlords, both social and private. However, this approach is not surprising, and in actual fact is a symptom of a larger approach that leaves large sections of society in constant flux.

Ultimately, there is simply no sustained direction when it comes to housing policy. Whilst it would be easy to suggest that the consistently-changing political structure in the U.K. is at fault for this, other democracies have managed to sustain an approach to their housing situations and directly affect the culture within their jurisdiction – one immediately thinks of the rental population in Germany. Yet, in the U.K., the Governments will say one thing and do another; the sentiment of increasing places to live will be uttered one day, but the processes which allow people to pay for their accommodation will be fundamentally changed and drastically threatened the next. The Government will subsidise the development of a private market for rental properties, but not increase the salaries of Nurses, Teachers, and a whole host of other socially-important workers so that they may stand a chance to comfortably afford those rents, which will no doubt be increased according to the needs of dispersed investors. Although it is easy to lay the blame at the door of the Conservative Party because it is they who inhabit Number 10 today, the current housing problem is a persistent one and other political parties can be blamed just as much. What is required, then, is a neutral discussion away from the incredibly destructive political end-points, in order to develop a long-term and socially-advantageous housing policy which successive Governments can support; the vulnerable in society can be housed at the same time that dispersed investors make returns, but what is required is the will to make that a reality – the question is then whether this level of forward-thinking exists within the political elite to make that balance so?

Keywords – Housing, Politics, Policy, ‘Build-to-Rent’, Brexit, Investors, Investing, Society, @finregmatters

Thank you to Jake Richardson, an Undergraduate Student in Aston Law School, for his assistance with this piece. Please do get in touch if you have an idea for a post in Financial Regulation Matters and it will be considered.

Thursday, 21 September 2017

S&P Falls in Line with Other Rating Agencies on China: A Reflection of China’s Problems But A Spark for the BRICS Rating Agency Ambitions

Today’s post reacts to the news today that Standard & Poor’s (S&P) have finally fallen in line with the other members of the rating oligopoly (Moody’s and Fitch) in downgrading China’s sovereign debt rating to A+, which puts it one category below the U.S. The reason for this, according to S&P, is that the growing credit bubble in China is systematically reducing financial stability in the country, which seems to confirm fears that recent moves by the Chinese Government to limit the growth of that particular bubble have not taken hold. However, with the BRICS nations calling for the development of their own major rating agency, the news that some analysts suggest that things are moving in the right direction in China despite the recent downgrade may accelerate the plans of the BRICS nations so that the pace of agency development falls in line with the wishes of the Indian Prime Minister who recently made loud calls for an acceleration in that regard. In this post, then, we will look at the recent downgrade and assess whether the effect of that may be the accelerated development of an agency that may provide real opposition to the U.S.-based oligopoly.

The Chinese credit bubble has been written about extensively because, quite simply, the effect of its bursting has the potential to put the global economy into an incredible tailspin. We have discussed this issue before here in Financial Regulation Matters by firstly looking at the regulatory structure in the country, and then at the recent policy moves that are designed to stem the consistent increases in debt being accrued for foreign investments. In light of these issues, the downgrade today to A+ on the basis of China’s ‘prolonged period of strong credit growth’ represents the latest move in a series of downgrades by the Big Three which began with Moody’s downgrade in May earlier this year. There are a number of views on the matter that seem to fall in line with the agencies’ ratings, with Deutsche Bank analysts suggesting that the Chinese credit bubble is the largest risk to global stability and others suggesting that individual components of the Chinese economy could trigger a chain reaction, particularly with reference to the housing-related boom that China is currently experiencing. Furthermore, the Financial Times reports how the growing-but-restrained market for the famous ‘credit default swaps’ (CDS) in China is actually what is allowing the credit bubble to be maintained; the suggestion is that whilst the Chinese finance industry is finding plenty of uses for the CDS market, the lack of sophistication (in part) and the relative uncertainty as to the market’s size is an underlying frailty that may see the bubble ‘pop’ at some unexpected point in the future. Whilst we are now at the point that even Chinese bankers are referring to the ‘bubble’ directly, there are some issues with the rating agencies’ movements that may have some larger systemic effects.

Analysts at the Chinese division of UBS have been quoted as saying ‘China’s debt risk has actually declined over the past year’, with other analysts suggesting that China has ‘room for manoeuvre’ and that its recent policies to restrain the growth of the bubble will have a positive effect. These views are obviously not in line with the downgrades from the agencies which, although admittedly does not necessarily mean the agencies are wrong, does insert an element of doubt into the recent movements. It is this ‘doubt’, for want of a better term, that is the driving force behind the sentiment of the BRICS nations regarding credit rating more generally. This author has written on the BRICS approach extensively, both in the media, in Journals, and also here in Financial Regulation Matters so, in light of that there will not be much examination of the intricacies of the BRICS nations’ aims to develop their own agency to compete against the Big Three in this piece. However, a point raised by an analyst in Beijing hammers home the reasoning for the BRICS nations’ concern over the Big Three and their intentions: Andrew Polk, co-founder of research firm Trivium China, suggested that the downgrade, which comes just weeks before the twice-a-decade reshuffle in China’s political infrastructure, ‘may feel like potentially the international community is piling on that will be frustrating’. It is this feeling that the Big Three, despite their claims of independence, are actually vehicles for U.S. or Western policies that is the biggest fear for the BRICS nations, and movements like S&P’s, particularly in relation to its timing, will only cement those fears.

It is on the basis of those fears that the Indian Prime Minister, Narendra Modi, recently attempted to accelerate the development of the BRICS-established rating agency. This author has spoken before about the most obvious impediment to the success of such an agency – the feared perception of political influence – but the Indian PM has been forthright in his advocacy for the creation of the agency, as soon as possible, to aid integration with the leading financial entities like the IMF from a position of strength. However, the other members of BRICS were not so adamant, with China being the first to note the credibility-related issues that was mentioned above, although China does welcome the increased research into the developed agency’s viability. Yet, this latest move by the rating agency oligopoly may reverse such sentiment on China’s behalf. The downgrade by Moody’s in May was criticised heavily by China as being fundamentally flawed with regards to its methodology and sentiment, and it will be particularly interesting to observe whether China’s maintenance of support for the Big Three after Moody’s rating is continued in light of S&P’s rating today.

Ultimately, China has yet to flex its muscles in the arena of credit ratings, and today’s rating may be seen, in time, as the event which altered China’s stance irrevocably. India’s advocacy for a BRICS rating agency has been tempered by the reluctance of China because, although the internal dynamics of the BRICS-bloc is quite another story altogether, it is arguably the case that China is the leading figure in that collection of developing powerhouses; Putin’s battles with the agencies have still not precipitated the development of the new agency, which suggests that only Chinese influence can raise the BRICS rating agency idea off the ground. Whilst China may take issue with the downgrade, they will know that the growing concern regarding their credit bubble is likely a very reasonable basis for the downgrade – however, it is the timing which will cause the most anger, and arguably this is entirely justified. The political system in China, which is obviously much different to Western political systems, is dominated by the movements of the Politburo at certain times in its cycle and the setting of October the 18th for the 19th National Congress is an extremely important juncture in the power dynamics in Beijing. It is against this backdrop that S&P, falling in line with its American-based oligopolistic colleagues have decided to act, and in doing so they risk provoking an opponent that has the means and wherewithal to seriously affect their position – this is not to say that rating agencies should be fearful of those they rate, but the timing of their releases must be a factor if they are to maintain their dominance. This author has been emphatic in criticising the agencies with regards to their arrogance within the financial arena and their aiming for the Chinese is just the latest demonstration of that arrogance – the effect of that will be fascinating to observe.

Keywords – China, Credit rating agencies, Sovereign debt, politics, BRICS, Communist Party National Congress, India, credit, credit bubble, @finregmatters

Tuesday, 19 September 2017

The Financial Conduct Authority Continues Its Focus on Credit Dependency: A Fundamentally Limited Response Based on a Regressive Culture

In today’s post, the focus will be on the debt bubble that continues to grow by the day. We have looked at the personal debt bubble on a number of occasions here in Financial Regulation Matters, so in this post we will look at the recent comments made by the head of the Financial Conduct Authority (FCA) – Andrew Bailey – and assess whether his views are a. appropriate and b. sufficient enough to garner any sort of change. One of the issues that we see over and over again is that the focus of people’s attention is so narrow that only very limited changes can be affected, and ultimately it is then likely that the underlying causes of the issues will remain and effect society at some point in the future.

We have discussed this issue of the debt bubble a number of times before in Financial Regulation Matters, ranging from analyses regarding those deemed to be ‘financially excluded’ which often leads to credit dependency, to the rapid increase of credit dependency in certain sectors like car purchases and also more systemic warnings moreover. Therefore, it is probably best that instead of returning to those analyses we assess the latest data that suggests the bubble is not only growing but disproportionately affecting certain sectors of society. As The Guardian begins a series of reports into the debt bubble, its first report contains comments from Andrew Bailey who has ‘visited debt charities across the UK’ in order to gain a sense of the plight of those affected by the systemic issues causing the bubble. In visiting these debt charities, Bailey states that he is concerned with the sheer number of people accessing credit to live, and also the insecurity often felt by those that do. In relation to the insecurity felt by those in debt, Bailey discusses how those working in the so-called ‘gig-economy’ are more likely to be affected by credit dependency, with the news that the number of people on ‘zero-hour’ contracts has fallen to a three-year low of 1.4 million people being welcomed as just one component of the solution. Bailey speaks quite openly about the issue of those with ‘erratic incomes’ being unable to meet their financial obligations to a number of lenders, with only ‘frontline debt’ like council tax and utility payments being collected consistently thanks to the use of bailiffs, court orders and repossessions. However, is this focus on the ‘gig economy’ either correct or at least helpful?

The recent breaching of the £200 billion mark for outstanding personal debt has raised concerns, particularly when it is adjoined to the understanding that overall indebtedness is increasing steadily, with the U.K.’s total personal indebtedness standing at £1.6 trillion (the majority of which is mortgage debt at £1.3 trillion). However, whilst some of the statistics do support Bailey’s focusing upon those in the ‘gig-economy’, others allude to a much bigger problem. StepChange have stated that the average of those in arrears with their council tax has risen by over £250 in the last year alone (to £1,012), whilst average utility bill arrears has also risen by £147 (to £668). Yet, the FCA’s research also states that one-in-six of those with personal debt are in ‘financial distress’, with those in that category more likely to be younger, have children, be unemployed and less educated than others. According to the Money Advice Service, there are now 8.3 million people in the U.K. who suffer debt-related problems, with the U.K. now only ranking behind Canada as the most personally indebted nation in the G8. Interestingly, onlookers recently stated that ‘it wasn’t supposed to be this way. The Government’s official forecaster… once predicted that the U.K.’s economic revival would be built on the foundations of business investment, higher exports and an improvement in productivity that would lead to higher wages. It didn’t materialise. Instead a mix of low wages growth, government cutbacks on welfare and public services… have forced millions of households to borrow to buy essentials’. This is precisely the right sentiment, and forces the issue away from this sector or that sector and towards a more holistic assessment; therefore, Bailey’s piecemeal approach based on the sentiment of ‘no one body might solve [the debt crisis] on its own’ is potentially an abdication of duty. For example, focusing on the ‘gig-economy’ downplays reports that household debt, which is incurred to buy essentials, is skyrocketing in areas in which the poor are simply being priced out, like in the larger cities of London, Birmingham, and Cardiff. Whilst the actions of the FCA do help to minimise some of the hurt being felt by those affected, it is not enough. But, is Bailey correct in thinking that the FCA simply cannot tackle the problem alone?

On the one hand he is absolutely correct because the FCA are not tasked with charting the systemic course for the U.K. However, an argument against this is that, as the head of the FCA, Bailey holds considerable influence and could be more proactive in challenging some of the larger issues. Yet, in truth, this may be unfair, because Bailey and the FCA are simply just one small cog in a much larger machine that is predicated upon the concept of ‘wealth extraction’. For some this concept may be controversial, but in reality the demonstration of it is revealed every day. The quote earlier regarding the Government’s forecasting of revival via increased wages, more jobs, and exports, relies on the notion of there being a solid base upon which to build, but that base has gone; Britain alone, since the onset of the Crisis, has pumped almost half a trillion pounds of taxpayer money into the financial system, a move which came after financial elites had been systematically increasing risk in the system for short-term bonuses, awards, and pension packages that made the hundreds of millions sound like hundreds of pounds. Instead of those people being prosecuted for their crimes they have, en masse, avoided punishment, or even a public dressing down and, what’s more, the responsibility for cleaning up their mess has not even been taken on by responsible leaders. Instead of a. punishing offenders harshly to set a deterrent and then b. developing sustainable plans to lift the economy and set it on a safe path, our leaders have shifted to a debt economy whereby those at the bottom (and now the middle) must turn to high-cost debt providers to purchase essentials. This situation represents a systemic abdication of responsibility, and the increase in poverty, indebtedness, physical and mental illness, and a general degradation in society is a testament to disregard that the elite have for the majority of society. Ultimately, the debt bubble will collapse and the likely outcome is that the majority will have to pay for it, but with what is the ultimate question… there is not much left! What is left is this country’s cherished welfare system that has been fought for since its inception, and it is crucial that removing the cost of this societal good is not seen as a way of ‘reducing the burden’ upon those who have pummelled by the financial elite. The only way to stop such behaviour is to align blue-collar and white-collar crime into a combined concept of ‘crime’ – unfortunately, many will read this last statement and dismiss it as wishful thinking which, in reality, demonstrates the extent of the problem we face.

Keywords – debt, personal debt, FCA, poverty, capitalism, elite, white-collar crime, debt bubble, financial regulation, consumer protection, politics, @finregmatters

Saturday, 16 September 2017

RBS and its Global Restructuring Group: An Indicator of the FCA's Focus

RBS has been the subject of a number of posts here in Financial Regulation Matters (ten), with posts concentrating on their incredibly poor performance over the last two decades. Posts have looked at aspects such as the increasingly poor financial results being disclosed by the bank and Fred Goodwin’s close-call when he narrowly avoided having his day in court regarding his performance in the run up to the Financial Crisis. However, in today’s post, the focus will be on the so-called ‘Global Restructuring Group’ (GRG) and the sentiment that its problems are causing; we have looked at the issue before with regards to a leaked document that partially detailed the abuse of power demonstrated by the group, but the reaction to that leaked report has been incredibly revealing, and will form the focus of this piece.

We heard last time how the GRG, a division within RBS which was tasked with assisting SMEs navigate troubled periods, was in fact doing the opposite and was actively creating an environment from within which many SMEs did not recover. The division, which according to the BBC who had obtained a copy of a leaked report from the Financial Conduct Authority (FCA) resembled more of an ‘undertaker’ division, was subject to an investigation by the FCA with RBS, apparently, not even providing full assistance with the FCA’s efforts (RBS subsequently denied these claims). However, the leaked report was not the complete report, which understandably led to calls for the full publication in light of the scandal. Chief amongst those calling for the leaked report to be published in full was Nicky Morgan, the new Chair of the Treasury Select Committee, who had stated that ‘nearly four years since the report was commissioned, we are still waiting for answers… the report itself is now in the hands of an unknown number of third parties. The FCA has no control over the timing or content of further public disclosures from it. The balance has tipped firmly in favour of full publication. I have written to Mr Bailey (head of the FCA) to urge him to secure the approval of RBS to do so, without delay’. Yet, this stern language did not garner the required response, with Andrew Bailey responding that full publication could contravene the Financial Services and Marketing Act, and that he would not publish the full investigation because to do so would undermine the regulators’ ability to supervise firms because the reviews are entered into on the understanding that findings will remain private. Furthermore, the head of the FCA demonstrated his belief in the ethical and moral underpinnings of the regulated when he stated that the promise of privacy meant that regulated firms would not try to withhold information and that he was ‘very keen that this situation should continue and that it would not be in the public interest to limit the effectiveness of this process’. The potential legal recourse for this issue is that the Select Committee can compel the FCA to release the full investigative report to them (something which they can then choose to make public if they see fit), but the general feeling is that this drastic course of action will not take place. As this situation will undoubtedly continue to develop, for us the effect of this news is worth focusing on.

There are calls at the moment for Andrew bailey to resign from his position in the wake of his refusal to publish the full report, which is entirely unsurprising given his siding with the firm who have devastated a number of SMEs in apparently the very same manner which the division within HBOS did. Comparisons between the two cases will be naturally made, but one side issue which will be of interest is whether the leaders of the GRG will be subjected to, even in some limited form, to the same Criminal law procedures that led to Lyndon Scourfield being jailed alongside the other perpetrators. To return the FCA, this period of scandal is the latest in a long line of questions regarding its ability to effectively regulate, with previous ranging from its regulation of insurers to simply how it responds to criticism; two years ago the regulator narrowly avoided the dreaded vote of no confidence from Parliament, highlighting the scale of concern regarding the Authority’s ability to regulate. This latest episode will do Andrew Bailey’s tenure as head no favours, and moreover the future of the FCA depends on how it handles situations like this; on that score, the future for the FCA is worrying.

The Financial Services Authority (FSA), the regulator which was disbanded after the Crisis and whose role the FCA, in part, acquired, was disbanded by George Osborne on the basis that it has become too ‘narrow’ and focused only on rules-based regulation, something which he suggested was at the cause of the FSA’s failure to spot the impending financial crisis. However, the FCA is in danger of heading the same way but for different reasons, with the result being, potentially, catastrophic given the recent reformation of the British financial regulatory framework. RBS is undoubtedly the U.K.’s ‘problem child’, and its consistent poor performance and attitude towards the British marketplace (at first instance) is forcing regulators into a corner. Not only is the bank caught up in this latest scandal which represents, in effect, an attack on the heart of the modern Western capitalist structure – SMEs -, but it has also just announced that its planned strategy to move hundreds upon hundreds of British jobs abroad is picking up pace. RBS, with its failing performance, continued transgressions and disregard for the taxpayer who holds over 70% of its stock, is making its position clear to the marketplace, which is the reason for the increasing number of headlines containing its name – the question now is what will regulators do to tackle the problem?

Ultimately, Andrew Bailey’s response to Nicky Morgan’s request is the clearest indicator, if one were needed, that regulators are more concerned with the regulated entities than the public who pay their salaries and budgets. Andrew Bailey’s faith in the market’s moral compass, particularly of those like RBS who it knows have been systematically destroying SMEs, is not misguided as many have intimated; his response is indicative of a captured regulator, and on that basis and with respect to the current climate, the FCA is operating in particularly dangerous territory. Since the Crisis the public have become more aware of the workings of the financial system, and although the attention of vast swathes of the public can be diverted to other issues, the understanding that regulators are complicit in protecting those who cause serious and widespread social harm is ever-growing and represents a new force that regulators and politicians must be aware of. The risk of public confidence plummeting to such levels that the regulator would be disbanded is a serious one, because a disbanding of the FCA so soon after its creation would bring forth the question of whether any regulator can protect the public against the venal – it is suggested here that politicians and regulators consider this question, because if the public realise the real answer, then there is little that could be done to remedy the situation.

Keywords – Financial Conduct Authority, Andrew Bailey, Nicky Morgan, RBS, fraud, SMEs, politics, financial regulation, business, capitalism, #finregmatters

Thursday, 14 September 2017

Jacob Rees-Mogg and the Conservative Party: A Reality Which Is Protected by Financial Cycles

Usually, here in Financial Regulation Matters, posts will start with a quick introduction to the subject at hand, and then will dive straight into the analysis. However, in today’s piece, it is important that we depart from this format and spell out, precisely, the sentiment of the following piece. Firstly, regular readers of Financial Regulation Matters will know that the posts often confront political issues, as is necessary given the interconnectedness of politics, financial regulation, the economy, and society moreover, but it is rarely from a biased angle; the posts are not on the ‘left’ of the political spectrum, because they are pro-business, and they are not on the ‘right’ of the spectrum because they do not subscribe to the pro-market sentiments that are often, and correctly associated with the political ‘right’. However, this post will be focusing on the political ‘right’ and the Conservative party in particular. Additionally, the posts attempt to offer a (somewhat) balanced assessment before concluding as the author sees fit, but in this post the assessment will be unapologetically critical of the Conservative Party and particularly of its increasingly-infamous back-bencher Jacob Rees-Mogg, who today was quoted as saying that the increased usage of food-banks since the Financial Crisis is ‘uplifting’ because, rather incredibly, the Tory party have made people aware of their existence in opposition to the Labour Government that went before: ‘to have charitable support given by people voluntarily to support their fellow citizens, I think is rather uplifting and shows what a good, compassionate country we are’. This sentiment, based upon previous posts here in Financial Regulation Matters, will be challenged and in the strongest possible terms – such a sentiment serves only one purpose, and that is to confirm the brutality of the Conservative ideology, and the fundamental requirement of financial ruin to be present for that ideology to prevail.

The usage of food-banks, particularly since the onset of the Crisis, has been covered before here in Financial Regulation Matters. We first saw how 40% of the working population in Britain have savings of less than £100, with 2.6 million struggling with severe debt problems and 8.8 million struggling financially; the majority of these struggling people subsequently turned to pay-day loan companies, with 77% of those in 2013 alone doing so to pay for food. Then, in another post, we saw how even University students are being negatively affected by the economic environment, with the establishment of University food-banks for their students now coming into effect, just as investors flock to the student accommodation sector which has resulted in marked increases in rental costs for all students, including those who are financially disadvantaged. Yet, there are more aspects which have been alluded to along the way, because the focus on the systemic causes of these problems dictates that different pieces of evidence will be used at different times. Now that we are looking directly at this problem, because of Rees-Mogg’s comments, we can discuss how over the last year the Trussell Trust provided for over 1.1 million ‘three day emergency food supplies’, of which nearly half a million were provided for Children; the most prominent reason for the usage of Trussell Trust food-banks was ‘low income’. On the one hand it will hardly be a surprise that the brutal changes to the benefit system, which includes the widespread usage of ‘sanctions’ for benefit claimants, has resulted in a marked increase in food bank usage from those sanctioned claimants, although that situation is not just reserved for those that have been sanctioned, with an increased usage of food banks being the result of botched benefit decisions, the changing to ‘Universal Credit’, and also the associated effects of the increased testing of disabled-related benefits, which have seen a record number of people put through the reassessment/appeal/tribunal processes. Readers in Britain, and those familiar with the British system, will not be surprised by this; it is almost commonly accepted that the poor and vulnerable will be the first to be negatively affected by Conservative policies, which is a remarkable statement to make but should not garner much opposition. Yet, it is the post-Crisis development of working families attending food banks which has differentiated this latest onslaught against the general public, with a number of people from across the working spectrum being affected. Although obtaining any precise figure of the usage of food banks by those in employment is extremely difficult owing to the disjointed nature of the food bank network (the Trussell Trust represents a large proportion, but there are hundreds of independent endeavours assisting those in need), and also that defining the nature of ‘in employment’ is problematic because of the effects that seasonal or DWP-enforced work can have, there is evidence to suggest that those in employment which is classified as part-time, or ‘insecure employment’, are increasingly turning to food banks, with a sample taken in Glasgow revealing that 20% of food bank usage came from those in steady, but low-paying employment; it seems the BBC’s statement that ‘the best inoculation against needing a food bank seems to be a full-time permanent job’ is correct, but the decrease in the availability of those jobs since the Crisis puts that comment into perspective. All of this addresses the visible issues associated with food bank usage, but there are other issues that will not be addressed in this short piece that are important to remember, such as the increased mental health-related problems that are associated with such levels of poverty, the impact upon the social mobility of the adults and children trapped in this particular system, and many more. However, apologetically moving on from such concerns, a look at the actual comments of Rees-Mogg before we conclude will be revealing.

Speaking on the LBC radio station, Jacob Rees-Mogg suggested that ‘I think there is good within food banks and the real reason for the rise in numbers is that people know that they’re there’, after which he stated that ‘I don’t think the state can do everything… it tries to provide a base of welfare that should allow people to make ends meet during the course of the week, but on some occasions that will not work’. This latest demonstration of his, and his parties’ sentiments came just days after his interview on early-morning television on which he declared his opposition to abortion in all circumstances including pregnancy as the result of rape, and also his absolute opposition to same-sex marriages. These incredible clarifications of his views are all overshadowed by the potential for his leadership bid for the Conservative Party, which is something he denies but is becoming an almost consistent suggestion. However, in relation to Rees-Mogg’s views on food bank usage, the analysis above is clear that the development and increased usage of these food banks is not something to be praised, in fact it is quite the opposite.

If we look at historical and economic patterns, there are trends which can be identified. Quite often in British politics, it will be the Conservative Party that is elected to oversee periods of economic recovery, with their ruthless approach to economic cuts and pro-business strategies perceived as being required to correct the imbalances that cause economic crises/downturns. We can see this in the recent past, with the Conservative-majority Coalition elected in the wake of the Crisis embarking upon a regime of savage cuts across the board, but particularly against the poorest in society. The benefits of this approach, in relation to the ideologies associated with the Labour Party as the main opposition (in whatever guise that party may be representing itself) is not the point of this piece. The point is that the sentiment put forward by Rees-Mogg is indicative of his and his party’s culture – one must look after themselves, often through such absurd defining factors like ‘hard work’. This sentiment is particularly absurd and cruel because its fundamentally discounts the effects of external forces upon a person’s development, and Rees-Mogg and his multi-million pound investment fund business can never experience those forces. Is it Rees-Mogg’s fault that he was born into wealth? Obviously not. Is it Rees-Mogg’s fault that he is a white male given an array of privileges that many in society will never experience? Obviously not. But, is it Rees-Mogg’s fault that he turns the discussion regarding food bank usage away from the causes of its increase and towards the issue of making vulnerable people aware of their existence? Absolutely. People like Rees-Mogg, whether they accept or not, have been blessed with tremendous wealth, opportunity and influence, and it is their duty to advance the collective wellbeing; yet, what he does, repeatedly, is advance his wellbeing and the wellbeing of what he knows. Some may argue that this is not his fault, that he cannot know how people at the other end of society live, but this is no argument. There have been many men and women who have been afforded great wealth but committed themselves to utilising that privilege to the benefit of others; this is simply not the case here. Rees-Mogg’s approach to dealing with the effects of venality within society is to ignore it and tell those affected that a. it is not the job of others to help them and b. that they should be grateful that organisations like the Trussell Trust are helping them. In reality, this portion of society has been abused by the venal, and charged for their actions. In reality, this portion of society have been attacked, are now being told by a representative of that attack that any help they get to deal with the consequences should be gratefully received. This is Rees-Mogg’s right to say these things, but it is also this author’s right to say that if Jacob Rees-Mogg is a. not challenged properly on his horrendous and regressive beliefs and moreover b. elevated to anywhere near the leadership of the Conservative Party, this country will no doubt experience one of the darkest periods in its modern history – the level of Rees-Mogg’s regressive attitude is that serious.

Keywords – Jacob Rees-Mogg, Conservative Party, Politics, Poverty, Food Banks, Economic Cycles, Wealth. 

Monday, 11 September 2017

Revisiting the Regressive Sale of the Green Investment Bank to the Macquarie Group: More Evidence of the British Government’s Adherence to Short-Termism

In June of this year, this author wrote of the sale of the Green Investment Bank (GIB) to the Macquarie Group for £2.3 billion, something which had Conservative politicians rejoicing at the £160 million profit the sale generated for the public purse. However, the piece and the associated commentary was adamant that the sale represented the lengths to which the Conservative Government’s regressive commitment to short-termism could go, with the assertion being that Macquarie could not be relied upon to continue the positive work of the GIB or not bleed the organisation dry before it moved on. Although there are many instances of the Macquarie group portraying this negative aspect to capitalism, in this post we will focus on the latest example and revisit the decision of Theresa May’s government upon that basis.

Before we revisit the sale of the GIB, assessing the latest example of the culture at the Macquarie Group will reveal for us the care and attention that the Conservative Government took when selling the GIB. In March of this year, Macquarie had sold its final stake in Britain’s largest water supplier Thames Water for £1.35 billion, subsequently bringing its 11-year investment in the company to a close. Macquarie initially bought the company for around £8 billion, with the FT suggesting that the sale fits in with the common trend of Macquarie with regards to its penchant for 10-year investment strategies. However, assessing that 11-year period, rather than the financial outcome, reveals quite a story and demonstrates the culture at Macquarie and those it invests in. The company itself was this year handed a record £20 million fine for a series of pollution incidents within its networks, with six separate cases of what the Environment Agency labelled ‘widespread, repeated, sustained and avoidable pollution’ affecting local wildlife and the local public; the company had taken to discharging ‘millions of litres of untreated sewage’ directly into the rivers. Rather predictably, this is unlikely to be an accident, and the former head of OFWAT (The Water Services Regulation Authority) suggests this when he stated that the corporate structure at Thames Water, and other utility companies, was simply not appropriate and encouraged such behaviour in the hunt for profits. Yet, that structure is the one that exists since Margaret Thatcher privatised the water industry in 1989, and in keeping with her legacy Macquarie saw fit to treat Thames Water purely as a vehicle for profit extraction.

Reporting earlier this month, the BBC described how Macquarie had saddled Thames Water with over £2 billion of debt, the bulk of which was not used to strengthen the company but to divert funds towards Company Executives and investors. In analysing financial records, the report states that total returns for Macquarie’s investors from Thames Water averaged between 15.5 and 19% a year, almost double what could be expected from this particular industry. Furthermore, the FT found that between 2006 and 2016, Macquarie had paid itself and associated investors £1.6 billion in dividends, all whilst the company was loaded with £10.6 billion in debt – the company currently owes over £11 billion with a £260 million pension deficit. This approach to business with respects to infrastructure is well-known, and is what Solomon refers to as the ‘Macquarie model’ – ‘One of the biggest drivers of the firm’s business is its securitisation of infrastructure assets’.

Whilst those on the right may be adamant that privatisation works and is of benefit, the reality of the situation is that the strict adherence to ‘profit first’ leads to social hazards, particularly within such a field like social infrastructure. Not only can this be seen when we look at residents paying the company to treat their water, only then having to deal with their water supply being contaminated, but also the wider Macquarie group is no stranger to controversy with its financial planning scandal and a whole host of other scandals looming large in its recent history. Yet, it was to this venal entity that the British Government gleefully ‘offloaded’ the GIB earlier this year, proclaiming in the process that the move allowed the bank ‘more freedom to borrow, remove state aid restrictions, and allow it to attract more capital’, which in light of the above reads like methods with which the Macquarie group can bring the now-titled ‘Green Investment Group’ to its knees, rather than helping it expand and create Green opportunities that may benefit society. As a side-note, the GIB is now called the Green Investment Group so that it can ‘expand internationally’ and avoid regulations that are attributed to banks, particularly in Asia - £2 billion may in the end represent a bargain for what is, in the hands of the Macquarie group, a profit machine masquerading as a social benefit.

Ultimately, the sale of GIB was not a surprise, and nor should the parasitic story of the Macquarie Group’s tenure as Thames Water’s owner be a surprise either. Privatisation of often pilloried as being the cause of social destruction, and that may be true, but another question needs to be asked: is it really the case that privatisation has to be like this? Is it the concept of privatisation that is the problem, or the incredibly venal, short-term and selfish culture that those in power demonstrate that is really the problem? It is suggested here that it is the latter, and the only remedy for that social infection is a criminal justice system that punishes white-collar crime like it punishes blue-collar crime – however, this idealist view does not take account the socially-destructive effect that aspects like the Public Relations and Lobbying industries have upon preserving that system. The real fear is that the response to one of the greatest financial crises, one which has seen environmental and sustainability concerns pushed closer to the forefront of financial movements more than ever before, is being eroded by that culture that created the Crisis in the first place. The sale of the GIB to the Macquarie group is just one microscopic juncture in a much larger story, and it is that story that we need to talk about as much as possible.

Keywords – Green Investment Bank, Macquarie Group, Environment, Sustainable Finance, Capitalism, Public Hazard, Public Infrastructure, White-collar Crime, @finregmatters

Monday, 4 September 2017

Guest Post: The Boom of Autonomous Transportation

Today's post is a guest post by Jake Richardson, an LL.B. student from Aston University's Law School. On many occasions here in Financial Regulation Matters we have discussed the increase in certain technological fields and the impact that it may have upon wider society. In today's post, Jake discusses the relatively recent rise in the testing and implementation of autonomous vehicles and examines the potential impact that this may have - in relating the increase to social considerations like safety and costs, the post makes a very good point that a societal shift may need to take place for such technological advances to really take hold.

The Boom of Autonomous Transportation

The idea of autonomous transportation may not have yet hit the minds of many people in the United Kingdom, nor in fact the world. Yet, many manufactures have already teamed up, such as the likes of Bosch and Mercedes, with many more companies committing plans to mass produce driverless cars on a global basis by 2025; and with an estimated market to be worth over £1 trillion, fiction is set to become reality. However, there are a number of issues that need to be raised and addressed before then.

From a purely social perspective, autonomous vehicles have the capacity to reduce death and injury caused by driver error. The World Health Organisation published statistics indicating that 1.25 million people die from car related incidents, and 90% of that figure occur in low to middle income countries. If cars were to be autonomous, then perhaps driver error, which would encapsulate drink-driving, fatigue, speeding, careless and reckless driving would be eliminated. However, are we ready for this technological change? Even if we are not ready on a global basis, the facts given by the Eno Centre for Transportation in the United States tells us that if all cars were autonomous, then incidents would fall be 80%.

On the other hand, in the light of recent events with Joshua Brown, who was killed when the autopilot system in a Tesla S failed to notice a truck blocking its path will certainly cast a seed of doubt in many minds. Indeed, this was the first incident to occur with a driverless vehicle in 130 million miles of autonomous driving, and such technology is still within the testing phase. In turn, autonomous transportation will significantly reduce the number of car related incidents because it is removes driver human error completely, although it will not eradicate incidents completely because faults do exist within technology and mistakes still do occur either if they are foreseen or unforeseen.

Unexpectedly, with 3.7 million commuters in the United Kingdom spending on average 2 hours a day to travel to work, and with those who cannot travel or find it difficult to do so because of a disability; autonomous transportation yields strong support as it increases the quality of life and work for many. But with many commuters paying high fares to get to work, as rail fares account for 14% of salary earnings, autonomous transportation is not a cost effective alternative either. With Google releasing its own autonomous car at a starting price of $75,000 and cars manufactured by Tesla starting at $101,500 it seems to be that affordability is still a long way off in the future. However, Tesla may sway buyers with its new model, the Tesla 3, as prices do start at $35,000 and therefore act as a game changer to autonomous transportation industry.

There are, of course, many legal issues to be resolved. Current civil law requires a driver to be competent and demonstrate the same care of a reasonable person; yet, how can this law apply when there is no driver to be assessed? Additionally, a person can also be criminally liable if driving a car dangerously under Section 2 of the Road Traffic Act 1988. In turn, the United Kingdom, as with many other nations, will have to revise their current laws. Perhaps the burden of responsibility should be shifted onto the manufactures themselves, with the law stating that reasonable care should be imposed on companies who do not comply with new Health and Safety laws. If this were to happen, then our understanding of cars would change, and we would view cars as technological items that have similar characteristics of say an Apple iPad, in the sense that manufacturers have liability for defective products. Additionally, the driving license could effectively be replaced with a competent training certificate which would, therefore, allow everyone to understand how autonomous technology works so that they are better equipped in dealing with problems that may arise.

Autonomous driving does bring many advantages, but this also equally brings disadvantages both from a social and legal perspective. If autonomous transportation is to become a commercial success, then companies will have to start taking reliability for the quality of technology that will inevitably safeguard a human being. If this were to happen, then governments would be able to legislate accordingly and set new Health and Safety laws that regulate companies and protect the consumer. Yet, the biggest challenge facing manufacturers will be the social acceptance of this new technology. As an example, technology is used to regulate the operational use of gated level-crossings on British railways. However, when Network Rail wanted to upgrade a level crossing next to Plumpton station, which is on a branch line off the main London to Brighton route, fierce opposition was met because residents were not confident in a system which monitored the level crossing remotely 20 miles away. Therefore, acceptance of technology comes with time. We, as a population need to consider when we have allowed other human beings to safe guard our lives when using transportation. When pondering that thought, we do it when we hail for a taxi, catch the bus, commute on a train and fly on our holiday. We all take the risk of entrusting and relying on these individuals to drive or fly safely, sober and have a level of reasonable care - can this be the same for autonomous transportation?

Mr Jake Richardson is an LL.B. student in Aston University. Jake can be contacted via LinkedIn here.

Keywords – Electric Cars, Tesla, Road Safety, Automobiles, autonomous driving, @finregmatters