12 November 2012
I've recently been to Greece for the first time in a few years, certainly the first time since the debt crisis has threatened the future of this beautiful, if volatile, land (and sea). It all feels very poignant. While in the Cyclades I completed Nicholas Gage's enthralling but harrowing semi-autobiographical 'Eleni'. A Greek friend, but I can't remember which one, had urged me to read it ages ago. Eleni recounts how a family, or really an entire country, tore itself apart during the post WWII Greek civil war. Like most I imagine, I had little previous idea of the extent of the tyranny that raped Greece from within, commencing just after the Axis forces had (often murderously) withdrawn. I certainly hope that Greece does not turn on itself again - and I am in no way indicating that presumption in my extolling of Eleni, although it's hard to avoid such inferences when evidence of collusion between the police and fascist organisations comes to light. However, now just as then, I think we are witness to another mass exodus of Greeks from the territory that has been so bitterly fought over since pre Ottoman times. A new wave of Greeks are leaving, or will leave, just as previous ones have created an unusual situation in which as many people who call themselves Greek are non-resident in Greece (about 11 million) as those that are. Many that can are leaving or plan to. I think every single seasonal worker I met in Mykonos had that intention as they look to dire prospects in a winter in Thessaloniki or Athens. I know others who are securing their non-Greek residency papers with urgency. Greece, like other places, is abandoning itself. I say this with no accusatory overtone. Yet at the same time it has of course the capacity to make matters worse. Of those precious €2000 imports to the island of Mykonos, how many of them would eventually remain in Greece?
With departing citizens, we have departing capital; capital in all its forms. Entirely understandably, many Greeks are exporting themselves and also their money in order to protect it. However, such moves are ultimately based on a fallacious logic. The fundamental misconception we all have with money relates to only one of its functions - that as a store of value, i.e. an asset. Once we have money in our possession, obtained through whatever means, we have a conviction - entirely but imperceptibly false - that the value stored in that money is entirely under our control. In other words, naturally, we believe we own our own money.
The problem is, it's just not true.
Whether you stash cash under the bed or invest it elsewhere, the value of your money depends entirely on what everyone else is doing, or maybe I should say on how they are doing. Everyone in your street, your city, your state, your currency area, your world. Money as an asset is an intrinsically social-economic entity. Like any other asset, its value depends on what everyone else thinks it’s worth. Hence you are only a vanishingly small part of the machine that controls the future value of what you own. The control of your own wealth is a total illusion.
Key to this is cooperation. And cooperation for mutual good is sorely lacking. The received wisdom, as ever unverified and incomplete, around our particular form of post-Reagan/Thatcher/after-Mao mismanaged capitalism, something I would argue is not true capitalism at all, is that it has performed well in encouraging society to put terrestrial and intellectual resources to good use and create wealth. Although in some parts true, it has however, despite some failed attempts, neglected to convince the individuals that form a society that they are interdependent - at every level - from neighbourhood to international. This disastrous and feeble-minded world view was perfectly encapsulated by Thatcher's infamous "there is no such thing as society". How wrong that is. Interdependence is woven into the very fabric of economic existence. It is an inescapable axiom. It's lacking cannot be hedged. No matter how 'exotic' the derivative. As this incarnation of capitalism has purposely neglected to educate for, protect and promote interdependence, it has naturally evoked its self-destruction.
In a fundamental, but entirely ignored, nutshell, if you want to sell, you depend on your buyers' future wealth. And there is no other way to create wealth than to sell. (Any forecasted wealth on an unrealised transaction is tantamount to astrology – not an insignificant comment on the whole credit crunch, in fact). These basic facts of life seem to have been forgotten in the 'MBA' revolution. If your buyers, be they neighbours, inhabitants of other countries, or, importantly, their or your future children, have no future buying power than you can have no future wealth.
The hardest thing to grasp, I believe, is that the value of money - including yours - is arbitrary. It is an abstraction.
If whatever you are trying to sell has no buyer then the value of your assets decreases. Housing crashes are the most evocative example, but recessionary unemployment is no different; just that here no-one can afford to buy your time. As well as your house or skills and labour, this apples also to the money in your bank account. No asset you own has any value unless someone else can afford to buy it or pay to borrow it. If no-one can afford to buy your time to work, or in that job no-one can afford to buy what you intend to produce, or no-one can afford to borrow the money off you in your savings account, or no-one can afford to buy your house (whether you want to sell it or not), then your wealth decreases. Summed up over an economy, over a society, then the value of that economy decreases.
There's another level of abstraction making things even harder to grasp; the value of your money depends not only your buyer's wealth, but more pertinently on your buyer's ability to borrow. To recap: your wealth depends on your trading partners' (your employer, your house buyer, Greece) buying power. More often than not, this has depended on the size of their interest payments. This is why it's all such a disaster. The international private (companies) and sovereign (countries) debt crisis did not materialise overnight. Actual debt levels of countries do not change quickly. But we're not operating there. We're operating in a world where your buyers' remainder pocket money is very much defined by what's left after the interest payments - and it's these that can change (and did change) very rapidly. Ok, it’s very easy to say that if the debt wasn’t so huge (or didn’t exist even) then the interest on that debt would not be a problem. However credit-driven ‘development’ or ‘growth’ has been the modus operandi of the whole world ever since at least the Medici’s introduced bonds in Florence donkey’s years ago. Whether credit itself is more beneficial than maleficent is hopefully the subject of further writing.
It is at best fatuous for current western politicians (it's a misconception to call them leaders) to rant on about national debt levels. They didn't give a damn about them before. Note the gargantuan national debt frivolously amassed during the – ermm –republican presidency of the world's most capitalist economy. They should rant on however about their nation's interest payments. Connected yes, but different. So who defines the interest rate? Whoever wants to make money by lending (selling the right to use) their money. For national economies, that's known as the bond market. And this is why national treasuries are, for right or wrong, at the mercy of 'the market'. There is a very interesting potential side note here on the challenge to representative democracy by the consequent power of the bond market (itself just a large collection of investors and their trader agents) over heavily indebted (oh, that’s nearly all of them) countries.
So, from a transnational to a household level, your wealth (as and only as a seller) is defined by your buyers' purchasing power, which is in turn defined by how confident their lenders' are that they can pay them back. In some cases, 'you' may be the lender. As I said, interdependence is woven into the very fabric of economic society.
A further level of abstraction is added to the value of your money by central banks’ monetary policies. If national rates are lowered, net asset holders lose value and debtors gain value. I say net as many citizens are a mixture of both. If central banks ‘print money’ (explanations elsewhere) to boost economies then they also reduce the value of all prior existing money.
So, market interest rates (yours, your buyers'), central banks and also inflation control the value of your money. The important conclusion is that society certainly does exist and every seller should have regard for every buyer (and vice versa) as they certainly need each other. When Jesus said, as some may believe, 'love thy neighbour', he really meant it. If pressed, he may have even said 'unless you love your neighbour then naïve capitalism has an inevitable tendency to self-destruct and ruin both the rich and the poor, leaving this beautiful earth to all non-human creatures’.
In post-industrial England's case, much of the local market of buyers has long been abandoned and in its place has surfaced an in-my-lifetime unprecedented level of social division and demonisation of the marginalised. I don't care if things have been worse in Victorian times. That's no excuse. They are getting much worse now and that is wrong. According to KPMG's recent report nearly 5 million or about 20% of British workers is paid less than required for a minimum basic standard of living. Whether you frame it morally or economically, the conclusion remains the same. It's wrong, unwise and stupid. I recently overheard someone referring to people on 'the other side' as 'povvo's'. My aghast expression at this new low in castigation brought forward an attempted justification of the term, an explanation that it derives from 'poverty'. What, the new, more acceptable term for 'chav' at London dinner parties? I wouldn't mind, but the povvo's in question were skiers in Val Thorens as opposed to, presumably, those in Courchevel. Horrific. And a sign of a crumbling society if I've ever seen one. And how, exactly, can any skier be associated with poverty? Much of this horrible nonsense is explained because the overindividualist illusory version of capitalism with which we have all been brainwashed measures societal wealth only on financial capital. And it forgets that financial capital is dependent on all the other forms of capital. Hence teaching is viewed as a 'rubbish' job compared to being a lawyer. Imagine explaining that one without blushing with shame to some advanced extraterrestrial.
England's social problem (it's far from alone) is that the labour buyers have made too much of a false economy in buying labour overseas. What society and its representative government should have foreseen however is that as a result they have reduced the purchasing power of the local market by refusing to buy their labour. As is typically the case, the tunnel vision economics of the British 'right' justifies a large long term economic cost with a myopic short term gain. The net result is a semipermanent economic exclusion of wide swathes of society - open your eyes, you can see it everywhere - and therefore also a serious diminution of any local buying power. This means everyone's future wealth is now much more dependent on overseas buyers (and present and future unborn taxpayers) than before, a riskier and more fragile position for anyone to be in.
Profit motives, often self-righteously but sometimes correctly a.k.a. greed, are vitally fundamental to economic welfare. But their benefits shortly expire if they are not accompanied by a holistic economic altruism. If you are of the sort who bathes in a self-satisfied tory/neocon outlook, even that doesn't work; economic structures that break down interdependence in a society only offer a fleeting benefit to the small number practising them at that time. Later on, absolutely everyone suffers. But maybe that is your point? Asset owners are naturally protectionist and capitalists become extraordinarily anti-competitive. They cannot see that they need to support and protect everyone else otherwise their own assets will wither and die; leaving them to wallow, rather than bathe. They don’t see beyond five years at the most. That's why society (and in that, representative government) must make sustained economic interdependence intrinsic and unavoidable. The UK tories are international experts in this misguidedness. They actively erode interdependence between different parts of society. In fact they also do this as generally they don't want the competition to the persistently rancid English class system, of which they preternaturally inhabit predominantly one sector. What other logic could explain enforcing ever more locally-funded education? How exactly can Hackney compete on a level playing field with those game rules? But even the tory status quo is ever more fragile as they unwittingly and inexorably undermine the value of the wealth that it is built upon. They simply cannot countenance the reality that is the fundamental necessity of looking after their buyers, chav or not. A nation of scientists, engineers and manufacturers has been antidiversified into a 70% service economy all in the name of an irrational obsession of buying too much cheaper labour overseas.
This interruptible natural cycle of overconcentration of wealth, leading to its eventual destruction, has been repeated countless times since we started economic specialisation in the Fertile Crescent. We have had enough practice to be able to better at avoiding it. The problem is, a seriously antiprogressive characteristic of human society starts to kick in as soon as inequality crosses a certain level: tribalism. Camps are divided and lines are drawn. 'Leaders' tend to take advantage of tribalist feelings and fuel the fire and further the diminishing interdependence, simply making everything much worse. There is much of this demonisation in Britain at present. Religion is often abused to further such divisions, of which again there are countless examples in history. Of course that does bring my mind back to Greece. Just how much would Greece's current nightmare be reduced with the kind of economic interdependence with Turkey that you would really expect from neighbouring advanced countries in 2012?
10 June 2010
On Speculation and Investing
The intersection of speculation and investment management, together with the relationship between these two often separately-categorised activities, escapes sufficient scrutiny. It is important to look at this relationship and therein attempt to discern investment activities that may or may not be pernicious to any party involved: the investor (or their client), other market participants, the market itself and even expanding right out to the scale of the economic society hosting the market concerned. There are potential moral and economic conundrums that emerge as a result of many investment activities, including speculation. The history of finance is regularly delimited by marker events in which finance’s potential for destruction overtook its huge capacity for (the support of) economic creation. Time is more than nigh for a novel anticipatory and preemptive approach to financial oversight. Given the burgeoning, potentially long-overdue review of financial sector regulation, there is much ado at present contrasting the roles of international finance in efficient capital allocation – true or productive 'investment' – and what some in very high places deem the 'virtual casinos' represented by some markets. There is a popular perception that the financial industry is in competition with the rest of the world, i.e. a trader’s gain = society’s loss. Where untrue this needs to be corrected (financial firms are mostly in competition with each other); where true the harm must be eliminated.
It is now retrospectively incontestable that the dogmatic recent past of the Friedmanian ‘Washington Consensus’ concealed an inevitable loose cannon. The expected self-regulation of economic laissez faire due to a firm’s self-interest does not materialise – reference Greenspan himself. The general admissal of what we always knew (that it was total baloney) is somewhat extraordinary. The shame of those that denied this no-brainer-to-a-five-year-old must be borne equally by those who promoted it and the politicians who acquiesced; when the cat is away the mice will always play. Large, 'cornerstone' financial institutions have been seen to self-destruct, floundering spectacularly with a shocking speed, triggering a domino chain of panic, bankruptcy and rescue pleas. Moreover, the debt raised in recapitalising the crippled international credit-banking system has led to a large scale transfer of privately-generated risk into the public space. It is a possibly sad but incontrovertible fact that free market capitalism in the end sought massive recourse to state control. Herein lies something undeniably perverse.
Consensus is now high that regulation needs reworking. The ideology, never mind the politics nor the economics, that underpins and sometimes window dresses international finance is now something of a vacuum. There are important, and contentious, debates around various Tobin taxes, new central clearing houses and novel oversight mechanisms, but there are no real new ideas, no new paradigms being mooted. As for being under the spotlight and the magnifying glass with a renewed vigour, the likes of Lehman and AIG, for example, cannot protest. The camp that insisted capitalism’s arch defence mechanism against undisciplined firms – the grim reaper of bankruptcy – was left to enact its role had to pipe down and look away; they realised that the firms were so important that letting them fail would literally let the world fail. Others have little argument and governments have little choice as they have had to pay out an unprecedented rescue package in the name (and purses) of their electorates.
Amongst everything else, much talk is again about speculation. Only recently the FT is highlighting, for example, the two hedge funds Winton and AHL’s large short sterling positions. Proclaimed or not, the tone of the article is unmistakably ‘should they be doing that?’, ‘is that trade acceptable?’ etc. – and this is in the FT. As regards the now AAA-fatigue-rated term ‘credit crunch’, I don’t believe most would say that speculation per se is particularly the card that brought the pack down. That, we know, was excessive leverage in a myopically-bubbling US property market, efficiently lubricated by unethically sold, unaffordable loans that were packaged and rebranded as good credit. More on leverage soon. But it must also be examined whether speculation formed more than one of the other weak cards. The property market was not only bubbling due to genuine, real demand; speculation in property was also very active and now must face close inspection.
For some there is a sense, perhaps a seemingly intuitive sense, that speculation in itself is predominantly a non-ethical activity. Simple gambling. But gambling on what exactly? Some may feel that betting (or having your pension fund manager, or your employer's treasurer, bet for you) on the British Pound versus the American Dollar is less morally substantiated than betting on the future of British Aerospace or Google. There’s a logical flaw in this line of thought however; it is a fact that all investment, i.e., purchasing any financial asset (including your house) is gambling. No rational person (and in many but unfortunately far from all cases, no asset manager investing your money) would purchase any asset with the expectation that the value of that asset will fall. The timescale envisaged for this rise may of course vary. Hence they expect the value to rise -> they are betting on a rise -> they are gambling. Is this wrong? Is this ever wrong? Or is this beneficial? Always, or sometimes? The key to more understanding of these issues may be found in analysing either their effects, or in the mechanisms behind the moving prices of the assets concerned, or both.
In a capitalist system, when we are talking about the stock market for example, the accepted wisdom states that the cumulative effect of all the interested parties buying and selling shares in individual companies (= the 'market') is to optimise the capital allocation process to those companies, directing it to those that will use it best. What 'best' means is another, very complicated matter, one that I would love to discuss, but not here. We will have to assume that 'best' means doing the right thing, i.e., being paid for 'making' what people 'want', being innovative, creating employment etc. The point of this kind of market allocation process is that the best decisions are supposedly made if the market is composed of lots of independent agents forming their own opinions of such matters – the wisdom of crowds effect. Not surprisingly, this, again, opens another gigantic can of worms, but again, that is a great subject that is not to be dealt with here. Although cognitive dissonance makes me feel ill, to continue we will have to falsely assume that this process always works well, or at least should, or at least could. So, self-interested individuals gambling in company shares leads, in theory, to money being invested where it should. Very few people, subject to my horrendous assumptions, which elsewhere do need serious attention, would have a problem with this.
Now what about other assets? Currencies, for example, are funny ones. Investing in a currency is different, because you can't buy one without simultaneously selling another. Buying USDJPY means selling Japanese Yen and buying the monetary equivalent in American Dollars at the prevailing rate. So what does investing in this relationship mean? It means that you think the $ will gain in value with respect to the Yen. So is it more 'wrong', or less 'right' to speculate in this manner compared to investing in a company? It could be possible to persuade yourself that this kind of bet has no functional benefit. Lots of people do. But anyone prepared to speculate in this manner obviously has the expectation that the $/Yen will rise in the future, and they may have very good reasons for such a view. They may have more information than others as to why the price will move in that direction. Their action of speculative trading incorporates that information in the price, i.e., in an open, transparent market (as currency markets relatively are), they share their information with everyone else. If you are a large American company that has to buy a lot of Yen tomorrow to settle an outstanding order, then incorporating this information in to the new lower Yen price is definitely to your benefit.
So speculation encourages information-absorption into prices. Speculation leads to arbitrage whereby prices of equivalent ‘things’ are harmonised across markets. And is this 'good'? Yes, clearly, it can be, for everyone. It is undeniably to the common good that the maximum information relevant to any monetarily-valued ‘thing’ is incorporated in to its price as fast as possible. If you think this may not be true then you must accept that there remains at least one potential trader that is privy to some private information about something’s future value and you would prefer that information to remain hidden. Not a very satisfactory conclusion. So is speculating (on currencies) therefore always good? Well, maybe, that depends. There is still possibly a case, and for many most definitely a latent lingering hunch, that 'excessive' speculation is wrong. People I know in the business have a sometimes-expressed view that everything is ok until the speculative capital in any market becomes dominant. But how much is excessive and when is this excessiveness dominant?
One problem impossible to underestimate with speculation, in all markets, in fact in much of human behaviour, is inappropriate herding. Note that financial markets, although appearing as somewhat esoteric constructions, are nothing more than systems of aggregate human decisions. The actions of the original, independent, information-carrying agents, those that trade based both on their direct contributions to supply and demand and on the information they hold, alter prices, pushing them up or down. Of course, others simply follow and continue to fuel the momentum, or trend as it's less glamorously known. And they in turn attract others. Who attract even more – it’s the kind of compounding in finance that we really don’t want at all. Don’t be shocked at the naïve reality of ‘asset allocation’ or investment decisions made by the generality of the investment management industry. They really do just follow each other. I won’t go into detail here, but it is very easy to demonstrate and many have already done so. If currency ‘trend following’ has ‘been doing well’ recently, then they all pile in, like flies on … In currencies, for example, there are many hedge funds, the subcreed known as CTAs, whose raison d'etre is only trend following (or at least it represents about 80% of what they do). They are paid a surprising amount to simply buy what went up yesterday and vice versa. Ok, this is a slight oversimplification, but not an excessive one. Herding is a natural, inevitable (at present), emergent property of the current system. At this juncture then, surely the whole point of the market: that of incorporating all relevant and known information into prices, the price discovery mechanism if you must, just falls apart. It is simple to then assume that ‘real’ information is no longer driving prices, prices diverge from true value, and that the crucial component is uninformed bubble-chasing, bubble-fuelling join-the-trend-ism.
Is this what happens? Should this happen? If such a marked phenomenon develops then, if the price is being supported (or depressed) by an irrational, codependent herd, then surely this ‘incorrect’ price can be corrected? Someone can ‘buck the trend’. Are there not other traders around who deduce that when herding behaviour is dominant they should trade against it, cancelling out the effect? Can the 'greed' of speculation be therefore used to calm the fever? When an irrational trend (a bubble in any other market) is boiling away under its own exuberance in foreign exchange, is there sufficient intellect (and investible capital) out there looking for excessive speculative herding and being paid to cancel it out? Maybe not. There are certainly counter-trending investors out there, but are there enough? Should there be more? One salient fact: it is without doubt more difficult to sell a counter-trending strategy to investors during a prolonged period (dozens of months) of bumper trend-following returns. At this time the pure trend-follower will however be a relative money-magnet. There are significantly different incentives for the money manager choosing to be with or against the trend. Trends seem to be characterised by going on too long, overshooting massively and ending very quickly and unpredictably, much to the unbridled chagrin of many a CTA investor. One thing that the CTA managers seem unable to do after all, is predict when any trend is going to fall apart. And maybe, if such managers exist, the small number that are good at forecasting a blow-up are not going to be feel superincentivised to tell everyone else. We have therefore, at least two systematic mechanisms that are entirely pro-trend: it’s an easier strategy to sell and even if you successfully sell a counter-trend strategy, a profitable counter-trender won’t benefit from sharing their secrets.
Timescales, another weak point in capitalism’s armour against poor economic management, are not without import. During the trend, the investor will tot up a positive compounded return, month on hubris-laden momentous month, until such time they will suffer a couple of negative months when the party’s over. By this time, the fund manager’s performance-based commission is in the bank – I have yet to see a symmetric fee structure whereby the manager charges a negative fee during a negative month. Ok, most managers operate a ‘high water mark’ fee policy and only start charging performance commission again once the previous loss is regained, but funds can go bust or just be closed in the meantime. On the other hand, the putative counter-trend strategy stands a chance of coming out much better in the end, but their investors will need to stomach, apologies in advance, ‘investment horizons’ of many months, if not years. When it comes to irrational prices, as with everything else in humanity, the truth will out, but it can take an awful lot longer. Capitalism’s credit-driven cash flow demands, often a positive economic force via incentivisation, are intrinsically short-termist. They temporarily favour the ‘wrong’ but profitable strategy of today that blows up in a year over the longer term ‘correct’ view that would leave you in the black in 3 years’ time. Money management is a commission business; performance fees are calculated monthly: go figure.
So does this kind of behaviour, in any market, only lead to harm and things like the much maligned 'currency runs' in foreign exchange markets? Surely. Maybe. Not that the collapsing value of one currency against the other is necessarily the bad bit, rather that it rose to an unsustainable value in the first place. An important point to note when it comes to thinking about the possible deleterious effects of excessive speculation: for every buyer there must be a seller. In the, again, FT the other day, someone wrote in amusingly asking for the counterparties to all the current short sterling positions to identify themselves, so he made sure he didn’t invest with them. In currencies, what does this counterparty availability mean? If you keep buying USDGBP one year into a 10% trend, does the existence of a seller at this elevated price mean there is someone who thinks the opposite of you? In currencies, most probably not; international foreign exchange is such a gigantic enterprise, the continuous demand for exchanging of currency makes for a very deep and liquid market; you’ll find a counterparty to your trade at any price. But what about the oil futures price during the highs of mid 2008? Commentary was all on speculation-driving prices back then. Without doubt trend-following commodity traders were buying and supporting that trend. At the time there was little investment potential elsewhere, which left buying primary industry capital much in vogue. Portfolios everywhere ‘diversified’ with an inventory of oil, nickel and gold. And who were they buying the futures contracts off? The producers presumably; they would be more than content to cash in today’s production via a rising futures market. While the trend lasts, for oil today just as for Dutch Tulip bulbs back in the day, it’s a bonanza for the producer and the speculator – but poignantly the opposite for the oil user – and that’s the, err.., entire world economy. When the oil bubble popped, 140 to 40 USD remember, the trend followers had collected lots of performance fee off their investors and the producers had sold oil still in the ground at an interstellar price. Everyone else had lost out.
All the same, while climbing a bubble’s peak, a neurotic cognitive disconnect reigns amongst the mountaineers. There is a general acceptance that something is wrong, that fundamental value’s importance has reduced to a drop in the barrel; but an inconsistent orthogonal view simultaneously holds: that prices will continue to rise – with oil at $140/barrel there was consensus on a $200 forecast. When only speculation is in charge, the capacity for harm is unbounded. Let’s not entirely unreasonably imagine for a second that the ‘real’ price of oil should have been $80 when it hit $140. Accepting this hardly rigorous estimate, effectively we conclude that oil had a $60/barrel irrationality-premium. With ball-park global oil consumption at 80 million barrels/day, the global misspend on this premium comes to circa $5B/day: the gigantic extent of wasted capital near unimaginable.
So, there is a conspicuous argument to be made that, for example, speculative trading can at least sometimes be generally and devastatingly harmful to the structure of world for the benefit of the very few. What to do? Bluntly limiting speculation by misguided regulation will impede the price discovery process, the kind of market self-correction mechanism that is the whole point in the first place. However, encouraging processes like, i.e., counter-bubble corrective speculation must be increased, as they are surely lacking. Innovative thinking is also required to remove the inherent conflict of interest in the timescale problem. Is it a good idea to incentivise the antibubble speculator and how could we do that? How about charging performance fees on a retrospective moving average? Could states ever be persuaded to take out a short bubble position? How about the World Bank?
Bubble-chasing is another example of capitalism’s unfortunate race to the bottom side effect. Think ever more underpriced sub-prime mortgage-backed securities: “We know they are selling them cheap, but …” If something that turns out to be sub-optimal (in an objective, public good, sense) develops and is found to be profitable (in an individual, subjective sense) then it is emulated. Despite the inherent negative ‘externality’ (e.g. a currency bubble), if one firm joins the party, then to remain competitive others are similarly obliged. This brings us to the fundamental issue with capitalism: capitalism is based on market economics, but, triple-underlined but, its individual component economies are too simply calculated; they are narrow and frighteningly ignorant. Much has been said to decry central control’s naïve analysis, the kind that leads to Maoesque, Stalinist disaster. Now capitalism’s near wilful ignorance of hidden, delayed cost is tarnishing the sheen of its place on the economic system trophy shelf. Because the buyer is unaware of, or not subjected to, the cost of the externality, the buyer won’t pay to avoid it, hence the firm who wishes to avoid it will be penalised. Look at oil. There’s no need to consider the contemporary subject of earth’s growing carbon storage-heating system, just look back to the child-poisoning leaded petrol of the recent past. Once an externality is known (notwithstanding the argument that they should be actively sought out), the role of the state that chooses to practice capitalism is to impose correct treatment of the externality by the subeconomy of concern. As we have, most justifiably, globally accepted a doctrine of cost-based market forces, accounting for externalities now represents the most fundamental and crucial challenge of the today’s globalised society. For any microeconomy, be it ‘cable’ (USDGBP currency trade), disposable nappies or heating fuel, if the externality is not ‘internalised’, i.e. taken into account, then the economy of that system is simply incorrect. Implication: the sums are wrong; result: the capital and resource allocations it directs are wrong; in the end it is all just wrong.
It’s actually worse than this; it’s complicated by the fact that the ‘true’ value of something is not independent of its trading, market value, which itself may be dominated by the effect of irrational speculation, aggressive shorting, or some other ‘non-fundamentalist’ position. There is a feedback mechanism back from market value to fundamental value; what something is worth is in part dependent on what people think it is worth. It’s not difficult to instinctively expect this to be the case, but it’s more systematic than that. Back to the credit foundations of capitalism: a large part of a bank’s valuation is based on its ability to lend; that of other companies on how much they are able to borrow. Both sides of this ‘credit score’ are judged predominantly as a function of their share price, those doing well in the stock market are judged to be able to lend or borrow more: hence real value and trading value are intimately linked. Once irrational factors assume a dominant stance in share values then the vicious lunacy feedback cycle can commence.
So errors in real value are compounded by the feedback of irrational components in market value. And at times this can become supercharged with leverage. Leverage can pollute the market as a ‘geared’ position amplifies the effect of any irrationality it may be based upon. There’s also a deeper, subtler issue with borrowing money to increase the size of your bet: it messes up the market’s information aggregation mechanism. Leverage introduces what may be non-linearity between information and the capital deployed to incorporate it (i.e., bet upon it). In other words, if you are willing to bet x based on a view/forecast/alfa/information of size X, and you then leverage your bet to 2x, this does not now imply that you ‘feel’ information of importance 2X; you still feel something like X. The extra, leveraged x does not cost you as much as the original one, so you require less ‘information’ to justify it – just look at UK mortgages pre credit crunch. None of this would necessarily present a problem if the playing field of access to leverage (credit) were level across the market. But it’s not. Due to the incentivisation structures and strategy timescale issues previously discussed, the bubble-, inter alia, fuellers have an enhanced, asymmetric access to increased leverage. Market participants who are more likely to contribute to an irrational trend make more money in the short term, giving them the apparent but misguided luxury of having more access to leverage, further increasing the impact of their activity. The far-from-the-madding-crowd strategy cannot access the same gearing and hence is even more relatively undercapitalised.
I acknowledge that, for example, a financial bubble is not as obvious an externality as is pollution. However, as a bubble introduces unexpected large costs to everyone else, I think the analogy is powerful. If the financial industry and society started to view speculative bubbles as another form of externality that requires correction then mindsets could be changed in a beneficial manner. In finance, the ‘externalities’ are often contentious and always complex. No one sector can act as analyst, judge and jury in this arena; it’s too complicated and biased vested interests inhibit rigour. A healthy world demands a collaborative ongoing search for financial market externalities. We need to end the capitalist-regulator war of attrition. Apart from its ineffectiveness, it is also ultimately childish. The tripartite body composed of financial practitioners, regulators and academia need to get their heads together on the same team. States and multi-lateral organisations need to incentivise the community of capitalists to collaborate in the elimination of the externality. The alternative, the one practiced to date, is that the externality-ignorer will always be short-term profitable and one step ahead. The ultimate source of appropriate stewardship has to come from within. This means financial firms need persuading that externality avoidance, being of the common good, is also of their good. We have seen through the feedback mechanisms between real and market value that all financial entities are interconnected. Effects, whether rational or not, spread across the entire system and can be dangerously accelerated with asymmetric leverage. Hedge funds, according to some the devil incarnate (on the whole, but not exclusively, incorrect), certainly should play their role in reshaping and renavigating the regulatory landscape. For sure there was hedge fund involvement in the risk-myopia preceding the credit crunch. And some of them rightly fell. However, there were no cataclysmic hedgie-related explosions in this financial crisis; there was no LTCM II. Two principal reasons: firstly, everyone had already learnt from LTCM (by definition, historical covariance matrices cannot be crystal balls) and secondly, hedge funds primarily trade their own money. A more relevant statement on this entire subject is impossible to compose. Collaborative oversight’s persuasion mechanism should encompass all possible avenues: financial (fiscal?), practical and moral, with a sprinkle of compulsion here and there. An international collective needs to be constructed, well represented by all agencies, whose aim in life is to seek out and protect from the ‘externality’. The practitioners are the ones who will continue embarking on new strategies that may produce an unassumed infectious risk contagion. It is only they who can really help. Yet independent self-regulation is simply impossible, not in least due to the incomprehensible complexity of a modern financial institution’s structure. Simplify those structures = simplify the global tax system. Time-old regulator-trader adversity is entrenched and produces an ineffective stalemate. Left vs right wing party politics are now irrelevant. The only sustainable successful financial market future will build on a paradigm that fills in the trenches and invites everyone to the same table to sort the mess out. Imagine a world in which the citizen is as poignantly aware of the ‘leverage danger’ level as we regrettably are of the far more arbitrary ‘terrorist danger’ alert. Insane levels of leverage based on simple mass cognitive errors certainly require control. But governments can’t do it; only compel it.
Our inherited conservative vs liberal, capitalist vs socialist tribalism is now a trite, irrelevant legacy. The holistic analysis of international financial markets needs to finally get serious and be evidence-based with a cumulative, self-correcting scientific approach. The effort to answer such deep questions as ‘when is speculation harmful?’ or ‘when is liquidity provision saintly?’ has to be ramped up by orders of magnitude, that’s if it even exists at all today. Let’s not even mention short-selling. The uncertainty is large, but the time has long since elapsed when we could assume that nothing is wrong. Definitely warranting further scrutiny are: ‘non-productive’ speculation, short selling, leverage, arbitrary derivatives-based leverage, any non-centrally cleared instrument and any other ‘difficult to value’ (seldom-traded) instrument. Note that I do not imply that I think these practices are necessarily universally harmful. We do need however to find out if and when they are and take appropriate action. When validated, society should be informed of their beneficence where appropriate. Finance too must have its advocacy when and where credit is due. An industry of analysis, meditation and modelling of investment practices, whose aim is to titrate the societal beneficial from the best-avoided needs to get organised, incentive-aligned and respected. The intertwined roles and effects of trading in systemically-important financial instruments demands proper inspection and governance. Throwing stones in financial ponds makes ripples that travel far. Before you throw, you need to feel that. The academic aspect of oversight is certainly underfunded. Compare the budget of the Pentagon to that of the SEC, and then realise that they are mandated to protect from risks of not dissimilar, catastrophic magnitude. Significantly today, the moral case is massively undervalued: much glory may be poured upon the temporary profits of the (un)witting externality seller; little honour bestowed on the one who saw the warning signs. Can we incentivise the ethics? At present they are arbitrary; but what if they (or their effects) are quantified? Moral compasses are misaligned on an incomplete economic ideology; a recalibration is required. The true capitalist cannot be against this; the capital allocation process is governed by competitive advantage based on relative performance. If externalities are considered globally, relative profitability is not changed. All boats rise and sink on the same tide. The water level is invisible. Destruction of hidden externality leads to less future destroyed capital. It’s more expensive to correct future mistakes. Hence more capital tomorrow for better allocation elsewhere. Correct, intelligent regulation must at last be aligned with self-interest, therein lies the challenge.
© April 2010
 John Kay, The long and short of it. Comments on the difference between profitable investment and gambling.
5 March 2010
What are you thinking of, talking of axing 6 Music? It’s a now regrettably-lonely example of something the beeb used to do so well: avant garde, trend-setting production and broadcasting. Everyone who listens to 6 Music raves about its quality. Every new young radio producer wants to work there. Does that mean nothing to you?
Despite simply being a damn good station, 6 Music represents an important soundboard for unsigned UK bands; it’s therefore a crucial component of the UK’s cultural fabric. It’s exactly the sort of thing the licence fee should be used for. It represents a valid investment in the nation’s cultural future. Instead of cutting it out, why not consider giving it justice, offer it the position it deserves? Don’t confine it to internet radio and digital TV, broadcast it too (I know it’s on DAB, but …). Get in inside people’s cars. Advertise it. Get it promoted at music events. Treat it as it deserves.
Thinking about where the BBC puts its money, I’ve had a little look at the current portfolio of productions, and it leaves me wondering why cutbacks should be aimed at such an original medium as 6 Music. Inspecting today’s availability on iPlayer for instance, I can’t help wondering why there are 27 items available under ‘antiques’. Is the cultural importance of antique trading so important in the UK to justify this important an investment in such a narrow field? Or why, for example, does the BBC insist on contributing to the incessant drivel of low quality house-moving boregrams with a commitment to a tenth series of ‘To buy or not to buy’? Everybody knows there is only one decent property program in the UK, and that’s Grand Designs, made by Channel 4. Given its unique, unfettered funding, if the BBC makes anything, it should make the best or not bother at all. 6 Music, unlike ‘To buy or not to buy’, is an example of the BBC at its best. Taking it offline is exactly contrary to the whole point of the BBC.
It is not true that there is a general resentment in the UK about paying the license fee. This is a politicised myth peddled by those who have vested interests in curtailing nationally-funded broadcasting. It’s indistinguishable from those that decry the NHS, despite it being one of the world’s most cost effective and efficient health systems. Britons overall support the license fee, as they are proud of the world dominance in quality broadcasting their investment entails. Doing things like axing 6 may well in the end start them wondering. Is that what’s afoot?
Of notable importance, as has been highlighted with talk of paypackets of Jonathan Ross, Jeremy Clarkson et al, is use of the license fee to excessively remunerate those whose justification may be hard to comprehend, not least that of management too. The BBC funds are public money and as such the BBC should publish all personnel costs, then the fee payers themselves can judge how well they think funds are being allocated.
Any argument for cutting BBC 6 on listener figures, is weak. It’s pretty indistinguishable from BBC 3 and besides being digital only it’s not fair to compare it to the likes of Radio 1. Going down this road highlights another important conceptual problem with the current BBC management. The raison d’être of a nationally-funded broadcaster is that it has the editorial liberty to invest in tomorrow’s culture, freed from the short-termist shackles of other advertising-funded producers. In paying for the BBC, we assign it a duty to expand our media sphere of experience. This means behaving in pioneering and different ways, exactly as for 6; cutting 6 is therefore a grave dereliction of this duty.
The BBC should not overconcentrate on ratings. Of course Auntie shouldn’t make anything that hardly anyone wants; but this is far from the truth with 6 Music. The value of the license fee to the BBC, to our entire cultural domestic product, is that it can invest in the ratings distribution of the future and not be imprisoned by that of yesterday. Expanding our media exposure with novel culture, impartial news and the cutting edge of all academia sometimes requires a courageous gamble on unprecedented or even eccentric productions. One thing about 6 Music is exactly that, it is brave.
4 November 2009
On Friday evening, Trafalgar Square was full. A pleasant, solemn, emotionally-charged October night. We were there to commemorate this death, the killing of Ian Baynham, here 2 weeks previous. A candle-lit vigil forming the perfect public response to the horror that this murder – and all its peers – merits. Hats off to the organisers. Bravo. The happening was beautiful and the turnout thankfully remarkable. I had a sense though, a not-exactly-nostalgic notion, more a feeling of disbelief at being here again. I live in a world, as do most around me, where my sexual, relational behaviour does not negatively impact on anything else in my life. The important civil rights and political issues have been won over. London homos are free. But there we were again, in Trafalgar Square, protesting this time for that most basic of human right – to not be killed on the street simply because someone doesn’t like you. Words really fail to encapsulate the gravity of this. The last vigil I attended at this spot was equally moving, that following the July 7 tube and bus bombings. There are disturbing similarities between the fundamental drivers of both commemorated events. The despise of difference.
As it should, the media is paying this due attention. Very good. Much talk however is of the significant rising incidence of homophobic crime. Not to detract, not for a single second, the horror of Ian Baynham’s murder, nor to devalue, even by one iota, the wrong that homophobia simply is; I, an adult, male, gay London resident, am not happy about this. This is, typically, misconstrued. It is quite probably unfounded. What is being said is that the number of incidents classified as homophobic in nature has risen by 18% when comparing Sep 07-Sep 08 to Sep 08-Sep 09. The media persist, blindly or unashamedly, or both, to stubbornly destroy the logic of crime reporting statistics. It’s easy to blame the process: “oh it’s just statistics, they are often wrong.” In fact, no, they are not usually ‘wrong’. What you think they say may be wrong; simply because you can’t be bothered to think about it. But with the media, regrettably, I don’t think carelessness or ignorance are at play. Rather, the sober reality of a statistic would often desex a story too much. Remember the massive ‘increase’ in teenage knife crime? It was always that bad.
In this case, the number represents the fact that annual reports of homophobic crime in London, as recorded by the police, have increased by 18%. Certain reporters encourage you to explain this in terms of only one of the several explanatory factors: that the actual prevalence has increased. Fear, being the cheapest currency of an unthinking and irresponsible media, is therefore palpable. But hold on, what else could have changed here? Two very important things: first, the proportion of actual incidences that people bother to (or dare to) report and second; how the report compiler then chooses to classify them. You can see that it is very easy for the number of reported incidents to rise by a fifth without the actual level of incidence changing very much at all.
I urge you to not get upset with me by assuming that I am trying to trivialise anything that is genuinely monstrous here. Actually, quite the opposite. What I’m really implying is that the rate hasn’t necessarily increased at all, i.e., it was quite probably horrendously high before. This is much worse. And if you are wondering (as I hope you are), what ‘high’ means, then for the London Met it means 1192 reported incidents in Sep 08-Sep 09. Another hack’s near-universal statistical sin is the use of quoted % change without providing the reader with slightest notion of the starting point. Imagine a pilot telling you the plane is about to dive 60% of its current altitude and leaving it at that. So many (all?) reporters can’t help themselves (or are led by their incompetence) in portraying an increase in something unthinkably dreadful as a ‘doubling’ or a ‘100% increase’, when really whatever it is has just gone up from 1 to 2. If the article you are reading quotes a %- or fractional-change but neglects the starting point, base level or whatever you want to call it, stop reading and wipe your arse with it immediately, and then email the writer to tell them. The 18% increase here means 18% of 1008 incidents (in Sep 07-Sep 08), i.e. 184 more incidents. That’s a lot of pain. And that includes the murder above and 3 further suspected. Quotations of an ever increasing tsunami of hate crime gets even more confusing when you read that the police’s own GPA (gay police association) reported an annual 74% increase in homophobic incidents in July 06. So we have +74% in July 05-July06 and then +18% in Sep 08-Sep09. I am not convinced.
I abhor this misreporting for 2 crucial reasons:
First, it retrospectively portrays such hideousness as being less widespread in the past. It conveys this message based on absolutely no evidence. And it leaves us, quite intentionally I posit, yet even more fearful that yet another aspect of life is getting worse and even more fearful. For me, this bit is simply unpleasant and irresponsible.
More importantly, this shadow-casting journalistic mode removes the one possible source of joy, the sole shred of glimmering positivity in the whole torrid affair: that people are increasingly standing up for themselves (reporting) and something is actually being done about it (police response). The whole thing is utterly shit, for sure, but let’s not under-represent the one aspect that is good. Progress.
This year, as you may know, I became involved in confronting and combating homophobia. Following another hideous incident in East London in August 2008 that you may know about, in which a 20 year old met 7 times with someone’s knife for being queer, leaving him severely paralysed, the infamous George and Dragon was actually ambushed by more than one carload of angrys this May. Things seemed to be getting a bit too serious.
The reaction has been marked and proactive. Tower Hamlets and Hackney councils, through their hate crime divisions have shown support and solidarity. Some feel that they are lacking conviction however, through fear of igniting the possibly incidental but nevertheless characteristic racial angle of homophobia in E2. One would be next-to-ignorant to oversimplify the problem in this neighbourhood down to asian versus gay, but at the same time we are left with a current situation in which there is an effective homo-exclusion zone of approximately one square kilometre, roughly centred on Arnold Circus. There are more than a couple of angry British Bangladeshi lads in this area, who no doubt feel hemmed-in by all the social delights, much of them pretty ‘mo, on the perimeter of their estate, forbidden, inaccessible or just irrelevant to them. Not liking the way others socialise is a problem faced in all cities, multicultural or not; human societies will always fractionalise and find ways to not like each other. But, to attack it for the sake that it is different is wrong. All the holy books say this loud and clear. The local authorities ignore this at their peril. And don’t forget, there will undoubtedly be more than one white, gay fascist in E2, so let’s not get carried away with the racial generalisation. A proactive, involved and wide dialogue is required in E2. No-one owns the streets, they are to be shared.
The police, very mindful of the connection between the two incidents just mentioned above (it is likely the storming of the George was a vengeful attack following further arrests relating to the earlier stabbing), have responded very actively and are begging for more data. They cannot do anything, cannot increase resources if people continue the precedent of not reporting homophobic attacks. The whole point of this campaign is to encourage people to report and tell them how to do it. The police take all of this very seriously, I even know of a case where families have been visited, to their abject shame, as a result of a homophobic egging by their son. The Met are also self-policing: I know of one report of an improper police response to an incident that was vigorously followed up internally. The Stephen Lawrence inquiry has done much to improve things – capitalise on them.
Why all the hate, the abuse, the kickings, why kill? What is homophobia about anyway? I think it’s motivated by at least 2 factors, and they are not necessarily mutually-exclusive.
The first I call the ‘easy target’ phenomena. It is, to the ultimate shame of those that perpetrate it, the pinnacle of dishonourable cowardice. In our socioeconomic fuck up of a society, it is never condonable but remains otherwise comprehendible that angry defavourised youths lash out at others ‘better off’ in their environs. The misguided ones that unfortunately believe the fight out of their predicament should be a violent one often cherry pick the easiest targets. Let’s face facts. It’s less risky to pick on someone who is obviously gay and maybe not the toughest looking passer-by. How many times have you heard of a 100kg ‘muscle-mary’ being gay bashed? Exactly. The attacker would be crushed by just a homosexual handshake. This strategy can go painfully wrong though: I’m sure you heard about the misidentified cage fighting transsexuals. Amusing though this story maybe, these two kids have most probably contributed more against transphobia than anything else I’ve encountered.
The second root of homophobia is altogether more complex, not automatically independent of the ‘easy target’ affect, more controversial and would no doubt provoke a more indignant reaction. This cause, I feel, is intrinsically paradoxical. The thing is with us humans, we are lazy. Indifference rarely speaks its name. The anger required for homophobia demands an energy. Such an energy must have a source. The homophobia therefore cannot be based on indifference. There must be something self-referential burning inside. If you’ve got no uncomfortable feelings inside regarding same-sex sex, then you don’t have anything to drive strong feelings. But lots of teenage boys do. Society, on all levels, from parent, to school, to church, to mosque, to office needs to deal with this head on.
27 August 2009
First 'Great' Western. Paddington - Penzance (I'm sure you will agree that we should legislate to prevent them using the term Great in their company name - there is certainly nothing great about this train company). I'm in first class; it wasn't much more expensive, it's a busy weekend and I want to do some work. The trolley has been past but it was a lot less interesting than Julie Walters's. So I head to the buffet and order a mint tea. Said tea is prepared. I ask if it's complementary.
At least I think that's what I ask. However given the poor gentleman's facial reaction I think I must have actually asked if he would care to fellate me in the toilets; and whether such a service was also complementary.
Excessively flustered, he asked to see my ticket. So I trundle back to my seat to retrieve my ticket. The inspector, standing next to me at the buffet, looked at his feet expectantly rather than choosing to tell his colleague he knows I'm in first class. I return with my ticket and notice my hot, freshly prepared mint tea no longer adorns the counter top. I look bemused I suspect - as the ever-so-familiar here we go again feeling rushes over me. The steward can't catch my eye and shuffles slightly.
"Err.. where is my tea?"
"Ermm, yes well Sir, I had to, I had to, err, I had to put everything back in the right place, put things back in order so I can make you the right complementary tea."
"But I want the tea you've just made me."
"It wasn't complementary."
"But you already made it, don't worry, I'll just buy it. Can I have it back please?"
"Are you telling me you've thrown it away?"
Shuffle, sidestep, shuffle.
"The complementary teas have a different cup size? Is that what you are trying to tell me?"
"And a different brand, Sir."
(No points for guessing which direction on the size and quality scale is taken by the complementary version ....)
"The trolley service is on the way Sir."
I'm struggling with how this relates to my tea.
"But I just want my tea. This is ridiculous."
I feel bad: "I'm sorry, I don't mean you, I'm talking about your company policy."
The staff exchange glances. admissive glances.
I get my smaller, lower quality mint tea and thank them. My original tea irrigates the weeds on the track somewhere just west of Taunton.
England, oh England...
9 June 2009
'Please do not tick here unless you want us to not want to tell our service providers to not contact you regarding our products and services.'
2 Equate legislation with the risks: why do you have to MOT your car but not your sexual health? Controversial this one...
28 April 2009
I can no longer handle the irony.
Without a/c, people seem content with an indoor temperature around 25C. With, people feel the need to set the target temperature to 18.
25 April 2009
From October 2, 2008
Malarial epidemiology data
(R. Carter and K. Mendis. Evolutionary and historical aspects of the burden of malaria. Clinical Microbiological Reviews, 2002. 15(4): p. 564 – 594)
Mortality (M/year) 1930 1975 2000
Americas 0.1 <0.01>
S Asia + Middle East 2.6 0.1 0.1
China + NE Asia 0.5 0.2 0.0
Africa 0.2 0.3 0.9
3.4 0.6 1.0
This little table.. better shown as a graph (sorry) highlights some fascinating facts about the history of malaria. Pre the WHO-precursor DDT spraying programs starting in the 40s, malaria mortality stood at ~3.4M/year with ¾ of cases occurring in S Asia/ Middle East. From the peak in 1930 to 1975 we saw a drastic reduction in global malaria (something I never knew) down to 1M cases per year, the lion’s share of this reduction comprising the near eradication in S Asia / Middle East. (I wonder what the role of the US military activity in the region plays in this story?) China and environs also saw > 50% reduction over the same period. In per capita terms this decrease is orders of magnitude larger, i.e. this incidence of global malaria has been massively reduced. Unfortunately, just as with many other socioeconomic factors, the trend reversed in Africa during this time, with mortality rising by a factor of 5.
Unfortunately this data, although informative, can be non-instructive in terms of suggesting possible explanations as it is not quoted on a per capita basis – according to the World Bank, sub Saharan African population has doubled since the 60s. It also does not give any information on change in infection rate. An often cited reason for the increase is increased drug/insecticide resistance. However, at this stage I cannot see why this problem would be limited to Africa. Of course many other factors are proposed for Africa including weakening control programs, deteriorating primary health care and humanitarian crises in endemic areas.
So, a dangerously rough estimate of increase in per capita mortality for Africa would be something in the region of a factor ~ 2.5 since 1930 while the rest of the planet has drastically reduced its occurrence. Looking at it like this, it is not surprising that something serious is finally being done to combat this regional problem, although still shamefully late.
7 April 2009
6 April 2009
2 April 2009
Today a day in the City like none before. I’m not a total stranger to peaceful civil protest – partly due to student days in the "manif "mecca that is Paris – but if you do engage in this form of democratic action, you’re accustomed to march around Westminster or Hyde Park. If you are one of the many that seem to have a default huffish disapproval of any form of demonstration, then put down Grazia for a second and reflect for a moment that you would still only enjoy serfdom if many others had not done it before you. To see civil protest, even civil unrest, in the City of London, the new location chosen for obvious reasons, is something else. After many years in investment management, my associations with the City couldn’t be more different. To see this hyperinstitutional place so transformed and in the minds of some at least – invaded – by democracy, the mob, had something of the surreal about it.
I head first to the Bank, one focus of protest. Relief at the lack of ambient tension my first and welcome reaction. Threadneedle Street felt like it was hosting a carnival. A heavy, alert (but cheerful) police presence dividing the street in sectors, sure, but the drumming, whistling, dancing and cheering of the protesters, the observers (and everyone in between) completely unthreatening. It felt momentarily like someone had opened a wormhole from Cornhill to Rio de Janeiro, albeit , regrettably, minus the Samba Boys. The first placard I read: Resistance is Fertile summed up the serious but smiling nature of the demonstration’s embryonic phase.
Much of the clearly identifiable strictly-observer-only attendees were actually city workers; amused or bemused but with a pronounced lack of the condescending disapproval I may have expected and maybe with just a seasoning of solidarity? Certainly analogous to the atmosphere of a trouble-free football terrace. To witness this lot in mandated casuals was actually quite amusing; just because the Essex money broker lads were in tight Abercrumble & Vadge and gleaming trainers instead of pin stripe (that they actually never wear anyway – that’s the insurance brokers), it didn’t make them any more difficult to identify. It’s not hard to understand why city firms’ management were probably advised and felt obliged to instruct their staff to dress down through reasons of duty of care. Lynch mobs were dreaded. Nevertheless I don’t think you can underestimate the profundity of this sartorial limitation. Bosses actually decreed that staff must spend the whole day in a part of town they inhabit at least 5 days a week in disguise. Prudentially precautious? Or is it just me that senses a hint of shame, a veneer of cowardice?
Within a nanosecond the atmosphere plummeted: destination Armageddon. Some violence erupted. I cannot comment on the nature of the trigger and don’t fancy the violent thug / incendiary police debate; I did not remotely see enough to make an assessment. I only saw one very bloodied police man and then the very bloodied protester photograph on the cover of the Standard. Not that a tit for tat analysis is appropriate either. The speed of change of atmosphere was exhilarating, yet petrifying. The tone of chorus stepped down to something markedly more adversarial. The police ran in, shields, batons etc; the (non-fighting crowd) ran out the other way, a painful collection of moments of panic. The already relatively narrow Threadneedle Street now feeling like the smallest medieval City alley. Remember Cheapside next time, it’s wider. Just to calm things down someone let off a red flare, nice. Thankfully for my trachea no CS gas ensued. But for the record; the 'RBS building' into which a storming was attempted was already vacant and embellished with its For Let signs. Thanks, as ever, to Sky News for giving us a version of events totally divorced from reality.
It did calm down again. It was, as ever, a tiny, tiny minority of people involved; this was no poll tax riot. Extraordinarily, the potential average per capita loss due to the current crisis dwarfs by orders of magnitude any perceived loss to Maggie’s Poll Tax, but the Poll Tax was much easier to understand. Whoever was behind the violent escalation however, managed to assert a permanent degradation in the event. The police water-tightened cordons, very scary dogs were corralled in, the mounted police arrived in serious number. Determined but joyful(?) civil action had irretrievably descended into conflict. Movement was suppressed. The music died. The sirens and shouting of police instructions urgently incessant. There were sides to be on. Shame. Inevitable?
Being trapped in the central pen, but not being one of the few after a fight, not an enviable outcome, fortunately I was not.
Further back amongst the (still mainly city boy) ‘spectators’, how were people reacting to the paradigm shift? Some disgust, anger and disapproval at both ‘sides’, yes, but maybe a smidgen of delight at ‘a bit of action’? Sure there was. Quite a lot of it. Modern coliseum, Big Brother, small riot: wherever or whatever, quite a lot of English do love to watch a fight.
Tiring of observing the residual tension undulate down the street, I made my way to Bishopsgate to check out Climate Camp. The short transfer was unexpectedly lovely. The roads, lanes and alleys of EC4 were void of diesel fumes, substituted for a while by the milling groups of demo tourists and bathed in a lovely spring sun. Serious media hardware everywhere. It was just gorgeous to see the square mile like this. Turning from London Wall into Bishopsgate, I got all in a tizz at the thought of a second wormhole encounter in one day. Or someone had just teleported Glastonbury to the City. Tents everywhere, students basking in the sun, talks and various demonstrations of non fossil fuel energy. And a compost loo. I don’t know how the rest of the night panned out, but if there ever was a model protest, it was this one.
22 November 2008
Casino? I hear you query. Yes, Casino. There is one. I didn’t know either. But it’s on Leicester Square (don’t start me…), either in or next to the old Empire building. Irrespective of the fact that I’ve point blank refused to enter Leicester Square (I suffer that too-long-in-London self-imposed exclusion zones complex, including this and Oxford Street) ever since I was a fresher, entering this place was bizarre. This strange flavour permeated right on through to the interior. As you might expect, it has a kind of gaudy cheap cruise ship feel about it; do the same designers and fitters do ships and casinos? I know why cross-channel ferry interior design staunchly assumes the easy-wipe style that it is. Bitter experience on vomit-fest crossings clearly demonstrates the utility, but why the same for casinos? And this casino is massive, with an eclectic and surprising range of clientele: Young American visiting-student types, lads-in-suits groups and, naturally, due to Chinatown’s proximity and cultural resonances, plenty BBCs. And then the trannies.
Famous and maybe miscategorised super tranny Mr Jonny Woo, who by fair or is it tragic fortune happens to be a friend of mine, was throwing a party. Well, he’s generally quite good that. But this was his birthday party. We are both Libran. And birthday boy gets what he wants. The deal? To go dressed as Mr Woo. “A night of a thousand Woos”. If you are not acquainted with said Woo’s general image then for starters get your head out of your arse, even the Observer writes about him. And for dessert here’s a rough guide. I first met Mr Woo many moons past at his infamous Gay Bingo, then at the newly opened T-Bar in Shoreditch. It’s bingo like never seen before (except maybe if you’ve seen inter-pensioner full-on bingo violence in Newcastle), with Jonny improvising a generally insane tale incorporating the ever accelerating stream of LED digits. My bingo baptism was provided with the host in full costume; it was Oscar week, so Jonny thought he’d go as an Oscar statue. Head to toe naked but embalmed in high gloss gold paint. With golden stilettos. A tranny CP30 – saying that, there always was a sniff of tranny about CP30 anyway, never mind Princess Leia. However on the day itself, Mr Woo sported more than his birthday suit. A quick invoker would be ‘twisted trucker’: trucker long wig, trucker moustache and beard, baseball cap. red and blue LED-rimmed giant spectacles, skin tight green catsuit –big one at that; Jonny’s not short on height.. And stillies, naturellement.
Juxtaposing East End trendytrannyness with the ever-so-misses-the-target ‘style’ of a West End casino of course only improved matters. Despite the magic mix, I couldn’t help wondering how this ever came to be. Jonny in fact originally wanted to stiletto stamp his ‘special’ bingo mark in the casino. But get this: you are not allowed to operate a game of bingo in a casino! Rather extraordinary I thought. Tranny or no tranny. No bingo. This is a ca-sin-o. But the Hackneyite gender anarchists (I know gender is only used for nouns but ‘sex anarchist’ wouldn’t have the same connotation here) had eyed the potential of the veritably fantastic space that is the Shadow Bar in the bowels of the casino, so a birthday party would be thrown.
Thrown it was, including the pancake mix. This being a tranny party, it wasn’t just drinks and fondant fancies, trannies won’t rest at that. Cross dressers cross dress. Gender reassigners reassign. Trannies perform. Discriminating the planned performances from those improvised sur le coup by some trashed tranny isn’t necessarily possible at this kind of shinding. But this one was planned, scripted and rehearsed and required the performing tranny to toss freshly-cooked pancakes. Now, you know I can’t bear the over-zealous health and safety tyranny that plagues this Land. This morning for instance, while playing removal man for a friend, I was nearly reduced to tears of despair by a box displaying: ‘Warning. When full this carton may present a health and safety risk.’ (Please legislate for the lawful extermination of those behind this demeaning drivel). So back in the casino I was somewhat bemused to see a tranny light a camping stove in the middle of the bar’s unbeatable flashing dancefloor. It was a wormhole moment. Glimpses of a Lake District campsite transmogrified and projected onto a gender bending central London soirée. The unmistakable CampingGaz blue canister sitting there like a talisman linking us to a more … acceptable world. The management freaked. No shit Sherlock. My highlight. Seeing a not completely sober Jonny negotiating with an increasingly tense bar manager about the use of said stove. She, suited and demure but tense. ‘He’, seven foot of skin-tight-sheer tall, slightly staggering but determined. In as much as I hate that H&S shit, I felt for the poor girl having visions of filling out the insurance form. ‘Unauthorised naked flame cooking equipment employed by transvestite on dancefloor.’ Boringness (and common sense) won. The flame was extinguished. But the brave performer performed on. Tossing pancakes still in the liquid phase does not however have the rehearsed effect. My second highlight. The bouncers cleaning pancake mix off every surface, ceiling included, within a 10 metre radius of the smug little stove. All amongst a maelstrom of now very trashed trannies.
It was time to leave. London had done its now you’ve seen it all moment again. Finding a path through the roulette wheels and poker tables, I was intrigued by the inescapable irony of the situation. They, the casino users, looked on at the ‘party’-goers in amusement, ridicule, sometimes disgust. The trannies looked on back condescendingly… don’t they know the house always wins? I spot another very smart bouncer pursue a toilet-bound tranny:
‘Madam, Madam, please cover up your titties, please Madam.’ (verbatim).
‘I haven’t got titties, I’m a man.’
'Gatwick Express is a dedicated train service to London.'
'Yes I know that thanks but why don't you sell tickets to London Bridge?'
'It's the only non-stop service to London.'
'Again, I know that, but why don't you sell tickets to London Bridge?'
'Well we're an airline, not a train company.'
'But Gatwick Express is a train company.'
'Hmm, yes, but...'
Bamboozled, the queeny lips just tighten further. Of course price per km is maybe double on the Gatwick Express - Victoria route, more room for EJ's commission, but we don't talk about that.
24 August 2008
My head is spinning. Difference, strangeness, unfamiliarity. None of them come close. I'm sure any first visit to China is challenging. The ketamine-like jetlag on arrival doesn't help. And I doubt 5 films back to back in Virgin cattle helps (have you seen Cloverfield? It’s amazing). But this is my first time in this giant country and I'm the only non-Chinese person in a city of 5 million people. The place is massive, there are skyscrapers everywhere, traffic and pedestrians interweave in some chaotic but functional bee dance. Lights, noise, so much noise. The heat, the omnipresent, all penetrating, hot sticky heat. 30C and 90% humidity. At midnight. Lost doesn't even scratch the surface. Only now do I understand the true meaning of foreign. You need to experience a full day of absolutely everybody looking at you from the moment you leave your hotel room to genuinely feel this. I want to get a tshirt printed in Chinese saying “Will everyone please stop staring” with “While you’re at it, stop spitting too” on the back.
The stare is rarely unkind (but it’s undeniably disconcerting); it’s just symptomatic of my essential physical difference. Maybe in Beijing and Shanghai things aren’t like this, I’ve not been there yet, but Fuzhou is not a traveller’s city and a European stands out like a large pagoda on a Ming manicured hilltop. The stare is predominantly curious; my dress (which, in effect, is not that different from many young people here), my skin, my hair, my body hair. I’ve realised that my legs must make me look like a monkey in this environment. The young also look, but in an altogether different way. The cool kids, and there are plenty. Here you sense a sharpened, admirative affinity. And many coy smiles. Plenty beauty wanders the streets at night. Much ‘hello’ precedes an explosion giggle. When contact does arise, shyness prevails, but when broken through a seriously impressive level of English ensues wrapped with a welcoming warmth. Bloody shame all the kids don’t work in my hotel then.
One item of dress did get me an extraordinary reaction however. My famous red flat cap on arrival at the airport. I’ve a thing about travelling in that hat, I don’t know why. But did that hat get a reaction…! I don’t know if it was the fact I was wearing a hat at all, or that it was a flat cap or most probably more due to it being red (not simply an important colour here) but any clues would be most appreciated.
I travelled to Fuzhou on business. Consequently I’m being looked after a lot of the time. Such impeccable hospitality! Ok, verging on the suffocating maybe sometimes, but very kind and wonderful. My host, a 25 year old girl, is a sales manager at the company I’m visiting. The company in question is owned by a woman. All very new China also. My non-existent language skills don’t enable me to observe beyond the visually obvious, but I witness sexual (I no longer use the euphemism ‘gender’ in this context, as apparently it refers only to nouns) equality everywhere in fact. As I note is happening a lot in London these days, this is even overshooting in certain situations. It will be sometime before I deduce the hidden rules of priority and etiquette in negotiating the bee dance enacted at crossings, doorways and pavements here, but one thing I have noticed is that the women defiantly play a ‘fairer sex’ card while barging through onto their chosen path. None has yet, fortunately, surpassed the delightful lady who wilfully and painfully elbowed me out of the way in London Bridge tube station last year. Another tipping point too far in how low London will go in terms of abandoning all human decency.
Anyway, back to China and my wonderful host. I am picked up, driven around, fed and watered regularly and my state of being is regularly checked for contentment. One could get accustomed… Maybe in a Chinese way things are a smidgen too regimented – hangover of the Cultural Revolution’s martialism? – but altogether unfaultably hospitable.
In a general sense, Chinese food isn’t as foreign to westerners as my hosts might expect. And my developed chopstick skills were met with much nodding admiration. I felt quite proud (is that ok?) Of course there are surprises and things I’ve not yet dared, but I think should, touch. In a way that actually appeals to me out of principle, much food here is raw; not in an uncooked sense, in a closer to nature sense. It’s less transfigured into something anonymous. A chicken’s foot is unmistakably what it is. Fish often look as if they perished in the very pot they are served in, scales, eyes and all. Sometimes shocking to the uninitiated, yet here you always know exactly what you are eating. Ok, except the dumplings. My only problem with the food was the stupendous quantities proffered upon me and the resulting, diplomatically difficult task of sensitively refusing any more. It’s a trade-off between causing offence refusing food and imparting horror by vomiting in front of your hosts.
Fuzhou isn’t reputed in China for its restaurants (it is, regrettably, reputed in certain circles as the world capital of gastric cancer...); however I did eat some lovely food here. Being a business guest I suppose I was taken to some of the better places (though I actually preferred the more fast food noodle bar style eateries) and saw that these restaurants had a very different setup. Invariably, they are always on the first floor – hence I would’ve had no clue they were there, I’m yet to learn the character for restaurant even, although I do know the second character (out of two) for Fuzhou – and they comprise a long narrow corridor leading to a series of parallel private rooms. Good for intimacy, not so good for people watching. Also not so good when all your companions inexplicably leave you in the small (rather grotty?) room with the embarrassed waitress. It’s not like we could engage in small talk, I couldn’t even say hello, ni hào, at that stage.
I’ve not yet seen anyone spit in an (indoor) restaurant, but apparently it happens. However it is not true that everyone thinks it’s fine to spit, although an awful lot of people engage in it. My host for one thinks it is disgusting. There are teams of street cleaners in Beijing employed to request people clean it up when they are seen spitting, if they refuse they are then shamed by the street cleaner doing it themselves. Can you imagine this working in London for litter? Yeah right… more like, ‘pick it up your fucking self, arsehole.’ The practice really is immensely shocking. Especially when women do it too; I’m sorry, it’s true. It’s not so much the act of propelling the sputum-saliva mix on the floor that bothers, it’s the significant, voluminous, preparatory sound effects. The great, guttural, croaking roar from the depths maximising the potential excreta. I just get scared everyone is going to be sick.
Food and flobbing aside. My week’s work in Fuzhou was a fascinating experience. Given our gaping linguistic and cultural divide, I remain amazed that we actually got anywhere, but we muddled through everything and I learnt about 10 words of Chinese (that I’m trying to practice at any opportunity). Much about Chinese language produces fear and admiration. Of course, the character set itself is petrifyingly immense at over 10 000. But more repellingly intimidating is the system in which tone (and not spelling) encodes meaning. But then I learn that 2500 characters is enough to read a newspaper (and only the very educated know many more). Even more dramatically, I find out that English uses many more tones than Chinese, but does so to denote stress or nuance, and then it all starts to feel a bit more approachable. All the Chinese tones exist in English (but, ok, might be a bit unusual). For example, the ‘first’ tone (in Mandarin Chinese), that which gives Chinese it’s essential sound I would say, is said in English whenever you want to mimic a) a robot or b) someone who is boring you to death. Then I learn that there are no tenses, no verb conjugations and no gender (see) and I feel that maybe Chinese is manageable after all. Yeah right, I’m still struggling to say thank you, xié xie (tschiay tschier) correctly. This latin letter system, pinyin, was planned to totally replace the Chinese characters in the fifties. Ok, maybe there was sense in the project, but thank god it didn’t happen. The characters are simply beautiful. One thing that still escapes me however is how do you map the use of tone for nuance in English (think how you would say, ‘you’re ki-dding’) in Chinese without just saying a different word? It’s all so fascinatingly strange.
One previously (and still, strictly speaking) outlawed practice I unwittingly stumbled upon in my hotel. I decided to be brave and have a go at negotiating entry and understanding protocol in the hotel spa. It was there after all and should be sampled. And lovely it was, with a super heated giant bath tub, sauna and steam, just as you’d expect. Then I find myself ushered through the complex, only to find a giant 40 bed filled TV room. Everyone was half asleep in front of the Olympics, naturally. So I joined in and laid down. The diving was on. Oh, how I love the diving. Peace wasn’t to persist however. There was an interesting, different arrival for some in the area, and that something was me: I had to fend off six ‘masseuses’, trying it on, one after the other, each one getting incrementally more explicit about what was on offer. There was nothing distasteful. But they wouldn't stop looking at my dick! (I was not naked.) These girls were gorgeous, and sweet. Not a hint of the rough slutishness you’d maybe more expect. But they were so barking up the wrong tree. I tree I wasn’t yet going to try and explain.
I did come across some wonderful culinary culture one night. After a lovely night time wander (a word my host cutely used instead of walk, possibly to get around the horrendous work-walk confusion for non-English speakers) in the park – the parks in Fuzhou are heaving at night – when asked (again) what I wanted to eat, I threw the cat amongst the pigeons by saying I didn’t care but wanted to eat outside (that particular evening was pleasantly less humid, just 82%). Ensued a panic filled taxi trip, frantic conversation and countless u-turns. I felt very guilty, like some over-demanding, integration-phobic American cruise ship tourist. But then someone had a flash of inspiration and took me to a very real bit of Fuzhou. Messy, run-down, chaotic, atmospheric. I loved it. The main street lined with double wok-equipped stalls, garnished with every ingredient imaginable. You simply choose what you want and they stir fry or grill it for you there and then, in a furnace of sweet-smelling flame, spice and oil. I’ve no idea where I was, it was off my map, and of course it wasn’t mentioned in the guide. It was my most magical night in Fuzhou. I think it threw my hosts a bit…