Smash the dash for gas!

Intrepid climber Ewa Jasiewicz is at the top of a chimney in a new gas-fired power station and wants us to know why:

The government and the big energy companies want to build as many as 20 new gas power stations, which would leave the UK dependent on this highly polluting and increasingly expensive fuel for decades to come.
[...]
We already rely on gas for 83% of our central heating and almost 50% of electricity. Increasing this dependence will cause household energy bills to rise even further, pushing those who live the most precarious lives deeper into fuel poverty.

Oh, well that's all right then. So gas is expensive, and if we stop the UK building more gas plants then we'll stop bills from rising because nuclear, solar and wind are so much cheaper, and coal is less polluting, than gas.

We ask ourselves: who is Ewa Jasiewicz and what does she want? Ewa's previous Guardian writings give us a clue:

• Ewa Jasiewicz spends a harrowing week in Gaza documenting life under attack;
• Primark answered critics over its use of child labour by closing factories in India. But its PR worries aren't over yet;
• Don't exclude those of us who want to see revolutionary change from the fight against global warming. We're all in this together;
• There can be no state solutions to climate change: governments won't give up the powers that leads to environmental ruin; and
• To the fury of ordinary Iraqis, the country's oilfields are being privatised. Unions must fight together to prevent it.

She's writing and video-ing all over the shop; back in July, for instance, she was telling Sainsbury's to pay a "living wage". I couldn't quite find the time to watch her speech on the united4justice YouTube channel. I think you get the picture. Find a trendy cause and you find Ms. Jasiewicz. She and her pals in Kampania Palestyna outdid themselves in 2010 by scrawling graffiti on the Warsaw Ghetto Monument saying "Free Gaza and Palestine":

"People here need to wake up and realise that occupations and ghettos did not end with the end of the second world war. These tactics and strategies of domination and control of other people and lands are present in Palestine today and are being perpetrated by the state of Israel. We have a responsibility to free all ghettos and end all occupations".

Way to win over the Polish Jewish vote, Ewa!

Without wishing to be uncharitable, I note that West Burton is forecast to have rain all week, and night-time temperatures (at ground level) hovering just above freezing. Personally I'd fence around the base of the chimney to prevent delivery of any additional clothing, food, or fuel, and leave Ms. Jasiewicz up there as long as she wants to stay.

Benghazi and White House Communications

Former US Army artillery ops officer Donald Sensing dissects the emerging controversy about what the White House was told about the attack on the Benghazi compound where Ambassador Chris Stevens and three of his colleagues were killed. The current White House story appears to be that the "flash" traffic from Tripoli about the attack was buried in the normal business of the White House Situation Room. Sensing, who has handled a good amount of "flash" traffic in his time, gives that argument short shrift:

Imagine you are giving a birthday party for a five year old who's invited his entire school class. All those little kids are running in out of the party room, yelling and juking around.
That's the normal message traffic of a message center.
Of a sudden, in runs Shaquille O'Neal to the middle of the room, waving his arms and yelling at the top of his lungs, "Hey! Look at me!"
Shaq is flash traffic.

He contends that it is simply not realistic for very senior White House personnel not to be aware that "flash" traffic had arrived, and that the timescale between the arrival and their being alerted would be measured in minutes, not hours.

The White House strategy at the moment seems to be to announce that there is an ongoing investigation into who knew what and when, and hope that they can make that investigation return its results no earlier than November 7th. I suspect, as Donald Sensing does, that the regular media isn't going to press him hard on this. I do wonder however what happens when the investigation does report, assuming it isn't a complete whitewash...

Why I Left Goldman Sachs - a review

Finally, dear readers, I can bring you my thoughts on Greg Smith's Why I Left Goldman Sachs (currently number 1 bestseller on Amazon in Finance.) Having followed the Greg Smith saga since his NYT op-ed, and having read a wide range of other Wall Street and City books from the sublime Liar's Poker to the ridiculous Cityboy - Beer and Loathing in the Square Mile, I will endeavour to tell you how Greg's book stacks up against the competition, whether it's worth a read and how it may be seen in the context of Goldman Sachs, the 2008 financial crisis and today's battle against the 1%.

Overview

The book plots the path of Jewish South African table-tennis star Greg Smith, joining Goldman Sachs as an intern in June 2000 then being accepted as a graduate into equity sales. It is mostly told in the first person.

Comparisons with "Liar's Poker" are inevitable, and indeed apposite. Both Michael Lewis and Greg Smith entered their banks as fresh graduates, survived their gruelling graduate induction and steadily rose in the ranks of sales - Lewis in bonds, Smith in equities - to relative fame and fortune within the company. I would say that Smith has the edge in timeline; Lewis's book ends with Salomon Brothers undergoing upheaval and a hostile takeover battle even as he collects a large end-of-year bonus and decides to leave, whereas Smith takes us through the tumnult of 9/11, across the 2006 surge and through the 2008 financial crisis, then leaves in 2011 as the firm is still thriving but his doubts about the direction of the firm make him unable to continue in his role.

Lewis spends about half the book on charting the fortunes of and anecdotes about the mortgage department of Salomon; Smith spends very little of his time talking about matters other than him and the fortunes of those around and immediately above him, which may be less engaging than the characters described by Lewis (Lewie Ranieri, Mike Mortara, the Human Piranha, John Gutfreund) but makes one more willing to trust Smith's recounting.

Should Goldman Sachs be worried?

If I were Goldman PR, and had access to a draft of this book, I would be mostly positive about it. After all, although towards the end it is critical of Goldman Sachs' current direction (and of the culture in the London office in particular), Smith is very positive about the way the firm trained him, taught him to be a culture carrier, demonstrated concern for clients even at trading partner level -- see the anecdotes about Michael Daffey -- and how ex-Goldmanites like Hank Paulson more or less saved the American financial system in 2008.

Where Smith does nail Goldman to the wall is in its changing culture and reaction to the aftermath of the 2008 crisis, when he sees the long-term concern for clients' welfare thrown out of the window in pursuit of fees. He is particularly critical of the fetish for selling structured products to clients with a lot of money but relatively little sophistication, such as firefighter and police pension fund managers; the more opaque the product, the higher the fees and margin for Goldman, and the greater the likelihood that the customer will get screwed down the line.

Smith identifies four main categories of Goldman clients, mirroring the tale in the Haggadah about the Four Sons:

1. The Wise Client: sophisticated investors with a lot of money and experience in dealing with Wall Street, such as many hedge funds. These guys get good rates out of Goldman.
2. The Wicked Client: smart clients who sail a little too close to the wind, and sometimes end up paying very large fines or even jail time.
3. The Simple Client: unsophisticated people in charge of a lot of money, "perfect prey for Wall Street." Can be obnoxious, often part of bureaucratic organisations like pension funds.
4. The Client Who Doesn't Know How To Ask Questions: like the Simple Client, but worse because they're trusting. Often get exotic products offloaded on them, pay through the nose for it and then get blown up further down the line.

Not terribly edifying for the Goldman Sachs client relations folks - or the clients, come to that - but educational.

Smith doesn't pull his punches on the regulators either. On the subject of the 2010 SEC lawsuit:

My immediate reaction: this must be a witch hunt. The SEC has been asleep at the wheel for the last two years and now it needs to show the public that it's doing something?

The famed "muppet" quote, when given context, explains why Goldman Sachs' email search for the term yielded nothing. Smith is talking about early 2011, when he moved to London to take on the equity derivatives business there, and finding any number of hapless (and moderately clueless) clients referred to as "muppets". But note that this is less than a year after the SEC prosecution where "Fabulous" Fabrice Tourre had his (personal) email displayed to all and sundry. Any banker with the sense that the good Lord gave gravel would know not to write anything even slightly demeaning in email. All major banks by now were using email snooping products like Orchestria to spot emails that contained confidential, suspicious, illegal or otherwise undesirable material.

Summary

It would be a lot to compare Greg Smith and "Why I Left Goldman Sachs" to the seminal Michael Lewis and "Liar's Poker". And yet, Smith does not fall as far short in the comparison as I had expected. The book is compelling, reasonably well-written, describes crucial times in the life of the author, the financial system and Goldman Sachs, and does so with good lucid explanations of the issues involved. An example is the 2007 August blow-up of quant trading algorithms:

The problems were twofold, and they were massive: First, the out-of-the-way securities that the computer models had chosen to unwind were illiquid. Second ,since everybody's model was saying the same thing, there were few buyers.
It was as though somebody had yelled, "Fire!" in a crowded theater and the exits were blocked.

Smith is very clear on the modern attitudes at Goldman Sachs which eventually caused him to leave. The focus on large profitable trades, with little regard for the way they would benefit clients; transitioning from the traditional Goldman "long-term greedy" to "let me just get this year's bonus"; the firm promoting the big money pullers rather than the culture carriers. He's not keen on Lloyd Blankfein, or London co-heads Michael "Woody" Sherwood and Richard Gnodde whom he regards as being asleep at the wheel as Goldman veered off course, and his criticisms are well-argued even if you may not agree with some of the details.

If you want to know more about how modern banks work, how we got into the mess of 2008, and the problems that still exist in the banking system today, you could do a lot worse than "Why I Left Goldman Sachs". If you enjoyed "Liar's Poker", you should read this book as well.

But, dear Lord, couldn't Grand Central Publishing have come up with a snappier title?

Media bias? What media bias?

An editorial for the ages at The Grauniad today: the problem with the US media is that they're too even-handed:

To put it at its simplest, the election is so close that its outcome may be determined by whether the lies told during the campaign, above all by the Republican side, stick or not.

Wow, thank goodness we have the impartial UK media, exemplified by The Grauniad, to defend freedom, democracy and unbiased reporting.

Sure, Fox News is Republican-slanted, although its precise bias depends on the presenter - there's a large gap between Bill O'Reilly and Greta van Susteren, and commentators like Michelle Malkin can be pretty dismissive of mainstream Republican policies - but the belief that CBS, MSNBC and CNN have anything other than Democratic-leaning journalists is denial beyond reason:

Elements of the American media, like Fox News, are partisan to the point of outright distortion, while others are hampered by what Paul Krugman has called the "cult of balance",

Paul Krugman: you're talking through your arse. Every journalist and every news channel has a bias, even (gasp) the BBC. Candy Crowley from CNN did an appalling job of "moderating" the second presidential debate, backing up Obama and deflating Romney on the point of whether Obama acknowledged the Benghazi attack as an "act of terror" despite later admitting that her interjection was incorrect. There was nothing neutral about her moderation, and trying to claim otherwise is ludicrous. By contrast, I thought the other two presidential debate moderators were reasonably neutral in their actions, no matter what their private opinions.

The Guardian editorial does have a point when it notes:

Where the partisan press cannot be trusted to check the facts offered by the politicians they favour or accept the versions offered by those they do not, and the more independent or liberal press will not do so in either case, democracy is clearly in trouble.

Like Obama's claim about having fewer bayonets in the Army, perhaps? It seems that only the army of bloggers is willing to pick apart these claims, while the mainstream media revels in the "zinger" without examining the facts.

The editorial notes:

Emerson said that if you threw a fact out of the window you would come back later to find it sitting in the chimney corner. But that might well be after you had voted.

It is ironic that Ralph Waldo Emerson was a champion of Individualism and would have despised the group-think prevalent in today's media. If anything, I suspect he would have cheered the counter-mainstream opinions of Fox News.

Bayonets in modern warfare

Obama's quip last night about horses and bayonets in the US Armed Forces achieved a lot of positive press coverage:

"Well, Governor, we also have fewer horses and bayonets," the president countered, "because the nature of our military's changed. We have these things called aircraft carriers where planes land on them. We have these ships that go underwater, nuclear submarines."

Let me say first of all that it was a very good on-the-spot comeback by Obama; it achieved the necessary debate aim of deflating Romney and also gave his supporters a good line and clip to use post-debate.

However, was it accurate? The US armed forces may have fewer bayonets, but only because they have fewer service members (1.4mm today which is well under even the 2mm in 1990 at the end of the Cold War). Every infantryman has a bayonet. But are bayonets actually used anymore - perhaps Obama was pointing out that they are obsolescent?

Apparently not. The UK armed forces have been actively employing the bayonet, for instance in Basra in 2004:

When ammunition ran low among the British troops, the decision was made to fix bayonets for a direct assault.
The British soldiers charged across 600 feet of open ground toward enemy trenches. They engaged in intense hand-to-hand fighting with the militiamen. Despite being outnumbered and lacking ammunition, the Argylls and Princess of Wales troops routed the enemy.

If you're short on ammo and relatively close to your enemy, the bayonet is a near-endless killing resource. The additional reach imparted by the length of the rifle, and the mass of your rifle and shoulder behind it, means that in close quarter combat you can drive killing blows into your enemy without any need to pause and aim; the trauma of a single bayonet strike, twist and pull to the chest area should make it instantly incapacitating (never mind the instantly fatal results of any strike to the head). And just what can bayonet use do for the morale of the infantry using it?

"I wanted to put the fear of God into the enemy. I could see some dead bodies and eight blokes, some scrambling for their weapons. I’ve never seen such a look of fear in anyone's eyes before. I'm over six feet; I was covered in sweat, angry, red in the face, charging in with a bayonet and screaming my head off. You would be scared, too."
Corporal Brian Wood, Princess of Wales's Royal Regiment

If I saw a bunch of huge heavily-armoured screaming red-faced Scots running at me with six-inch blades on the end of their rifles, I'd certainly leg it. Sounds like a Friday night in Glasgow.

The bayonet was also used recently in Afghanistan, again by a Scot:

In 2009, Lieutenant James Adamson, aged 24, of the Royal Regiment of Scotland was awarded the Military Cross for a bayonet charge whilst on a tour of duty in Afghanistan: after shooting one Taliban fighter dead Adamson had run out of ammunition when another enemy appeared. Adamson immediately charged the second Taliban fighter and bayoneted him.

The bayonet may be an old weapon, President Obama, but it's no less effective for that. When your troops are "Danger close" to the enemy and so beyond air support, there's no substitute for a weapon that terrifies and destroys the enemy with no limit on reuse.

Update: go read pastor and ex-US Army artillery officer Donald Sensing on why Obama was wrong about bayonets: he points out that the US has more bayonets now than in 1916. At less than $40 per item, it's remarkably cost-effective.

An experiment on Financial Transaction Taxes

This should be good. Ten European countries want to press ahead with a financial transactions tax (FTT) and intend to do so despite the other EU countries refusing to come along:

"I am delighted to see that 10 member states have indicated their willingness to participate in a common financial transaction tax (FTT)," said Commission President Jose Manuel Barroso.

Not as delighted as the city of London, the Chancellor of the Exchequer and similar entities in neighbouring non-FTT countries, I'll bet.

"This tax can [my italics] raise billions of euros of much-needed revenue for member states in these difficult times.
"This is about fairness - we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens."

I will be fascinated to see how much tax is actually raised by this measure in France and Germany, who are the two most financially active nations in the group. It will also be interesting to see what the impact is on corporate tax takes - I would bet they'll drop significantly. And as for banking activity in those countries, I suspect this will finish the job in France that Hollande started with his tax hikes.

This is good, though. This is how democracy and nation states are supposed to work. Nations that want to press ahead with a demented idea can do so, those who don't want to be involved don't have to be, and when it all goes pear-shaped the voters can throw the relevant bunch of baboons out of office. I note that Greece, Portugal and Spain have all signed up, presumably on the basis that however this idea turns out it can't possibly make their situations any worse.

I give the idea 1-2 years of operation before it becomes manifestly clear that no extra net revenue is coming in, and indeed any financial activity that isn't nailed down has gone elsewhere.

Greg Smith on 60 Minutes

I just watched young Greg Smith from Goldman Sachs being grilled by Anderson Cooper on CBS's "60 Minutes". It was an entertaining 10 minute piece; I think Anderson Cooper was reasonably probing on Greg's motives. For my readers' entertainment, I present below my notes on the interview. Errors and omissions excepted, do not trade on the basis of these scribblings, I have no idea what I'm doing.

Goldman Sachs was characterised as "the smartest, most profitable place on Wall Street; the toughest place to get a job." So why did Greg end up leaving? He wanted to hit the board of directors round the head, and hoped that his NYT op-ed would be a wake-up call to them; forcing them to change the direction of the bank by saying something publicly.

Greg was 33 years old, had been at the firm for 12 years (in Securities). He was recruited as a summer intern from Economics major at Stanford. He was earning about $500K when he left, and he claimed "I loved the place, I put a lot of my heart and soul into it". Yes, bankers have souls. Apparently.

The idea of the NYT op-ed was apparently not to be destructive or a betrayal. Greg liked the Goldman Sachs Business Principles, particularly the one about reputation:

OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION.
If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.

So where did it all go wrong? "Goldman Sachs started to learn how to use information which they got from clients to bet with their own money, and sometimes against their own clients." That's going to be a pivotal point in the book, I'd bet. This won't be specific violation of the Chinese wall between buy-side and sell-side; rather, a more general picture of what clients are doing and what overpriced products Goldman might be able to sell to them (or their rivals) if they're in a tight spot.

Greg sold pretty vanilla derivatives, but the promotions and big money went to people selling complex products with big fees. They were selling these to pension funds, educational institutions who weren't well suited for the products, or indeed well enough educated to understand how steep the GS fees were. Within the firm, an unsophisticated client was the golden product; they aimed to sell them the most sophisticated product and "kerching!". An example quoted was Abacus which generated an SEC case, Senate subcommittee hearing and record fine in 2010.

Greg seems to be making the conjecture that many institutional investors are not as sophisticated as the customer suitability guidelines think they are. So what about the bank's ethics? An economics + Law professor opined "I think Goldman Sachs is one of the most ethical banks out there - not sure that says much though." Talk about damning with faint praise.

Anderson Cooper wanted to know why haven't we heard from Goldman Sachs leavers before. "People who work at GS don't talk about working at GS" - the inevitable comparisons to Fight Club, Mafia arose, and the point was made that people making the money don't want to kill the golden goose.

Greg recounted a discussion with a major Asian investor who said "We don't trust you at all; but that's OK, we're going to keep doing business with you as you're one of the biggest banks out there." Greg was shocked but the senior partner he was with was jubilant after the meeting, and didn't seem at all concerned at the lack of trust displayed. Now I'm not surprised by this attitude of the major investor - you don't get rich by trusting people - but I'd bet this causes a few ulcers in the GS ethics committee.

Muppets had to feature in the interview, and sure enough Greg confirmed that London co-workers repeatedly refer to clients as muppets. (The first time I saw the term in a non-Kermit sense was in a dictionary of prison slang, and sure enough the Muppet Wiki confirms this use.) He gave an example of junior guy (24 years old) selling a product to a client who was a muppet and getting them to pay GS $1mm over the odds; his managing director just laughed at the news. If true, I'd imagine that such behaviour would cause another round of antacids for the ethics committee.

Anderson Cooper pressed Greg: why not raise the issues confidentially internally, rather than publicly? Greg says that he talked to 9 senior partners at the firm so it shouldn't be a surprise - he wasn't specific about the timeline, I have no idea whether this was before or after his resignation, but I suspect it was after submitting the resignation but before the op-ed. Goldman Sachs said he wanted $1mm and promotion - so Anderson asked "if you had got those, would you still have quit?" "Absolutely," he claims, "I didn't go to Wall Street purely to make money. I definitely wanted to make money but I left because things had veered so far from what I think is right." Well, to be honest, the money he's likely to make from the book would only cover 3-4 more years at Goldman Sachs, so if he wanted money he should have kept his mouth shut.

According to the professor, there are no significant allegations of fraud are in the book; I'm not surprised, as they'd have to be cast-iron to get past the lawyers. What he does note is that the current environment of very low interest rates cause pension funds, educational institutions to call up banks and ask for riskier products to make better returns, so that they're vulnerable to the predations of banks. So there's another reason why prolonged low interest rates are a bad idea - Ben Bernanke, Mervyn King please take note.

It will be interesting to see the balance in the book between criticism of Goldman Sachs' external actions (client dealings) and internal (promoting psychopaths). I await my copy with eagerness...

Camelia Botnar Foundation - less charity, more staff

[ New! An analysis of the 2012 accounts of the Marcela Trust. ]

Hurrah! The long-awaited 2011 accounts of the Camelia Botnar Foundation have appeared on the Charity Commission website. After our analysis of the 2011 accounts of Camelia Botnar Ltd., their commercial partner to which they give a whole load of manpower and loan a whole load of money, let's see what the charity was doing last year.

Main points of the accounts:

• they got 9 trainees to complete their placement and move into employment, down from 15 in 2010;
• the estate continues to suck up a fair amount of money in maintenance;
• they note that "Camelia Botnar Ltd [the subsidiary undertaking] sells horticultural products and crafts generated by the Trainees on the estate as well as other stock items purchased from third parties [...] The undertaking showed an increase in turnover this year on the previous year of 3.65% to £788,447 and a resulting gross profit of £103,109 (2010: £122,819). The profit was not as substantial as the previous year due to an increase in Administrative Expenses." which interests me - they add 30K of sales but lose 20K of profit, so that implies CBL admin expenses went up by around 50K. Which is a whole person's salary.
• Sarasin and partners continue to ensure that the investments underperform: they lost 10% on the investments over the year, compared with a FTSE All-Share Index performance of a 6.69% loss. Nice one, guys. They still trousered £101K in fees for this performance. I'll definitely consider you for my future investment management needs, assuming Dick Fuld isn't available.
• CBF is buying a "leisure investment in a market town" for £1,760,000, aiming to get a yield of 5.12% compared to the 1% that the cash is currently generating. Um. I can't see this going any direction other than horribly wrong. CBF is going way out of their core area in this activity. I wonder if Dawn Pamela Lawson has been advising them on this activity, what this "leisure investment" is and what "market town" is involved. Who sold them this entity and why do CBF think that a leisure investment in the middle of a UK recession is going to pay off?
• CBF took in £3.230mm and spent £3.233mm, a very carefully balanced year, in contrast to 2010 where they spent about 8% more than they brought in.
• They have managed to accumulate an extra £800K of cash, from £4.3mm to £5.1mm, which looks to be from spending £300K less on operating activities and receiving £500K of capital expenditure. I wonder what they're planning to do with this - more investment property acquisition?
• Most charitable activity costs were more or less static (+5%), though "support costs" more than doubled from £45K to £101K.
• Employees rose from 79 to 84, but that masked charitable activities staff jumping from 33 to 48, while actual manufacturing staff dropped from 45 to 35. So they're doing less, with more people.
• They're letting plant and machinery assets drop from £725K to £555K, which implies to me (along with the drop in manufacturing staff) that they're letting the manufacturing side run down.
• They had £7.4mm in investment properties at the start of the year and added the aforementioned £1.7mm leisure investment. After last year's near-£3mm loss on revaluation, one wonders how well this will continue to perform...

I find it significant that this year both CBF and CBL decided to ensure their income and expenditure were balanced within a fraction of a percent, in contrast to previous years. CBF is ramping up on charity staff but apparently letting apprentice numbers and manufacturing staff and plant drop. It seems to be undergoing an attack of bureaucracy, doing less with more. It's putting more money into property investment despite losing substantial amounts of money in past years. Its main investment fund lost 10% courtesy of Sarasin Partners.

The figures suggest that CBF is turning into a business of busily spending what remains of the investment fund on the estate and staffing, and doing less and less of its core work of preparing trainees for the world of employment.

Goldman Sachs really is worried about Greg Smith's book

In advance of Greg Smith's "60 Minutes" interview on CBS this Sunday, Goldman Sachs has been circulating a briefing note putting their side of the story:

However, to better understand Greg's criticisms, we examined his performance reviews for 2009-2011 to determine if we had failed to appropriately address issues which he may have raised about the conduct of his colleagues, and, more generally, about our culture. Our review showed that Greg did not provide any negative feedback on any of his reviewees in any of those years. In fact, he scored all of his colleagues’ performance at the top of the range, including in the areas of Culture and Values, Leadership and People Management, Client Focus and Reputational Excellence.

It sounds like young Greg understood very well that a prerequisite to getting ahead is to avoid rocking the boat...

Goldman Sachs' PR people are clearly taking this adverse publicity seriously, although I do wonder whether the best approach would be to shrug, let it wash over them and drain away, making use of the chronic short attention span of the global media. But hey, it's a fruitful source of blogging for all and sundry.

Is the infantry role out of reach for women?

US Marines Captain Katie Petronio provides some much-needed hard data about how tough combat is on a woman's body:

"By the fifth month into the deployment, I had muscle atrophy in my thighs that was causing me to constantly trip and my legs to buckle with the slightest grade change," she wrote. "My agility during firefights and mobility on and off vehicles and perimeter walls was seriously hindering my response time and overall capability."

Note that this is not just some fainting flower - she's a Marine officer and a standout athlete. But her body just couldn't handle the prolonged physical stress of combat.

This is not to say that women don't have a place in combat. Leigh Ann Hester, Michelle Norris MC and Kate Nesbitt MC all prove that courage and good physical reactions under fire are not the exclusive preserve of men. Sgt. Hester in particular demonstrated an ability to fire, manoeuvre and bring the fight to the enemy with the best of them. However, Captain Petronio's point is a harder one. No matter what our fighting instinct and transient physical reactions show, it seems that even the toughest woman's body degrades over time faster than men in a comparable position.

Is this a good enough reason to keep women out of front-line infantry roles? Beats me. I certainly can't see it as a good argument for keeping women out of armoured fighting vehicles, for instance - but for any role involving extreme physical endurance, it seems that a woman's body can't tolerate prolonged abuse as much as a man's.

The first few rocks of the Greg Smith avalanche approach GS

After a sterling set of Q3 results, it must seem a little unfair to the Goldman Sachs executive team that former London salesman Greg Smith is about to ruin their October with his book detailing salacious and embarrassing parts of Goldman Sachs' life over the past 10 years:

The following afternoon the group were all hungover so they partied in the hot tub at the Mandalay Bay - with the topless woman they called 'Ms Silicone.'

Well, at least they scrupulously observed the neutral form of address; I'm sure the HR department would have leapt on them had they called her 'Miss' Silicone.

My copy of Mr. Smith's book is on order and due early next week; I shall share my thoughts on it with you, dear readers, as soon as I have perused it. So far at least, from the carefully managed leaks, it sounds like quite entertaining reading...

Update: it seems that Goldman Sachs is trying to fight back with a release of emails, which to me indicates that it's rather worried about the book:

According to a summary of Goldman Sachs’s investigation, Mr Smith had an overly high opinion of himself, frequently giving himself evaluation scores that were "significantly above" those he received from his peers.

You know, I would be fascinated, fascinated to learn how common this mismatch is among VPs in the Fixed Income and Equities divisions. Do you think Goldman might deign to tell us?

A Starbucks refill

The hysteria increases as MPs call for an investigation of Starbucks' tax affairs. Cue Margaret Hodge of the Public Accounts Committee:

"Ordinary people and small businesses, who pay their taxes in full and without question, will rightly be furious that yet again a highly profitable global corporation has wriggled out of paying its fair share. It is just not right."
She added: "We simply cannot continue with a system that allows a company like Starbucks to get away with paying no tax whatsoever."

I don't know about Ms Hodge, but when I look at my personal tax return I certainly do ask a question. It's three words long and starts with "What the". Anyway, let's examine that claim of "no tax whatsoever".

What does the boss of Starbucks UK say?

"We don't see paying taxes as a bad thing. [My arse] We believe strongly in paying our share and although our lack of profits have meant we haven’t paid much corporate tax, we have contributed £160m, in the last three years alone, in terms of national insurance, VAT, and business taxes.

That's £53m/year; let's cast our eyes back to Monday's article on Starbuck profits:

The chief finance officer at the time, Peter Bocian, added that the UK division enjoyed operating profit margins of almost 15% that year [2007], equivalent to nearly £50m in profit.

Noting that I don't have to hand figures more recent than 5 years ago, that still implies that Starbucks is paying approximately its fair share in tax; the difference is that it's in VAT, NI and business rates instead of corporation tax. If £50m profit is 15% of turnover then turnover is around £330mm. Let's assume a 10% annual growth, compounded over 4 years (to 2011) adds 46%, so 2011 turnover could be approximately £480mm. A 15% profit margin on that is £72mm, and if you applied a 35% corporate tax rate you'd get £25mm for the Treasury.

The reason quoted for Starbucks making an overall loss?

"The UK is undoubtedly the most competitive expresso market anywhere in the world."

This doesn't sound hyperbolic. The number of coffee chains (Costa, Cafe Nero for instance) competing with Starbucks with similar drinks and prices will drive down their profits to just above break-even, if that. I'm sure there's a degree of transferring money to headquarters, where it will be taxed on behalf of a different government, but it's still not surprising that Starbucks can't get anywhere near its 2007 profit margin.

And that comment by Ms. Hodge about a "highly profitable global corporation"? That fourth word is significant. As Mr. Worstall notes, the whole EU was designed on the basis that companies should be able to be based and taxed in one company and operate in all the others.

Grace on light

Grace Hopper explains a nanosecond. The inimitable jgc provides print-out-and-keep nanoseconds for you.

Oh no, I'm agreeing with Alan Johnson (mostly)

On the Gary McKinnon extradition case, specifically:

But Labour former home secretary Alan Johnson criticised the decision and claimed Mrs May had made a decision which was "in her own party's best interests but it's not in the best interests of this country".
He said: "Gary McKinnon is accused of very serious offences. The US was perfectly within its rights and it was extremely reasonable of them to seek his extradition."

Well yes, this is clearly Mrs. May trying to get back in the public's good books. But you know what? Alan Johnson is bang on. We may feel that a potential upper limit of 60 years for McKinnon's actions is excessive in UK terms, but there's no denying that the US was well within its rights and the boundaries of reasonability in seeking his extradition.

Let's see who Gary McKinnon is:

Gary McKinnon (born 10 February 1966) is a Scottish systems administrator and hacker who was accused in 2002 of perpetrating the "biggest military computer hack of all time,"

He's not an idiot savant living in his parents' basement. You can't hold down a sysadmin job if you're a moron. Sure, social ineptness is possible -- indeed, generally regarded as a plus -- but you've got to know what you're doing and be well organised. I'd totally believe a mild Asperger's Syndrome diagnosis, but again that's not exactly uncommon in the world of IT. And what about what he is claimed to have done? (I haven't been able to spot protestations of innocence and refutation of the US authorities' claims).

The US authorities claim he deleted critical files from operating systems, which shut down the US Army's Military District of Washington network of 2,000 computers for 24 hours. McKinnon also posted a notice on the military's website: "Your security is crap". After the September 11 attacks, he deleted weapons logs at the Earle Naval Weapons Station, rendering its network of 300 computers inoperable and paralyzing munitions supply deliveries for the US Navy's Atlantic Fleet.

He may just have been "looking for UFOs" but he seemed to be willing to cause substantial chaos along the way.

The dominant reason for stopping the extradition was McKinnon's "depressive illness". I'm sure he has legitimate depression, but I expect the ten years of fighting extradition has been a substantial contributor there. Maybe we can regard the process as the punishment, but I can't help feeling that McKinnon has got away with a series of serious crimes mostly because of a general UK anti-American feeling.

Michael Meacher - mendacious scumbag. Again.

What's wrong with this headline: Starbucks pays £8.6m tax on £3bn sales? If you have no idea, you too might be the Labour MP for Oldham West and Royton:

Michael Meacher, the Labour MP for Oldham West and Royton, who has campaigned against companies that use tax avoidance techniques, said: "HMRC should be having a look at this, especially since they keep saying there should be a crackdown. This has been going on for years and there are many companies involved.
"The fact they have paid 0.3% tax on their turnover is utterly scandalous. If they didn't think they could get away with it, they wouldn't dare do it."

I realise that you may be too pig-ignorant to be able check the details, Mr. Meacher, but you will find that corporate taxes are levied on profit, not turnover. VAT is rated on sales, but most Starbucks products seem to be zero-rated so that's irrelevant (Update: Mr. Wadsworth points out that although the food products are zero-rated, most of them become VATable when catered, so Starbucks is indeed pouring VAT money into the Treasury). So, if by "getting away with it" you mean "comply fully with UK law and pay all due taxes" then yes, they do...

So Starbucks is fraudulently jiggling its accounts and is funnelling all the unpaid tax into the pockets of its executives? Apparently, "no", and "no":

There is no suggestion Starbucks has broken the law and the company's worldwide tax rate was 31% last year, compared with an average of 18.5% for multinationals. However, it paid an average of 13% on overseas income, one of the lowest rates in the consumer goods sector.

So it's paying most of its tax where it's based. Fair enough.

There's also the not insignificant point, mysteriously omitted from the Guardian, that a hefty slice of that turnover will be going in employee wages (on which income tax, employer and employee NI are levied) and business rates. Which, for some reason, is not counted as "tax" by Mr. Meacher's reckoning.

It seems that my previous characterisation of Mr. Meacher as a mendacious git was spot on...

UK Muslims not as polite as Irish Muslims

After the other week's Muslim protest at Google's HQ in Dublin, today we had 10,000 UK Muslims protesting at Google's HQ in London on the same topic - they were more direct in what they thought of Youtube hosting the video than the Irish group were.

Posters such as "Muslims Campaign For Global Civility" were, I think, quite well put. "Larry Page supports Terrorism" and "Eric Schmidt supports Terrorism", perhaps less so. I didn't spot any "Sergey Brin supports Terrorism", perhaps because it's widely recognised that Sergey Brin is Batman. "Don't they teach manners in Google?" of course begged the response "Maybe, maybe not, but they're certainly very keen on freedom of expression"

One Sheikh speaker commented:

Organisations like Google are key players and have to take responsibility for civility. You can't just say it doesn't matter that it's freedom of speech.

Oh, but you can. You can. You can argue about whether that's necessarily true, or a good idea, but it's quite possible to say that Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press, for instance.

I do however wonder how useful protesting outside Google HQ on a Sunday might be; I don't expect many Google staff are around then. They're probably all home, or out at church...

It does however seem that certain people's free speech is less important than others':

When asked where where the women attending the protest were, one protester replied: "Right at the back".

Banks as IT firms?

Mr. Worstall is arguing that banks are just IT companies with more money than the average:

But there is a very real sense in which a consumer bank should not really be regarded as a financial institution at all. It's a computing system which happens to do finance. Which means that the computing guys should probably have a great deal more influence over the management of the bank.

It's an interesting idea. I can see a couple of flaws but they are in the practice rather than the theory.

Mr. Worstall quotes the collapse of the RBS branch sale to Santander as an example of how pivotal IT is to whether banks can make their business work. It's certainly true that modern banking floats on computing, and in particular having robust (and secure) interfaces to data feeds, exchanges, other financial entities, and various web-based consoles for customer operations. If any of them go down for an hour or so, the bank can be looking at a big crimp in its operations.

The biggest difference between a bank and an IT firm, however is regulation. IT firms can do more or less what they want, modulo respecting privacy and data protection laws. Banks are regulated by their host country's government, various quasi-governmental financial regulators (Bank of England, FSA in the UK or Fed, SEC, FDIC in the USA for instance) and additionally local regulations in each country or market in which they operate. A good deal of bank IT beyond interfacing to other systems will comprise tracking, logging and measuring to ensure, and to be able to demonstrate, that the bank and its staff are complying with these various restrictions. There's also accountability to shareholders, which is much more direct in the case of a bank - they can lose huge sums of money in a very short time, either via incompetence or fraud, and so the major shareholders will want good visibility into the risk carried by the bank at any one time. By contrast, money loss in IT firms generally comes via poorly negotiated contracts and appears relatively slowly.

The major problem with turning a bank into an IT entity, however, is the matter of who's in charge. The financial rainmakers who rise towards the top of banks are notorious for having huge egos, brash personalities and a robust approach to inter-personal relations. Successful IT CEOs tend to have something of the introspective geek left in their personality. Those are two very different personalities, and there's only going to be one way that the reporting relationship will end up (well, OK, 3 if you count 'dismissal' and 'harrassment lawsuit'). Banks are always going to end up headed by obnoxious bankers, and IT are always going to be their whipping boys one way or another.

Which, incidentally, is why banks are so often victims of IT screw-ups - bankers are generally unable or unwilling to build and work with the IT department structure that actually aligns their interests. They end up getting IT yes-men who can play the political game but don't get the job done, or regular geeks that could make things work but can never persuade the bankers to part with enough money and power to make it happen.

Non-uniform fiscal multipliers

Go and read the esteemed Mr. Wadsworth on the fact that the Government "fiscal multiplier" value actually depends on which bit of Government spending you talk about:

Some of these hundreds of things are of net benefit and some aren't, but as these things are difficult to measure precisely, personal opinion seems to take over and stifle any sort of sensible debate. But surely, it is idiotic to argue that the £ benefit for every £1 the government spends is the same, and that there is always a net benefit (just as idiotic as arguing there is always a net loss), regardless of what the government is spending it on?

Read the whole thing; I'll wait...

This point has irritated me no end whenever increased Government spending is mooted, and its proponents say "oh, it's OK, think of the fiscal multiplier!" The opponents say "yes, it's sub-1.0", and the argument rapidly descends into fighting and backbiting. Some Government spending is clearly 1.0+ (most of the law+order budget, as Mr. Wadsworth notes). Some is well under 0.5 (the Department of Education springs to mind). Other spending is almost impossible to measure (the overall cost of maintaining the Navy or procuring Trident, for instance). But you can't simply say "the Government spending multiplier is 1.2" and use that to argue for paying GPs 20% more or funding overseas aid to India.

Oxfam: now experts on economics

Oxfam's head of policy and advocacy Max Lawson, writing in the Grauniad, decries the resistance to a financial transactions tax (FTT aka Robin Hood tax) and offers his thoughts on why the UK should sign up to it:

More prosaically, the likely design of the European tax means it will be paid by City institutions despite the UK's refusal to sign up. The tax will apply to any transactions on shares, bonds and derivatives where one of the parties to the transaction is based in a country where the tax is introduced.

My roommate is going to be manicuring her toenails with a chainsaw. The resulting pieces of keratin, flesh and bone will spray across the room and decorate my clothes. This, according to Oxfam, is a good reason for me adopting the same approach to personal hygiene. An interesting argument, and not one totally without merit - oh, sorry, an extraneous "not" there.

Max doesn't really improve his argument as the article proceeds:

In an age when austerity is failing to bring the public finances under control it is hard to imagine a more spectacular own goal than imperfectly protecting City fat cats at vast expense to the public purse.

OK, so who would be impacted by implementing the FTT within the UK? The Congressional Budget Office seems to think that most of the incidence falls on average investors. Anyone who buys and sells shares, directly or indirectly (for instance, anyone with a private pension) will find their costs rise sharply. I realise this may not be a concern for those with a Civil Service pension, but the remaining tens of millions of the UK population with private pensions may not take so sanguine a view. Anyone with a UK bank account would see their already nugatory interest wiped out as the nightly inter-bank transactions were priced out of existence.

Even if the UK Government were stupid enough to implement this tax (and it wouldn't be), the US and Canadian Governments would happily bin any attempt to implement it, instead welcoming any international business which decided that headquartering or trading within the EU had suddenly become more expensive. Tax income would therefore take a steep dive, and the current advantage held by the UK for international listings (due to the semi-demented Sarbannes-Oxley act in the USA) would evaporate like urine on a hot radiator.

I suspect that the prospect of fairy gold billions from the FTT has blinded Oxfam to the actual real and severe problems with the FTT. No prospective Chancellor is going to go for this idea, given the near-immediate impact it would have on corporate tax income:

Can you imagine the Labour party going into the next election vowing to remain outside a European Robin Hood tax that has elsewhere reined in the markets and raised billions to kickstart economic progress?

If Ed Balls were stupid enough to promise this, and I can't see this happening, I can see Labour being wiped out at the next general election as Government income takes a sharp step downwards and the Chancellor is faced with the unpalatable alternatives of deficit spending (and further damage to the UK credit rating and rising interest payments) or spending cuts. I don't think Oxfam's £12mm income from the Government would last long in such an environment.

So where does Max Lawson get his economic expertise?

Max has worked for Oxfam GB since 2002, firstly in policy support to country programmes, and then in advocacy and campaigns. As part of his country support he has visited and worked with over 25 country programmes across the world. He has experience in organisational development, tax, structural adjustment, aid quantity and quality, macro-economics, governance, agriculture policy, social protection, HIV and AIDS, health, education and water.

So he knows a little about a lot. The Internet, and his numerous biographical snippets, are silent about what he studied at the University of Sussex beyond being an "MA student". I note that he "studied at" but nowhere did they say "graduated from"...

Pun of the day

...goes to The Slog, on Iberian debt:

One thing that puzzles me though is, if you’re only one level above junk and then drop two levels during further downgrades, what are you then? Subjunk? Anyway, it’s all getting rather tense down in Iberia. It’s a subjunctive tense haha.

The Civil Service: how do you spell "accountability"?

It's beyond satire. How did the Department of Transport come up with the figures that gifted the multi-£billion West Coast main line franchise to First Great Western? Nobody knows, because they lost the spreadsheet. After all, it's not like there would have been any formal review process on that spreadsheet; with a mere few £bn at stake, who would care?

I'm honestly not sure which of these is the more depressing:

The PwC report shows revenue forecasts were not correlated with how many passengers could actually fit on the trains.
A DfT spokesman said: "We are not going to give a running commentary on what went wrong."

I imagine not, Mr. DfT spokesman, or you'd never get anything else done. Mind you, if this is representative of your general quality of business, perhaps that would be a good thing.

Honestly, if the Government wants to make a slam dunk against a potential claim for unlawful dismissal by the hapless Ms. Mingay, all they have to do is ask her to produce the revision of the spreadsheet which her team reviewed. I mean, frikkin' heck, does anyone at the DfT understand the concept of "accountability"?

Tax Research UK doesn't like the Laffer Curve

So it seems that Eire's regime of low corporation tax has caused Facebook to locate its EMEA headquarters there and book most of the advertising sales through the country:

The British arm paid its 90 UK-based staff an average of £275,000 each in 2011 while contributing just £195,890 to the Treasury's coffers, according to the firm's latest accounts filed at Companies House.
The website also reported UK revenues of £20.4m, a fraction of the £175m that media analysts estimate the firm made in the UK in 2011.

I'd imagine that if the UK sales staff are managed and paid by a Dublin-based senior Facebook salesweasel, and the sales contracts are drawn up in Dublin, then the UK Inland Revenue is just going to have to suck this one up. Oh, if only the UK had a lower corporation tax rate so that the extra costs and inconvenience to Facebook of this arrangement weren't outweighed by the painfully higher rate of UK corporation tax...

It seems that Richard Murphy of Tax Research UK is not happy about the implications of this:

"The UK is being taken for a ride. Facebook is taking standard practice for these IT companies to a new high, or low, depending on how you look at it. The UK is giving the tax break and the Irish get benefit of all the tax on the sales."

Yup, that's right, Richard. Standard and (this is important) completely legal. If the UK Government wants to encourage corporations to base their legal entities in the UK, all they have to do is be more competitive with Ireland. Perhaps they have decided that the income from less mobile entities outweighs the potential extra income from mobile entities like Facebook, in which case they can just take it like a man (who came up with that saying? men are the biggest bunch of wusses that I know).

But there's more!

Facebook UK's latest figures show that the company charged £15.4m to its 2011 accounts – which can be used to reduce future tax bills – as a cost of awarding its UK staff share options. Murphy said: "That appears to be £15.4m to reward £20.4m in sales. That makes no sense."

Really? That's not £20.4m of sales; it's £20.4m of UK revenue plus additional sales booked through Ireland. It makes perfect sense. Let's suppose that a major bank has IT operations in London and New York. Most of the data processing is done in and for the benefit of New York. An IT engineer in London comes up with a way of improving the utilisation of the bank's servers - from, say, 40% to 50%. That saves the bank $1m dollars per year, but only $100K of that is saved by the smaller UK-based trading desks. The bank pays the engineer a $200K bonus, $100K more than the UK savings. Does that make no sense?

I'm glad that Richard Murphy isn't a chartered accountant or some other profession that requires basic numeracy...

A railway story worth telling

The recent death of Eric Lomax, a Signals officer captured by the Japanese in Singapore and tortured at Kanchanaburi camp in Thailand, comes shortly before the release of The Railway Man, a film based on the extraordinary story of what happened to Lomax and the Japanese associated with his abuse after the war:

A fellow former-prisoner then gave him a cutting from the Japan Times about a ex-Japanese soldier who had been helping the Allies to find the graves of their dead and claimed that he had earned their forgiveness. The accompanying photograph showed Takashi Nagase, the interpreter during Lomax's interrogation, and the man with whom he most associated his ordeal.

Nagase and Lomax finally met in 1994 and there was peace and forgiveness between them. The knowledge of what he had facilitated, including the deaths of several colleagues of Lomax, had haunted Nagase and receiving forgiveness from Lomax meant much to him.

But Nagase was not the only Japanese with a connection to Lomax. Osamu Komai was the son of the 2ic of Lomax's camp; that man, Mitsuo Komai, was tried by the British after the war, found guilty of war crimes and hanged. Osamu Komai grew up with the stigma of being the child of a war criminal; it would have been easy to resent this, and to resent the British who had hanged his father. Instead he took it upon himself to make apology for what his father had done:

Since I could not read English, I asked my acquaintance to translate the record. I found out that of those who my father beat severely, Lieutenant Lomax was seriously injured and Lieutenants Hawley and Armitage died as a result. Knowing the actual names of these British soldiers after 55 years profoundly affected me. Without realizing, I was bowing and apologizing from bottom of my heart. I forwarded the entire record to Mr. Nagase.
I learned from the reply from Mr.Nagase that Mr. Lomax was now a friend of his and was well in England. I wrote to Mr. Nagase, "I would like to meet Mr. Lomax and apologize on behalf of my father."

In 2007 Osamu Komai travelled to Berwick-on-Tweed to meet Lomax and the two men became friends.

"Continuing to hate gets you nowhere," says Eric. "It just damages you as an individual. At some point, the hating has to stop."

It has been 67 years since the end of the fighting in the Pacific, and some of the wounds inflicted in that fighting have taken many decades to heal. But if people like Nagase, Komai and Lomax can apologise for and forgive what happened, it shows hope for the human race.

Lomax's book "The Railway Man: A True Story of War, Remembrance and Forgiveness" on which the forthcoming film is based sounds like quite the read; I look forward to both book and film.

Physicists against interpretive dance

Well, not really, but very similar. Artists against fracking:

Dear Governor Cuomo,
I have concerns about the impact of fracking upon our water, our air, and our local communities in New York State. I believe that fracking for shale gas is a danger to all New Yorkers. Please don't frack New York.

Well, I've visited Manhattan and Brooklyn, and I'd say that the only risk from fracking is a distinct improvement in the quality of the environment. Or lower power bills.

I see that noted bipolar druggie Carrie Fisher supports the cause, for instance. Well, with that level of engineering and scientific expertise, I'm convinced. Truly, "Artists against fracking" have jumped the shark. What's next? "Lawyers against nut allergies"? "Pensioners against co-sleeping"? Kittens against apartheid?

Ruth Davidson - the new Romney?

Much heat and light being generated from the comments of Scottish Tory Ruth Davidson that nine out of ten Scottish households receive more in public services than they pay in tax:

Miss Davidson supported her claims by publishing figures from the Office for National Statistics, which showed the average Scottish household consumes £14,151 more in public services every year than it pays in tax.
Even the families in the middle income groups consume around £20,000 more in state spending than they contribute.
However, those in the top 10 per cent pay £17,205 more in tax than they receive in public services.

A fascinating breakdown, and the ONS is reasonably politically neutral so we can more or less trust the figures as quoted (though the devil, as ever, is in the detail). So, assuming that the figures quoted by Davidson are accurate, what do they mean?

Much has been made of comparing Davidson's comment to Mitt Romney's "47%" quote:

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them [...] These are people who pay no income tax.

although they refer to quite different situations. Romney was only looking at income tax, which kicks in at much higher levels in the USA than in the UK: around $40K for a a family filing jointly which is typical for 1 worker families, whereas in the UK you start paying 20% as soon as you're past your £7K allowance. Davidson includes households that pay income and consumption taxes, but are still net receivers when you take into account Government spending on benefits, education, emergency services etc. Romney did not include payroll taxes (equivalent of NI) or consumption taxes (normally levied at 4-9% on most goods and services at state level).

It would be interesting to consider the implication of 10/10 Scottish households being net receivers of government services. That would imply that other sources of Government income, principally corporation taxes and the Barnett formula payments from Westminster, would be funding the marginal payments and services to households as well as all other non-local Government business (defence, foreign policy etc). Since corporation tax is indirectly a tax on employees and shareholders (commonly pension funds), that would imply that the burden of running Scottish national services is borne by successful businesses and English/Welsh taxpayers. As public spending inevitably rises above tax receipts, that squeeze will become ever tighter; corporation taxes will need to rise to the Laffer peak, assuming they are not already past it, since there's no realistic prospect of a Westminster Parliament increasing the financial transfer to Scotland. Northern North Sea oil tax income will continue to drop, aggravating the squeeze. One can only speculate at what will happen if Shetland declares independence and claims taxation rights on the oil fields in its waters.

Since we're only (only!) at a 9/10 ratio, the top 10% of taxpayers can be squeezed for a while longer. However, since they are more likely to be employees and shareholders in private companies, one wonders how long Scotland can continue squeezing the arse of the golden-egg-laying goose before it flies off to warmer and more welcoming pastures in the south.

Ruth Davidson's pronouncement may or may not have been politically wise, but you can't accuse her of making up facts or addressing an irrelevant issue:

Kenny Gibson, a Nationalist MSP, described it as Miss Davidson’s "Mitt Romney moment". He added:"“At least Mitt Romney only insulted around half of Americans, while Ruth Davidson believes almost 90 per cent of Scots do not 'contribute' to society."

Well, Kenny, I think we've dealt with the Mitt Romney comparison above. Perhaps you'd like to come up with a definition of "contribute" that encompasses the above facts yet refutes Ruth Davidson's claim? And don't start down the path of a "Scottish nurses are worth more to the country than just their salary" claim; if the Scottish NHS hired Filipino, Polish, Russian, Nigerian or South African nurses for the same salary, they'd likely get more expertise for their money.

Defecting Iranian cameraman - who is this news for?

The ever-interesting DEBKA brings us news that Ahmadinejad's personal cameraman has defected and brought some goodies along:

For some years, Golkhanban worked not just as a news cameraman but personally recorded visits by the Iranian president and supreme leader Ayatollah Ali Khamenei of top-secret nuclear facilities and Revolutionary Guards installations.
When he left Tehran in the president's party, his luggage was not searched and so he was able to bring out two suitcases packed with precious film and deliver it safely into waiting hands in New York.

Oopsie. A few red faces in Iranian security, I suspect.

What I find interesting is the amount of information leaking out about this defection. There's clearly no particular reason to keep the defection itself secret - Iran knows, America knows, and no doubt this is good propaganda to wave at and demoralise the Iranian leadership: "Hey, you know those people you trust absolutely? You probably should not trust them as much." But the detail on what he (allegedly) brought out is interesting:

Among them [the film and photos] are exclusive interior shots of the Natanz nuclear complex, the Fordo underground enrichment plant, the Parchin military complex and the small Amir-Abad research reactor in Tehran.

Why is American intelligence telling the Iranians what facilities they know about? Why not leave them paranoid and guessing? Is this a carefully judged leak, or is this someone who knows too much and talks too much blabbing his or her mouth off?

Transport official not going under the bus quietly

The first named official of the three Department of Transport civil servants suspended over the West Coast Mainline fiasco is Kate Mingay who was an Executive Director (aka Vice President) at Goldman Sachs up to 2003. Linkedin claims she was "Head of UK Debt Capital Markets" which seems quite a lofty title for a mere VP; one can only imagine that the UK debt markets were a lot less interesting in 2003 than they are now. Anyway, she's claiming that she was unfairly scapegoated:

"My role has been inaccurately portrayed, mainly due to statements and other comments made by the Department for Transport itself.
"I would like to make it clear that I did not have lead responsibility for this project; neither I nor any member of my team had any responsibility for the economic modelling for this project, or for any DfT project. Nor did I have any responsibility for the financial modelling in respect of this project."

Ironic, really; given that she came from the banking sector, you'd have thought she'd have learned more about politics and sacrificial goats than it appears she has.

Trying to kibitz what game she's playing, two main possibilities present themselves. First, that she genuinely believes that she and her team are in the clear and that she's being made a sacrificial goat; she's trying to get information out in public in the belief that The Truth Shall Set You Free. This seems naively optimistic to me; I would have thought that a far better move in this case would be to rope in an employment lawyer and use "going public" as a threat in early negotiation. Perhaps that's why I'm not an employment lawyer.

Alternatively, she realises that she's at least indirectly responsible for the mistakes, but figures she can bluff it out and rope in the PCS and Sir Gus (both of whom seem very willing to side with the civil servants) to face down the politicos; maybe she feels that putting a human face on the "mistake" is a better play for public sympathy than being a faceless "civil servant".

Ms. Mingay is listed as a (the?) corporate finance director for the DofT, and the issue around which the bid fell apart was apparently the GDP resilience model off which the bond amounts posted by FGW were calculated. It's not obvious that her team was in the clear - even if they had no input into the model (and why didn't they?) one would have thought that some sanity checks on the results would have been a prerequisite to starting their own calculations. It'll be very interesting to see the grubby details here if this gets as far as the courts.

Frankly though, I don't see this going very far. Either the DofT will cave and remove the staff suspensions (possibly with some token letter of admonition), or they'll come to a financial arrangement and pay off the protagonists as long as they find a job elsewhere in the Civil Service. After all, I can't believe that screwing up and wasting a few tens of millions of pounds is much of a bar to inter-departmental transfer...

Goldman Sachs as Facebook?

I know they helped with the IPO, but it seems that Goldman Sachs thinks it has a lot to learn from Facebook on the technology side:

"Finance is a very technology-dependent business," says Don Duet, a global co-chief operating officer in Goldman’s technology division. "We have a substantial infrastructure footprint, and over the past four or five years, we've been moving into a scale-out-type model that's very similar to the big web firms.

The first question which comes to mind: who is Don Duet and what has he done?

Don joined Goldman Sachs in 1988 as an associate in the Technology Department within Fixed Income, Currency and Commodities in New York. He transitioned to a number of roles within Technology [...] He was named managing director in 2000 and partner in 2006.
Don earned a BS in Computer Science and Mathematics from Marist College in 1988.

Huh? Marist College? Looks like a small college in upstate NYC with not much in the way of a grad school element. So Don joined GS straight from school, and learned enough to be dangerous, then played the politics game to rise though the ranks of GS technology division. This should be entertaining. I hazard a guess that Duet doesn't know enough to know what he doesn't know.

What is Don Duet planning for GS?

Duet says it hopes to have these servers up and running within six months. "We want to get the point where we have machines that inherit some of the properties of the original Facebook designs, but actually work in more classic data centers."
[...]
In another echo of the big web players, Goldman has also made the move to "containerized" data centers. About eight years ago, Google started piecing its data centers together using shipping containers packed with servers and other gear.

Oh, Lordy. So Duet thinks that the computing problems that Facebook, Google and Goldman Sachs face are similar enough to adopt the same strategy in hardware? I don't even know where to start. And for state-of-the-art GS hardware he's taking the approach that GOOG took 8 years ago? WTF? GS is rumoured to have about 40,000 servers, vs the rumoured 30,000 FB servers in 2009, which (at an annual doubling) represents ~250K servers today; similarly, Google at 1mm servers in 2009 and maybe a slower growth rate should still be somewhere over 2mm servers today.

The other point I find significant is that in the whole interview Duet never mentions measuring how well GS is using the computers that they have. If their average utilization were 40%, and they could double this by introducing a market in computing resources among the GS divisions, that would be a doubled capacity for free. Maybe efficiency isn't what Duet sees himself as being paid for.

As a GS buddy of mine acerbically notes: "I'm sure, whatever happens, it will be declared a success [by Don Duet]."

Obama discovers the flip side of a compliant media

They don't ask the hard questions. Dana Milbank in the WaPo gives us the background to Obama's poor performance in the other night's debate:

In lieu of taking hard questions, Obama has opted for gauzy, soft-focus interviews with the likes of "Entertainment Tonight," gentle appearances on late-night comedy shows, kid-glove satellite hits with regional TV stations, and joint appearances with the first lady where questions are certain to be gentle. Tough questions are rare in one-on-one interviews, because Obama has more control over the topic — and the interviewer wants to be invited back.

If you want to find out how good you are at boxing, you don't take on old Mrs. Smith next door. You seek out your local boxing club's toughest fighter, don gloves and have at him.

I suspect Obama has been relying way too much on scriptwriters, PR aides and planning for his public engagements. He should take a leaf out of Bill Clinton's book -- no, really. In Barbara Olson's book about Hillary Clinton Hell to Pay: The Unfolding Story of Hillary Rodham Clinton she describes Bill at college where he would plonk down his lunch tray on the "black" table (hosting the small number of African-American students) and just start talking to the suspicious students there. Bill's no stranger to a hostile audience, and indeed seems to actively seek them out as a challenge. Barack has protected himself from hostile questions, to the detriment of his debating skills. Mitt is a businessman and his bread-and-butter is taking on difficult meetings - if a meeting is going to be easy, why not leave it to an underling?

Let me say in passing that the craven carrying-of-water for Obama perpetrated by most of the US and UK media is revolting to see. I'm all in favour of them asking tough questions of Romney and holding his record up for inspection; why, then, do they not do the same thing for his opponent? Case in point: the 2007 race-baiting video which USA Today has tried to claim was "widely covered" in 2008. My arse, USA Today. Maybe it was widely viewed among the media, but I'm a USA news and politics junkie and it's the first I've seen or heard of it.

I especially liked the talkingpointsmemo.com defence:

Despite protestations by Carlson that the media ignored Obama’s speech, CNN's Peter Hamby pointed out that FOX News aired video of the speech at the time:

So, and I'm just guessing here, CNN didn't air any of it? The only people who saw the video were those whom the media regards as being "in the tank" for the GOP? FFS.

The media are doing Obama no favours in the long term by sucking up to him in the short term. When he falls (and he will) it will be a hard, brutal fall that comes from nowhere with no real warning - because he, and his compliant media, have hidden him from all the warning signals.

Frantic rearguard action by the Civil Service

Following the well-publicised £40mm screw-up with the West Coast mainline bid and the (unprecendented?) suspension of three senior civil servants at the DofT, head mandarin Sir Gus O'Donnell tries to pull the Civil Service off the top of a very slippery slope:

However, Sir Gus O'Donnell, the former Cabinet Secretary, today blamed ministers for presiding over a Whitehall skills shortage and failing to pay enough to get the best staff.

They're screwing up! We should pay them more!

Interesting argument, Gus. I wonder how long the three civil servants in question have been working in the Civil Service. Are they part of the famed Civil Service fast stream? My experience with those clowns is that they are somewhat prone to leave a trail of destruction across each department they work with, and end up in a reasonably senior position with a large amount of experience in making mistakes. Either they learn from that and become tolerably competent, or their considerable faith in their own abilities is unshaken and they become positively dangerous.

I'm actually fine with the principle of paying good civil servants significantly more. However I want the overall wage bill to be neutral, Gus. If you want to pay some people more, you have to pay others correspondingly less - or fire them, and not splurge out horrific sums on the overly generous statutory redundancy. Gus seems to be wanting more pay and the current near-total protection from being fired. It is actually possible to fire someone from the Civil Service for incompetence, but it takes co-operation from the HR department and a good couple of years. Hardly the model of dynamic efficiency that Gus is promoting.

What now?

Sir Gus, who ran the civil service for a decade, today said mistakes will happen as under-qualified civil servants are forced to run increasingly complex projects.

I see a possible solution: stop trying to run complex projects when the department doesn't have the skills. How about that, Gus? I realise this may mean that the DofT has less to do and hence requires fewer staff, but from my point of view this is a win-win. For important projects like the West Coast mainline bid, bring in a small but competent outside team and make sure their financial incentives are aligned with the public's.

So whose fault was it?

He said it was not ceratin [sic] yet whether ministers were responsible for flawed policy or civil servants had wrongly carried out instructions.

I'd translate that as "my staff are frantically scrabbling around trying to put together a paper trail that provides cover for the three suspended personnel." Good luck with that, Gus.

Oh, and here come the PCS:

The Public and Commercial Services union, which represents one of the three Department for Transport employees facing disciplinary proceedings over the bungled procurement process, said public servants had been targeted as scapegoats.

Well, I guess "held to account for their actions" doesn't play as well to the peanut gallery. I suppose we couldn't expect anything else from Mr. Serwotka who clearly doesn't believe that pissing away a mere £40mm of taxpayer money due to outright incompetence merits suspension (note, not even disciplinary action yet, just suspension and presumably with pay).

The article does give what sounds like a plausible reason for Worst Great Western being allowed to win in the first place; the DofT has had a downer on Virgin for a while:

It [the antipathy towards Virgin Trains] stems from a renegotiation of the west coast franchise in 2006 – the consequence of a bungled upgrade of the route – that left the DfT feeling that it had been outwitted and outmanoeuvred, to the benefit of Branson and to the detriment of subsidy-paying taxpayers.

I bet people were happy with the result of the flawed calculation, and no-one wanted to look too closely at the numbers to check them...

The NY Attorney General is sending a message

And the message is don't try to help the Government, you'll only get screwed over:

The civil suit, filed by New York Attorney General Eric Schneiderman, accuses Bear Stearns of failing to ensure the quality of loans underlying residential mortgage-backed securities.
It relates to securities sold by Bear Stearns in 2006 and 2007 - before it was taken over by JP Morgan

Now, I give the NY AG the benefit of the doubt and assume that there is indeed a reasonable case to answer for (former?) Bear Stearns employees and management undertaking dubious deals in the run up to the 2008 financial crisis. However, CEOs Jimmy Cayne and Alan Schwartz were fired in short order after the takeover, so it's not entirely clear whom Eric Schneiderman intends to blame for the company failings.

Let's be clear about this. Bear Stearns was about to implode on March 16th 2008. That implosion would have had unknown but likely dreadful consequences for the American banking system. The Fed (and the Treasury Sec Hank Paulson) leaned on Jamie Dimon of JP Morgan to buy out Bear Stearns with nearly zero notice; JP Morgan had no time to do any due diligence on the takeover. For sure they got Bear Stearns at a good price: $1.2bn at $10/share, but they had no opportunity to do the kind of investigation that would have uncovered evidence of these alleged dubious practices.

Eric Schneiderman is working hard to ensure that when the next financial crisis rolls around (and it will), large American firms will be much more hesitant to step into the breach when the US Government asks. If they feel that they will be freely screwed over for Doing the Right Thing, why should they help?

Deputy general secretary of the TUC wants more unemployment

Frances O'Grady of the TUC, writing in The Grauniad today, seems to favour more unemployment. Lots, lots more unemployment:

The twin track of wage growth since the turn of the century is illustrated by a statistic calculated by One Society, which found that if the minimum wage had increased at the same rate as the pay of FTSE 100 directors since its introduction in 1999, it would now be almost £19 an hour, rather than its current rate of £6.19.

I'll accept that statistic at face value.And in return, I'll note that UK unemployment since 1999 has risen from 6% to 8%; and the minimum wage purchasing power standard has risen from an index value of 800 in 1999 to 1150 today, or nearly a 50% jump.

If we raised the UK minimum wage to £19/hour as Frances O'Grady implies she wants us to, I wonder what would happen to that unemployment rate?

Perhaps we shouldn't be too hard on Frances since her BA in politics and modern history and diploma in industrial relations and union studies means that she has never been troubled by such considerations as wage costs. Given that, though, it's surprising how keen she is to spout confidently such rubbish...

She opines:

We need fairer wages for those in the boardroom, with employees having a seat on remuneration boards and packages that run in line with the long-term health of a company and not its short-term share price. And, of course, we need strong unions and more collective bargaining.

Ah, "fairer". That wonderful word. What's fair, Frances? Who judges? Now, I'm all in favour of better alignment of managerial remuneration with a company's medium-to-long-term profits; the temptation to loot the company with terrible short term decisions in order to general a temporary blip in salaries is deplorable. I'm not, however, convinced that putting regular employees on the board is going to make much of a difference.

I'm also not convinced that unions are particularly weak these days; they seem to be very solidly represented in the public sector. If Frances feels that unions don't have much traction in private companies where the management are actually accountable for profits, she should ask herself why that might be. Perhaps a relentless focus on the wages of the average worker and ensuring that the company is unable to sack bad employees or reward good employees might actually be counterproductive to gaining wider union representation?