Cheating with Numbers – Bankers vs Journalists

In a banking crisis, many – or most – banks flirt with insolvency. They stay in business through cheating, lying, and blackmailing the state. As I said in a speech in Tokyo in January 2009:

The past does not predict the future, of course, but it should make us wary. The pattern, as Japan found, is for policy-makers to underestimate the seriousness of the problem and for financial institutions to spend years refusing to confront their predicament head on. The required psychological shift is a profound one.

Throwing money at the problem is, in many ways, the easy bit. Much more demanding is the process of unpicking and revaluing the poorly-understood risks that are at the heart of the financial sector’s difficulties. This is a process that has barely begun.

Back in April last year… bold action was promised to sort out the ‘bad’ from the ‘good’ banks, but nine months’ later that is only beginning to happen.

Instead, many countries have pumped money into their financial institutions, without having the tools to force these institutions to identify, value and dispose of toxic liabilities.

This mistake is likely to prove costly. As Ben Bernanke admitted last week, large quantities of “troubled, hard-to-value assets” have now become the primary obstacle to the financial system’s recovery.

The Eurozone is now riddled with zombie banks, all using their too-big-to-fail status to distort the response to depression in the European periphery, while the deceptions of British banks are steadily being exposed, with Barclays currently in the firing line. In the United States, too, a pattern of rampant criminality is steadily emerging. Liars. Cheats. Blackmailers. Guilty as charged.

But as the Leveson Inquiry has shown, the British media has many of the same bad habits. Not just a willingness  to break the law and bully both the powerful and the helpless, but a casual mendacity, where the story is pre-determined and facts are twisted to give it as much viral zing as possible.

In the lede to his latest on the financial crisis, Aditya Chakrabortty (the Guardian’s ‘economics leader writer’) exemplifies the latter tendency.

We don’t know each other, but I want to offer you a deal: You each give me £20,000. And that’s it. What do you get in return? Well, it’s a fair question but I can’t even promise to pay it all back. But let me assure you of this: your hard-earned cash will keep me in the style to which I’m accustomed. And that’s got to be good for all of us. So I’m sure you’ll agree that 20 grand is an absolute bargain. Indeed, I would call it a once-in-a-lifetime offer; only I can’t promise not to come back again.

You’ve probably guessed that the transfer I’m talking about has already happened. Each man, woman and child in Britain has already handed over £19,271. And our money has gone to the banks.

That’s a carefully crafted hook, reinforced in the last paragraph (“next time, the British might need to cough more than 20 grand each”) to hammer the lesson home. It’s designed to be picked up on Twitter and Reddit, and grumbled over down the pub, all driving eyeballs to the Guardian’s website.

But as a meme, it’s deceptive at best. If 63 million UK citizens had each coughed up £19,271, the total bill would be around £1.2 trillion – but that’s more than the UK’s entire national debt which exceeded £1tn only at the end of last year. It’s simply impossible for the government to have dished out so much money to our banks.

So what’s going on here?

Continue reading

LIBOR: more outrage, please

Matt Taibbi in Rolling Stone:

To me what’s missing from all of this is the “Holy Fucking Shit!” factor. This story is so outrageous that it shocks even the most cynical Wall Street observers. I have a friend who works on Wall Street who for years has been trolling through the stream of financial corruption stories with bemusement, darkly enjoying the spectacle as though the whole post-crisis news arc has been like one long, beautifully-acted, intensely believable sequel to Goodfellas. But even he is just stunned to the point of near-speechlessness by the LIBOR thing. “It’s like finding out that the whole world is on quicksand,” he says.

Aditya Chakraborty in the Guardian:

At a hearing in the US last month into how JP Morgan lost up to $9bn in the UK in derivatives trading, congresswoman Carolyn Maloney commented: “It seems to be that every big trading disaster happens in London.”

This is surely where the pressure from the Libor scandal needs to be directed. Miliband is right to demand a public inquiry. But rather than a nice, compact affair that can be swept under the ministerial carpet, any investigation needs to understand how to reform the finance sector so that crises like these don’t recur; and so that banks actually work in the public interest rather than hire propagandists to pretend they do. Because in the end, financial reform is not about technicalities, but about politics: deciding what role banks should play in an economy, and what kind of economy we want.

And just as the Leveson investigation has unpicked the toxic intimacy between the Murdoch empire and the political classes, so any inquiry into finance needs to expose the strength of its grip on our politics.

In the wake of the Lehman’s collapse of 2008, there was much talk about how the relationship between state and finance would be changed in the public interest. Those efforts were effectively killed off by the finance lobbyists and, if we’re honest, the unpreparedness of progressives in Britain to seize the opportunity. The Libor scandal offers a second go at the same argument. We either have it out this time, or we run the risk of repeating 2008. Only next time, the British might need to cough more than 20 grand each. A lot more.

The Myth Gap

Improving the Rule of Law in Fragile States

fragile states legal law think tankMany fragile states suffer from incoherent legal systems. Whereas in developed countries, one single system exists and is effectively enforced, in fragile states multiple systems work side-by-side, each weakly enforced, and often operating in contradiction with each other. Creating a unified and robust system of law is one of the biggest challenges these countries face.

In most cases, this incoherence is a direct product of colonialism. One system, often with the greatest relevancy to local populations, has roots in the precolonial system of governance. It may have evolved a lot since then, but is still based on local circumstances and institutions. The state, itself a product of foreign rule, follows another system, based on Western legal tradition, imported from abroad. Neither is consistently or equitably implemented. Corruption distorts outcomes. Officials (whether those of the state or local leaders) lack training. Favoritism is common. Continue reading


I have something very urgent to do, but instead I have found this, which kind of proves the point in a satisfyingly circular way.  From Aaron Ausland’s blog, ‘Staying for Tea’

I don’t know if creativity is a finite thing, but I do know that once I started blogging and tweeting, I began using a greater measure of it for things of questionable value.

With accompanying cartoon entitled ‘Applied Creativity’ (and the blog post has loads more, allvery funny and too true…)


Post-2015: Possible solutions to the MDG/SDG puzzle

I was doing some thinking on possible ways that the post-2015 MDG/SDG scenarios might play out after the launch of the SDG process at Rio+20 last week.  I’ve come up with six possible outcomes, based on the relative levels of political agreement within each of the the two tracks, which might be useful in framing how organisations think about and plan for the post-Rio post-2015 world (these, of course, represent the extremes, and outcomes at various points along the different continuums are also very possible).

There is also a huge unknown in how the two tracks will relate to each other, and the various permutations of that aren’t covered here.  It’s quite plausible, for example, that a failure to agree on SDGs would poison the atmosphere to such an extent that even quite high levels of agreement on the post-2015 MDG framework don’t result in an agreement.  But here are some possibilities, and I’d be really interested in any other scenarios that people are developing (the meaning of the ‘Christmas Tree’ ‘jigsaw’ and ‘bullseye’ frameworks are explained here):

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