Credit where credit's due to George

Poor Mr. Osborne has come in for a hammering on these pages recently, so it's only fair I give him credit when he does something right. The end of national pay bargaining is long overdue. It's insanity that the wages of equally skilled nurses in Surrey and Cornwall are the same, despite the huge difference in their living costs. The effect is that the good nurses go to Cornwall where they can afford to live reasonably well in the villages around Truro, and the less able ones who can't compete for jobs in Cornwall have to suck it up in Surrey and live in dingy rented accommodation around Croydon. So if you get sick, make sure you do it in Truro.

On a practical note, of course, the current Cornwall nurses' pay isn't going to be slashed, so the levelling out is going to take a while; effective pay freezes for the areas with lower living costs, as the expensive areas rise roughly with inflation modulo supply and demand.

I realise this won't be popular with the unions, since it also makes it far more difficult to establish the conditions for a 'yes' vote on a national strike, and local strikes have far less impact. To quote Dr. Evil, "boo frickety hoo".

If you're not reading jgc then you're missing out

If you're at all interested in the join between software and hardware then you should be following John Graham-Cumming's blog for a procession of tasty electronic, software and crypto treats. Stick him on your bookmarks list, go on; I'll wait for you. If you liked Joel Spolsky when he was still blogging regularly, you'll particularly appreciate jgc - not least because, unlike Spolsky, you don't feel a periodic urge to slap him silly. But I digress.

Striking a particular chord today he dissected an Ludditism from John Humphreys who proposed that a computer user need not appreciate how a computer worked under the hood any more than a car driver need appreciate how a car worked. Read the whole thing, but I particularly liked the following paragraph:

If you teach someone to operate a word processor (as is done in the UK's stupid ICT classes) you are not teaching them to use a computer at all. You are teaching them to use a word processor. It's a bit like teaching them to use a typewriter only this one's a bit more sophisticated. In fact, there's be far more outrage if the UK's current ICT classes were called what they actually are: secretarial skills (that's not to demean secretaries as I went to learn how to be a secretary so that I'd be able to touch type).

Discussing the UK's ICT curriculum is one of the easiest ways to make me start to foam at the mouth. jgc skewers it with this pithy characterisation.

It's just possible that Humphreys was making a sophisticated point about the incuriosity of the average driver. Given his resumé, however I suspect that would be over-charitable.

If it doesn't work, do more of it!

Looks like the mortgage subsidy plan was just a warm-up for our boy George Osborne. He now proposes to sink a good few £bn into underwriting bank loans to small and medium businesses. What could possibly go wrong?

Why does this look to me like a "heads I win, tails you lose" plan for the banks? They can up the risk they are willing to take on, safe in the knowledge that the Government will backstop their losses. So businesses that should not have got a loan will now benefit from one, proceed to pour money via direct and indirect means into the pockets of the less scrupulous, then fold. If this scheme is to be at all successful, it must end up putting Government money into the pockets of a business that would not have received a bank loan - the Government is relying on the bank to pick its winners.

I await Tuesday's Autumn Statement for the details, but I can't see this going well.

Uncomplicated feelings about mortgage subsidies

I doff my cap to Quantitative Politics who ably skewers the demented Government plans to subsidise the risk of first-time buyers' mortgages. Let's remember that the UK housing market is in the doldrums because of a) potential buyers facing an income squeeze from the current depression, b) limited supply of capital for mortgages, ensuring the available capital is concentrated in low-risk LTV ratio mortgages, c) house prices being sticky-downwards such that vendors are very reluctant to lower their prices and d) ultra-low interest rates ensuring that house vendors aren't pressed to sell with any urgency, while at the same time savers' deposits accumulate interest at a miserable rate.

What is the Government analysis of the situation? Given that first time buyers are risky loans, let's remove that risk from the banks by subsidising it with taxpayer money.

Pardon my language, but what the hell? Have the Government not heard of the notion that what you subsidise increases? If the Government wants to un-stick the housing market (and it's by no means obvious that it should even get involved) it could reduce transaction costs by slashing stamp duty, or maybe fire Mervyn "inflation will come down soon, honest" King and tell the MPC committee to stick to its 2% inflation mandate, or else.

QP puts their finger on what is probably behind this all:

So all in all a thorough package to boost the finances of existing homeowners. And we all know who are the biggest homeowners, currently holding the most property title deeds, the banks of course!

Bailing out the mortgage-holding banks in some way or another might even be defensible. But I wish, I really wish that the Government would have the stones to do it explicitly rather than hiding behind a smokescreen of concern for the welfare of first time buyers.

The Guardian article has the usual clamour of rent seeking:

Marc Vlessing, co-founder of Pocket, one of London's affordable homes agencies, said: "This helping hand for mortgage deposits is not a panacea, but will be welcomed by frustrated first-time buyers as well as those of us concerned about the destabilising prospect of an entire generation locked out of home ownership."

If you want affordable houses, speed up the streamlining of the planning process you silly arse. Tell the NIMBYs to sod off and build a lot more houses.

Complicated feelings about pension tax breaks

The Telegraph is heavily hinting that Osborne will be axing higher-rate relief on pensions in his Autumn Statement. Leaving aside the observation that it's pretty frickin' late in autumn, indeed one might almost term it a Winter Statement if not for the associated negative press, what does this mean?

As a private sector higher rate taxpayer myself (boo hiss, oppressor of the poor etc.) I certainly appreciated the existing tax break: £1000 of gross income, with an employer-matched-up-to-5% deal, taxed at 40%, means I spend £600 of net income -- let's ignore the 1% employee NI for simplicity and the marginal effect on my employer of employer NI -- to achieve £2000 in my pension. This will be subject to tax when I finally take it, after a 25% tax-free lump sum, but at current annuity rates I'd be lucky to see a few hundred £/year in current money in my pension from this. Still, assuming retirement at 66 as the standard and if I plan to live past 80, that's not a bad deal.

If George gives me only 22% tax relief, I'm spending £780 (30% more) to achieve the same effect. That's less attractive. The killer issue is the return I expect from my pension investments and the price of annuities. If low interest rates are going to persist for the next 30-odd years (and, let's face it, they might) then my expected payoff will be lower anyway.

Suppose I say that my pension payments aren't worth the candle, and I'd rather spend now. Then George gets £400 of that £1000 in tax right now, and I get £600 in disposable income. That stimulates the economy and boosts tax receipts right now, at the expense of my pension's value at retirement. And since I'm a higher rate taxpayer, George can calculate that he won't have to cover any of my pension shortfall -- oh, wait, it's in 30 years, so who cares?

From where I'm sitting, this is a total no-brainer for the Government - money now, popularity now, and diffused downside in decades' time. After all, who cares if people don't have adequate personal pensions? Perhaps they can tax anyone on a public sector pension at 50% for any income over the median pension....

I can't blame George, a politician, for creating a politician's solution; to misquote the repulsive Freddie Lee Cobb from A Time To Kill:

You can't blame a politician for being a politician, no more than you can blame a dog for being a dog

but it behooves the rest of us to contemplate the effect on society in twenty to thirty years from reducing individuals' personal savings towards their retirement. It's not going to be pretty.

And I bet he loved puppies too

The world's cuddliest ex-dentist, Ayman Al-Zawahiri has been giving a eulogy for Osama bin Laden:

"People don't know that this man was tender, gentle, kind, with refined feelings, even when life was hard," Zawahiri says in the video, dressed in a white robe and turban and sitting in front of a green curtain.

We could also add "open minded" to that list of virtues, at least as of May 2nd.

Gene Simmons, we salute you

Rock god Gene Simmons isn't impressed with a lot of folks in the debt crisis but unlike practically everyone else opining in public, he doesn't give a free pass to the victims:

It's so simple. If you spend more than you tax, you're out of business. MPs don't know what they're talking about.

And we created this miserable economic state. It's like fat people who think it's the bakery's fault they got fat.

No, you kept going in there and you kept eating cake. It's not the bakery's responsibility to tell you to slow down.

He's writing in the Sun, of all places. I can't imagine any article better suited to make Polly Toynbee spontaneously combust. Do go and read the whole thing (it's the Sun, it's not like there's a lot of text) especially his closing argument.

Ben Bernanke and the bong

John Hempton at Bronte Capital reckons that Ben Bernanke needs a Hawaiian shirt and marijuana pipe. I'm not entirely convinced, but he makes a compelling case. If the USA wants to stick the Chinese with at least some of their financial losses in the next 5-10 years, he contends that you need to make the American people believe that Bernanke can't be trusted with their money, and they should spend it now before inflation renders it value-less.

Personally, I'd get Bernanke elected to the Senate, maybe in a Louisiana or Illinois seat. That should do the trick.

Dear Sophie Lee...

Damn you, Google, for making me bawl my eyes out.

Giving a whole new meaning to 'pouring money down the drain'

Jefferson Country, AL votes for bankruptcy after going $4.2bn in the hole, including $3.1bn for a new sewer system.

Everyone wants to know - how do you spend $3bn on a sewer system? Anyone? Bueller?

Expect some searching questions (and court actions) directed at JP Morgan's Muni department in the near future... Also expect some searching questions to be asked about who is exposed to muni default. Don't forget that state employees' pensions are paid out of county operating funds, not from purchased annuities - there's no magic protected pot of money. When the county runs out of money, its pensioners get to stand in line for the remnants.

Zero Hedge and a pinch of salt

The Streetwise Professor takes on Zero Hedge today, comparing and contrasting it with Russia Today (an obvious and up-front bit of Kremlin propagandising, albeit with substantially more appealing presenters than classic Soviet TV) and asking whether ZH's Daniel Ivandjiiski is nothing but a slightly covert Kremlin operative. It's an interesting question.

My feelings on the matter are complicated. Certainly there are any number of commentators on Zero Hedge who are outright deranged, but this goes for pretty much any blog on the Net so we shouldn't condemn them for that. Heck, you get equally deranged commentators on The Guardian's Comment Is Free, would you argue that this is a hotbed of - oh, wait, bad example. There's certainly a good range of contempt for the financial establishment, banks, governments and personalities therein, but that is also pretty well replicated worldwide; Goldman Sachs 666 for instance could not be said to be a fair and balanced view of the Vampire Squid. Indeed, you'd be hard to find a blog sympathetic to most of the financial establishment.

As with The Professor, I find ZH to be an OK news aggregator, and it has generated some interesting leads I've used to dig around and produce blogs in the past. The charts don't lie - at least, I assume they've not been photoshopped (hello, Adobe lawyers! trademarked term in common use, bite me!). The editorials and commentators seem to be rather dedicated chartists, an inclination which I personally regard as somewhat demented, and indeed there are conspiratorial hints in some articles (they're out to punish the shorts! gold margins going up shows that the CME is being instructed to punish gold bugs!) which don't really pass a sniff test; however, it seems a little thin to hang Daniel as a paid hater of Western capitalism. After all, he used to make a living from it.

That said, the commentators on the Professor's article seem so rabidly pro-Russian that he almost must be onto something - either that, or the SVR want us to believe that he is. Who knows?

A modest proposal to the FSA

The UK Financial Services Authority has been on the receiving end of a fair amount of abuse over the past few years, much of it justified. Being a kind-hearted soul, I have a modest proposal to get my mate Hector back in the good books of the public and government.

You may be surprised to learn that the strict standards in the railway safety industry (if your company is on a contract for Network Rail, they can turn up at your workplace and demand you submit to drug or alcohol testing) do not apply for FSA-registered individuals. Banks may tell their FSA-registered employees that they are subject to random drug or alcohol tests, but I assure you that this doesn't happen in practice. Heck, why would it? If as a bank you feel you can adequately monitor an individual's trading performance, why would you want to rock the boat by testing that employee unless he's making a loss and you're looking for additional grounds to fire him?

So let's have the FSA declare that a random drug and alcohol testing regime will apply for FSA-registered individuals at any UK-located branch of a financial institution with over 25 registered employees in that location, from Jan 1st 2012. The testing unit turns up having given 1 hour notice and get witnessed (yes, watched wizzes) pee samples from randomly selected 2% of the registered employees. The employer gets the results. Anyone with significant intoxicant samples goes straight to a board where they can appeal the pending loss of their FSA registration. Operating costs come out of existing FSA operational funds, so no additional operating costs to existing firms with unintoxicated employees.

The FSA gets to do something useful and popular; the programme gives a significant boost to the UK drug testing industry in time for other events; the government gets to point at something concrete being done to counter the drug-addled dipshits depicted in popular culture renditions of the City; the City gets something to point to and deflect such future criticism of their employees. What's not to like?

[It may strike the reader as incongruous that we don't similarly test Civil Service and Government members engaged in decision making of equal import compared to the railway and financial services domains. Your correspondent can only invite the reader to draw the appropriate inference for future action.]

Popular Science misses the point

Popular Science has an entertaining plot of rising computing power which is really good from the 1930s thru 1990 or so, but at that point misses the point entirely. It plots current day desktop computing at 500 billion (5 x 10^11) operations/sec for $2000 (about right for a 3 GHz 8-core superscalar desktop) and then at 8.5 x 10^15 ops/sec the Japanese K Computer for a cool $1.25 bn. What it omits is the ease of networking tens of thousands of desktops together in datacenters to form distributed computing systems such as Amazon's EC2 cloud or Google's Skynet (yes, they don't call it that officially but I think we all know where this is headed).

If I put together 20k desktops I'd get a raw 1 x 10^16 ops/sec for a mere $60mm (adding 50% for networking gear and datacenter-level power, cooling which seems about right). You'll note that this is more computing power than the K Computer for 5% of the cost. That is the real triumph of modern day computing - the software and networking to harness efficiently the computing potential of thousands of commodity hardware PCs. The challenge now is to shape problems in a way that such machines can help us solve them.

[For readers expecting another Greek-related tirade, my apologies - normal service will resume shortly.]

Timeo Danaos et dona ferentes

When the Greek PM decides to replace the heads of all three armed services plus the National Defence Force, eyebrows may reasonably be raised. Since this is less than 24 hours after he announced a national referendum on the Eurozone deal, followed by the opposition forcing him into a confidence vote on Friday, a tad more concern may be warranted.

As Kate of Small Dead Animals says, "It's Probably Nothing...."

Hope the Greeks are taking notes

It seems that Argentina is introducing exchange controls in apparent anticipation of a default. No doubt Papandreou is flying over observers...