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Latest blog entries:
31 January 2010
Masters Of The Universe?
It's very confusing to read the newspapers at the moment, with
every economic pundit peddling his or her own nostrum for how to right the wrongs
of the banking sector. And over Davos the air has been positively blue with
a cloud of conflicting agendas for our economic future.
Well, I'm a financial journalist as well. If they can do it, why
can't I? So here goes! You have been warned; now is the time to stop reading.
To begin with a history lesson: Bang!
Big Bang, that is. The process by which partner-based investment
banking firms were absorbed (at mind-blowing cost) into commercial banking firms
who wanted to be 'universal' banks. Mostly this happened in the early 1980s,
and the process largely demolished the centuries-old model in which people with
capital formed private partnerships in which they could make or lose money without
any embarrassing onlookers such as shareholders.
It's fact that investment banking (m&a, ipos, what is now
called private equity, and all the trading that is associated with these activities)
can make silly amounts of money, and occasionally lose it as well. How can there
be any objection to that if it is done in private? There never was any; the
problem has come with the fact that the clever wheeler-dealers who make these
enormous sums of money now do it in the full public view, and that makes them
vulnerable.
The marriage of private and public banking, with a substantial
injection of 'popular capitalism', led to securitization, itself nothing new
(every public company has been 'securitized'), but a dangerous weapon in the
hands of deal-obsessed investment banking magicians. This was the moment at
which, with hindsight, the regulators should have set up a structure to measure
and control the risks being generated by new instruments such as CDOs. But the
regulatory structure is compartmentalized in every country as well as internationally:
retail banking, insurance, futures and so forth.
Understanding the reasons for the collapse that ensued is not
to withhold blame: there was a Faustian pact between the politicians who need
growth to show off to their electorates (and certainly don't understand 'rocket
science'), the inexperienced young bankers who dined out on toxic mortage debt,
and perhaps most culpable of all, the ratings agencies, themselves totally unregulated
and unsupervised, who allowed and encouraged the ball to continue long after
midnight. But it's very difficult to blame the investment bankers; they were
just doing their job.
There's no going back, however. Any sort of forcible separation
between commercial and investment banking a la Glass-Steagall will simply set
back international economic growth by a decade. The ignorance of politicians
about investment banking and the popular anger that results can be cured by
education - you can see this process taking place already as more and more hacks
like myself come to understand that investment bankers are a necessity. 'The
unacceptable face of capitalism' was Edward Heath's comment, and the Germans
simply call them 'locusts'. But we have to accept them, like root canals and
traffic wardens, as a part of our complex society.
As to preventing the next 'crash'? Well, we can't. While human
nature stays as it is, booms and busts are as inevitable as love and infidelity.
What can be done is to fine tune the regulatory systems, try to bring them up
to date and to stop them lagging behind innovation quite so badly in future.
And most of all, say no to any 'solution' put forward by politicians, because
they are the very last people capable of understanding the problem.
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10 January 2010
The Geese Are Dead
The British government is now face to face with the consequences of the mistakes
it has made over the last ten years in regulating and taxing its gaming sector.
It is scarcely the only country to have trodden the same error-strewn path,
but in the case of the UK the damage is greater because of the highly profitable
industry which the government's policies have now almost destroyed.
'For many reasons, increasingly few companies active in the British market
are now regulated by the Commission,' bleats Minister for Sport Gerry Sutcliffe.
So what has happened?
In 2001 the Government replaced its age-old system of taxing punters with a
15% tax on gaming gross profits (and operators also have to pay VAT plus corporation
tax plus a super contribution on any horse-racing turnover to a superannuated,
cosy old industry nag called the Betting Levy Board). This step wouldn't necessarily
have been fatal on its own, but when Internet betting started to supersede the
betting-shop kind, and UK-based operators began to desert in droves to Malta,
Gibraltar, Costa Rica and the Channel Islands, the government imposed a 15%
tax on Internet gaming profits for all those firms which it licensed, and created
a tough licensing regime under the Gaming Commission. But it could only license
firms on its own territory and was forced to allow in all EU-based firms, without
being able to tax them.
Now, with gaming tax revenues disappearing down a black hole, it is having
a King Canute tantrum and wants to impose licensing (and hence taxation) on
all the firms that operate in the UK (ie advertise there for punters). But why
should the EU permit this? There are perfectly adequate regulatory, licensing
and taxation regimes in Ireland, Malta and Gibraltar, all EU Member States,
and where the ex-UK betting firms now prosper. Under what circumstances are
they going to allow the UK to steal their revenues, or to replace their rules
with a new set? And under what law can the UK forbid another properly-licensed
EU operator from advertising freely throughout the EU?
The ECJ's Gambelli ruling in 2003 was unequivocal: gambling is a service and
is subject to EU freedom of establishment rules. There is no way in which one
EU Member State is going to be able to impose its own legislative practices
on another one. The EU Commission has already attacked France on this issue.
It is a mystery how Minister Sutcliffe could be so badly advised as even to
try.
What the government should have done was to accept the inevitable and offer
a light-touch, low-tax regime to compete with Malta et al, instead of hiding
benhind a hypocritical ('protect our children') smokescreen. All it really cares
about is the tax, and now it has lost that along with the gaming industry. The
existing law is a dead letter, as the government is implicity acknowledging:
you can ban a foreign firm from advertising on the Internet, but Berkshire is
not Beijing, and if a 16-year old wants to place bets with a Costa Rica poker
site using his father's Swiss credit card and bank account, who is going to
stop him?
Even now it is not too late for the government to come to its senses, but under
Pastor Gordon Brown's presbyterian theocracy, and faced with the Treasury's
emptying treasure-chest, what chance is there of that? The few remaining British
gaming firms will now pack their bags and leave. 'Mene, mene, tekel upharsin'.
- Reciprocity: That's The Name Of The Game
- No Pensions, Please, We're British
- Copenhagen Will Fail
- The Ex-Wives' Charter, Norwegian Style
- Nobody Is Too Big To Fail
- To Will Or Not To Will?
- There's Silly, And Then There's Silly . . .
- Don't Bet On It!
- WHO Declares TIEA Pandemic
- Time To Get Out Of Money?
- A Penny For Your Thoughts
- Thank You, Gordon, Now Here's The Money For Your Bus Home
- A New Economic Order
- About Geese And Golden Eggs
- Asset protection, bearer shares and anonymity
- There's No Fool Like A Gold Fool
- Time To Tax The Vegetarians!
- Better The Devil You Know!
- Orwell, You Were Wrong - But Only By 25 Years
- Break Out The Champagne! Bring On The Dancing Girls!
- How Do You Achieve The Lifestyle Of Complete Freedom Without Having The First Million In The Bank?
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- You Don’t Know Until You Go!
- A Keynesian Vacancy The IMF Can't Fill
- You Can't Escape; Resistance is Futile
- Why the Financial Crisis Doesn't Really Matter
- Is Oil Cheap?
- Tax Harmonization Is Coming!
- The British Government’s ‘Ill Considered’ Use of Anti-Terrorist Financing Legislation against Iceland and the Wider Implications
- How To Commit Collective Financial Suicide
- How and Why You Should Buy Physical Gold Offshore
- Thank You, Mr Paulson
- Scam Busters: Second Citizenship and Passport
- EU Defeated By Bean-Counters
- Offshore Banking: Failure to Open a Bank Account
- A New Lord Of Taxation
- How to Avoid Envy by Keeping a Low Profile
- High Yield Offshore Investment Programs: Do They Exist?
- Blacklisted Offshore: Private Consultant's Opinion
- Why taking a vacation can improve your health – and wealth!
- Alphabet Soup
- Your Ships Come in Over a Calm Sea
- Taxpayers: 1; India 0
- While Offshore Banking Giants are in Trouble
- Microchips with Everything
- It's All The Fault Of The Speculators
- Don't Play Poker With Uncle Sam
- Is Dominica Good for Your Offshore Business?
- How to Leverage Offshore E-Commerce in Your Existing Business
- 'I Love Tax' - Anonymous Offshore Banker
- Is there a trade-off between Freedom and Security?
- Return of Capital is More important than Return on Capital
- Thoughts on Investing in Panama
- Why Offshore Banking Privacy is More Important than Ever
- You Really Can Physically Create Wealth Offshore: Part 2 of 2
- You Really Can Physically Create Wealth Offshore: Part 1 of 2
- The Freedom to Create Real Value and Wealth in the Offshore World
- Goodbye To Privacy
- Panama Today, Tomorrow And Always
- Another Nail In The Currency Coffin
- Please Turn Out The Lights As You Leave
- Hands Off The Poor, Starving Tax Lawyers!
- The Death Of Corporation Tax
- How To Learn To Love Accounting Standards
- Caveat Emptor?
- No More Fat Cat Investments For Me!
- Flat Tax, Not Flat Earth, Please!
- On-Line Gaming Banned In The UK
- To Buy Or Not To Buy?
- The Last Supply-Sider Felled
- King Canute Spotted On Brighton Beach
- Private - Good; Public - Bad
- Don't Have A Foreign Boy-Friend!
- Don't Put Your Husband On The Board, Mrs Worthington
- Down With Corporation Tax!
- Geolocation -- the greatest thing since sliced bread?
- The Dinosaurs March In Europe
- Never Trust Your Money To A Nation State
- Good Advice From Adam Smith For Gordon In His New Home
- Will The Treasury Get To Bert Smith Before The Grim Reaper?
- Beards Can Make You Rich
- Financial Regulators To Create Global Anti-Investor Cartel
- America Goes To War Against - wait for it - The Cayman Islands
- Down With The IMF!
- Everyone Wants To Live Offshore
- Goodbye, Gordon!
- Auntie Brussels Wants To Know About Your Money
- Governments Fail Business One More Time
- Tax Harmonization Disharmony
- The Sorry Tale Of Offshore Telecommunications
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