One of the interesting questions for any writer is why do readers read? There have been a couple of interesting articles recently about 'neuro- lit crit' (such as this one in the New York Times, or this one in The Guardian).
I won't try and get into the science of it too much, because clearly I'm not qualified to. And I'd probably get the wrong end of the stick anyway. But from the perspective of a writer, it's obviously helpful to understand why people like stories, and what triggers they pull in their brains.
Of the different theories, I was most impressed by the approach of the evolutionary biologists. They suggest we like certain types of stories because they help us think through survival strategies. So for example, the bulk of women's fiction is about finding a suitable mate (except with a few jokes thrown in).
And what about crime and thrillers? I'd suggest it's about identifying danger, and how you'd cope with it.
It's certainly a different way of thinking about story construction.
Wednesday, 28 April 2010
Vince As Chancellor? Arghhhh...
In my Money Week column this week, I've been explaining why Vince Cable would be a calamity as Chancellor. Here's a taster....
There is little doubt who most ordinary people would like to see as Chancellor after the election. Not the granite-faced Alistair Darling, and certainly not Gordon Brown’s mini-me, Ed Balls. Not George Osborne either. The Liberal Democrat’s Vince Cable would waltz to the top of any popularity poll.
For most of the last few years, there was as much chance of that happening as of Gordon Brown admitting he’d bankrupted the country. The Liberal Democrats didn’t have so much as a sniff of power. Saint Vince, the Sage of Twickenham, could pontificate in an amiable, genial manner, and everyone could say how marvellous he was, without ever having to worry for a single second that the man might actually get his hands on the battered red box come Budget day.
And now? In the space of a week, all that has changed. In the wake of the first televised debate between the three part leaders, Liberal Democrat support has surged. On Monday, one poll even gave the party the largest share of the vote. A hung parliament looks a real possibility, with Cable as Chancellor the price of Lib Dem support.
It would be an easy concession for either of the other parties to make. He’s popular and looks competent. But what are Cable’s policies, and what’s his record. So far it has escaped any real scrutiny. But take a look at what the man actually says, and it is either confused or ridiculous. He flip-flopped during the financial crisis, supported Brown’s reckless Keynesian public spending splurge, and has offered a muddled and platitudinous manifesto for the election.
At precisely the moment when the UK will run the risk of a meltdown in confidence in the capital markets, Cable is the very last person you would want to see as Chancellor. If he gets the job, man the lifeboats.
It’s not hard to understand why he’s popular. He has a genial, friendly manner. He talks human, unlike many politicians, and certainly much more than his two main opponents. He has a knack of taking difficult concepts and explaining then in ordinary English. For a country used to Brown’s impersonation of a mid-level Soviet bureaucrat reciting tractor production statistics it makes a refreshing change. There is a lot of pain ahead for the British economy before the economy is put back on an even keel. Cable has the knack of putting a human face on that.
The trouble is, his reputation is absurdly over-inflated.
Cable makes much of the fact that he forecast the financial crisis. In reality, the evidence is fairly scant. True, he made a few speeches warning about rising house prices and debt levels. He suggested a couple of times that Brown hadn’t really abolished boom’n’bust.
But he didn’t really say anything that the Conservatives, or the Bank of England Governor, or indeed dozens of financial pundits weren’t saying. Nor did he warn of the two main threats to be the British economy: Brown’s absurd regulatory regime which handed banking supervision over to the FSA, and meant we had a worse banking collapse than any other major country: or the massive build up of public spending that had so undermined our competitiveness. Indeed, his party went into the last election advocating even higher spending.
In response to the financial crisis, Cable flip-flopped all over the place. His policy on the banking crisis changed from one interview to another. At one point he opposed the policy of quantitative easing, then he supported. He backed Brown’s massive Keynesian splurge, then, with an apparently straight face, started warning everyone about the dangers of the deficit. Through all of those positions, you’ll search in vain for anything approaching coherence or consistency. The closer you look, the more Cable appears to be just mouthing off into the nearest Radio 4 microphone.
Worse, his manifesto pitch is dismally weak. The UK is facing its most serious economic challenges for a generation, and yet Cable is unable to offer anything more than platitudes.
Cable claims he is he is being honest about cutting the deficit. Yet his main proposal is cancelling the Trident nuclear missile system, which isn’t going to save money in the short-term. The rest he tells us it will be done by ‘closing loopholes’ in the tax system. But the draconian, bullying tactics of the Inland Revenue have already started driving companies out of the UK. Another clampdown is only going to make that even worse?
His proposals for tax reform are even stranger. Cable wants to raise the tax threshold to £10,000. Fair enough. It is indeed shocking that the someone struggling to make end meet on earnings of less than five figures should have to pay income tax. But how’s it paid for? More clampdowns on loopholes. And taxing capital gains at the same rate as income tax. There is something to be said for levelling all taxes. But a capital gains tax at 50%? Presumably the intention is drive every last remaining entrepreneur out of the country.
Meanwhile, his ideas for re-booting the British economy verge on the comical. One idea: Regional stock exchanges “without the heavy regulatory requirements of a London listing”. But the reason the Manchester and Liverpool exchanges withered was because no one really wanted them – the telephone meant it was just as easy to do business in London. And if regulation is any lighter, won’t they just be a playground for spivs and fraudsters? Haven’t we just been through enough financial scandals without creating more?
Most of the rest of the manifesto is taken up with fiddly initiatives to promote green investment. It’s just not serious. Britain is the fifth largest economy in the world. Even if we do become a world leader wind farms and solar panels – and we have a long way to go to overtake the Germans – it’s not going to make much difference.
There is nothing about the need to lower corporation tax to attract foreign investors. Nothing about protecting all the foreign currency the City brings into the country – just populist banker bashing. Nor is there any explanation of how joining the euro – still a Lib Dem plan - will stop us turning into another Greece. But then Cable isn’t really a serious politician. And if he does make it to Number 11 in early May, the currency markets will conclude the country isn’t serious about tackling its economy either.
There is little doubt who most ordinary people would like to see as Chancellor after the election. Not the granite-faced Alistair Darling, and certainly not Gordon Brown’s mini-me, Ed Balls. Not George Osborne either. The Liberal Democrat’s Vince Cable would waltz to the top of any popularity poll.
For most of the last few years, there was as much chance of that happening as of Gordon Brown admitting he’d bankrupted the country. The Liberal Democrats didn’t have so much as a sniff of power. Saint Vince, the Sage of Twickenham, could pontificate in an amiable, genial manner, and everyone could say how marvellous he was, without ever having to worry for a single second that the man might actually get his hands on the battered red box come Budget day.
And now? In the space of a week, all that has changed. In the wake of the first televised debate between the three part leaders, Liberal Democrat support has surged. On Monday, one poll even gave the party the largest share of the vote. A hung parliament looks a real possibility, with Cable as Chancellor the price of Lib Dem support.
It would be an easy concession for either of the other parties to make. He’s popular and looks competent. But what are Cable’s policies, and what’s his record. So far it has escaped any real scrutiny. But take a look at what the man actually says, and it is either confused or ridiculous. He flip-flopped during the financial crisis, supported Brown’s reckless Keynesian public spending splurge, and has offered a muddled and platitudinous manifesto for the election.
At precisely the moment when the UK will run the risk of a meltdown in confidence in the capital markets, Cable is the very last person you would want to see as Chancellor. If he gets the job, man the lifeboats.
It’s not hard to understand why he’s popular. He has a genial, friendly manner. He talks human, unlike many politicians, and certainly much more than his two main opponents. He has a knack of taking difficult concepts and explaining then in ordinary English. For a country used to Brown’s impersonation of a mid-level Soviet bureaucrat reciting tractor production statistics it makes a refreshing change. There is a lot of pain ahead for the British economy before the economy is put back on an even keel. Cable has the knack of putting a human face on that.
The trouble is, his reputation is absurdly over-inflated.
Cable makes much of the fact that he forecast the financial crisis. In reality, the evidence is fairly scant. True, he made a few speeches warning about rising house prices and debt levels. He suggested a couple of times that Brown hadn’t really abolished boom’n’bust.
But he didn’t really say anything that the Conservatives, or the Bank of England Governor, or indeed dozens of financial pundits weren’t saying. Nor did he warn of the two main threats to be the British economy: Brown’s absurd regulatory regime which handed banking supervision over to the FSA, and meant we had a worse banking collapse than any other major country: or the massive build up of public spending that had so undermined our competitiveness. Indeed, his party went into the last election advocating even higher spending.
In response to the financial crisis, Cable flip-flopped all over the place. His policy on the banking crisis changed from one interview to another. At one point he opposed the policy of quantitative easing, then he supported. He backed Brown’s massive Keynesian splurge, then, with an apparently straight face, started warning everyone about the dangers of the deficit. Through all of those positions, you’ll search in vain for anything approaching coherence or consistency. The closer you look, the more Cable appears to be just mouthing off into the nearest Radio 4 microphone.
Worse, his manifesto pitch is dismally weak. The UK is facing its most serious economic challenges for a generation, and yet Cable is unable to offer anything more than platitudes.
Cable claims he is he is being honest about cutting the deficit. Yet his main proposal is cancelling the Trident nuclear missile system, which isn’t going to save money in the short-term. The rest he tells us it will be done by ‘closing loopholes’ in the tax system. But the draconian, bullying tactics of the Inland Revenue have already started driving companies out of the UK. Another clampdown is only going to make that even worse?
His proposals for tax reform are even stranger. Cable wants to raise the tax threshold to £10,000. Fair enough. It is indeed shocking that the someone struggling to make end meet on earnings of less than five figures should have to pay income tax. But how’s it paid for? More clampdowns on loopholes. And taxing capital gains at the same rate as income tax. There is something to be said for levelling all taxes. But a capital gains tax at 50%? Presumably the intention is drive every last remaining entrepreneur out of the country.
Meanwhile, his ideas for re-booting the British economy verge on the comical. One idea: Regional stock exchanges “without the heavy regulatory requirements of a London listing”. But the reason the Manchester and Liverpool exchanges withered was because no one really wanted them – the telephone meant it was just as easy to do business in London. And if regulation is any lighter, won’t they just be a playground for spivs and fraudsters? Haven’t we just been through enough financial scandals without creating more?
Most of the rest of the manifesto is taken up with fiddly initiatives to promote green investment. It’s just not serious. Britain is the fifth largest economy in the world. Even if we do become a world leader wind farms and solar panels – and we have a long way to go to overtake the Germans – it’s not going to make much difference.
There is nothing about the need to lower corporation tax to attract foreign investors. Nothing about protecting all the foreign currency the City brings into the country – just populist banker bashing. Nor is there any explanation of how joining the euro – still a Lib Dem plan - will stop us turning into another Greece. But then Cable isn’t really a serious politician. And if he does make it to Number 11 in early May, the currency markets will conclude the country isn’t serious about tackling its economy either.
Monday, 19 April 2010
A Grilling for Mervyn King....
In my Money Week column this week, I've been wondering why Mervyn King doesn't get the same kind of grilling that Alan Greenspan gets in the US. Here's a taster....
There are few sights quite so grimly fascinating as watching a once stellar reputation come hurtling back down to earth. By the time he finally stepped down as chairman of the Federal Reserve Alan Greenspan was hailed as an economic mastermind. He was paid millions for a book, even more for speaking engagements. The markets continued to hand on the every word uttered by ‘the maestro’.
And yet last week, he was beaten up in Congress, castigated for his role in creating what now looks like one of the greatest bubbles of all time. Far from being a genius, Greenspan is rapidly being re-cast as the man who allowed a slow-motion train crash to play out on his watch, and did nothing to prevent it.
From a British perspective, however, it is interesting not just how the Greenspan story is being re-written, but how lightly his equivalents on this side of the Atlantic have so far escaped.
Shouldn’t Mervyn King, and indeed the Bank of England itself, come under the same kind for forensic examination? They certainly should. Plenty of different parties were to blame for the catastrophic build-up of British debts during the noughties, and the financial collapse that followed inevitably from it. But it is wrong that the Bank should evade accountability. After all, if we aren’t willing to learn from the mistakes of the past decade then we are condemned to repeat them.
Over in the US, there has been a lot more soul-searching over the central bank’s role in the build-up to the crash. Greenspan is still clinging on to his mantra that he was largely blameless. You can’t spot bubbles in advance, he still gamely insists. Even if you could, there wouldn’t be very much you could do about them. And, anyway, as he pointed out to Congress at last week’s hearing, there was a lot of pressure from politicians and others to expand lending, not curtail it. It’s not fair to blame him.
Maybe he’ll get away with that line. When the history books come to be written on the Great Crash of 2008, no doubt many different culprits will be fingered. But it is unlikely that Greenspan, with his policy of ultra-low interest rates, and of pumping up the economy during every minor downturn, will escape a hefty share of the blame.
But what about the Bank of England? Shouldn’t we be putting it under the microscope in the same way? So far, in this country we have pointed the finger everywhere other than the Bank’s Threadneedle Street headquarters. We have blamed the Americans, the bankers, the Financial Services Authority, and, of course, Gordon Brown. The Bank itself has skilfully managed to sidestep any real criticism.
That’s pretty odd. After all, the UK has suffered as badly as any country from the credit crunch. Our banking system collapsed as completely as any outside of Ireland. The bail-outs have been massive, saddling a whole generation with huge debts. Our economy has slumped into a longer recession than any other major economy.
It didn’t have to be like that. The other Anglo-Saxon economies didn’t suffer anything like so much. Australia is still booming – so much so that the central bank is steadily raising interest rates again. Canada didn’t see any significant banking crisis. In truth, the UK suffered so badly because of specific, home-grown policy mistakes.
It’s certainly fair to blame Gordon Brown. He over-regulated the economy, over-taxed it, and ran up too much debt. The FSA made a terrible mess of regulation: it concentrated on micro-managing who could open an account, whilst failing to notice that whole banks were going bust. And Britain was caught up in a worldwide financial storm as much as any other country.
And yet the Bank, surely, is guilty on two counts. It ran a loose monetary policy, allowing, if not actively encouraging, a runaway housing boom. And it did nothing to prevent the runaway build up of personal, corporate and government debt.
House prices have rocketed since the Bank was made independent in 1997. According to Nationwide data, in the thirteen years since then, the price of an average house in the UK has risen by 173%. True, the Bank’s Governor Mervyn King was one of the very few senior officials willing to warn publicly that the housing market was looking overheated. The Bank fretted about the housing bubble, and the impact it might be having on the economy. But it stopped well short of raising interest rates to choke it off.
Likewise, the UK built up extraordinary debts. According to McKinsey research, when you add together government, corporate and personal debt, the UK is now by far the most indebted of all the developed economies. Total debts are a staggering 450% of GDP. Most of that was built up in the last decade: total debt as a percentage of GDP roughly doubled since the Bank won its independence in 1997. Again, there are other culprits for that. The government borrowed a lot more than it should have done. Tax policy favoured debt over equity, stoking the boom in leveraged buy-outs. But you can’t exclude monetary policy. The interest rate is the price of debt. If people were taking out too much of the stuff – and in retrospect it is clear that they were – then surely it was priced too cheaply?
Both the housing boom and the debt bubble were fuelled by monetary policy that was too easy for too long. In the City, an independent Bank of England is viewed as a ‘good thing’, without any real debate. The fact remains that it has presided over a catastrophic collapse in the financial system.
In the US, they have started to rumble that the central bank might have had something to do with that. Here in Britain, we should at least be questioning whether ours did as well.
There are few sights quite so grimly fascinating as watching a once stellar reputation come hurtling back down to earth. By the time he finally stepped down as chairman of the Federal Reserve Alan Greenspan was hailed as an economic mastermind. He was paid millions for a book, even more for speaking engagements. The markets continued to hand on the every word uttered by ‘the maestro’.
And yet last week, he was beaten up in Congress, castigated for his role in creating what now looks like one of the greatest bubbles of all time. Far from being a genius, Greenspan is rapidly being re-cast as the man who allowed a slow-motion train crash to play out on his watch, and did nothing to prevent it.
From a British perspective, however, it is interesting not just how the Greenspan story is being re-written, but how lightly his equivalents on this side of the Atlantic have so far escaped.
Shouldn’t Mervyn King, and indeed the Bank of England itself, come under the same kind for forensic examination? They certainly should. Plenty of different parties were to blame for the catastrophic build-up of British debts during the noughties, and the financial collapse that followed inevitably from it. But it is wrong that the Bank should evade accountability. After all, if we aren’t willing to learn from the mistakes of the past decade then we are condemned to repeat them.
Over in the US, there has been a lot more soul-searching over the central bank’s role in the build-up to the crash. Greenspan is still clinging on to his mantra that he was largely blameless. You can’t spot bubbles in advance, he still gamely insists. Even if you could, there wouldn’t be very much you could do about them. And, anyway, as he pointed out to Congress at last week’s hearing, there was a lot of pressure from politicians and others to expand lending, not curtail it. It’s not fair to blame him.
Maybe he’ll get away with that line. When the history books come to be written on the Great Crash of 2008, no doubt many different culprits will be fingered. But it is unlikely that Greenspan, with his policy of ultra-low interest rates, and of pumping up the economy during every minor downturn, will escape a hefty share of the blame.
But what about the Bank of England? Shouldn’t we be putting it under the microscope in the same way? So far, in this country we have pointed the finger everywhere other than the Bank’s Threadneedle Street headquarters. We have blamed the Americans, the bankers, the Financial Services Authority, and, of course, Gordon Brown. The Bank itself has skilfully managed to sidestep any real criticism.
That’s pretty odd. After all, the UK has suffered as badly as any country from the credit crunch. Our banking system collapsed as completely as any outside of Ireland. The bail-outs have been massive, saddling a whole generation with huge debts. Our economy has slumped into a longer recession than any other major economy.
It didn’t have to be like that. The other Anglo-Saxon economies didn’t suffer anything like so much. Australia is still booming – so much so that the central bank is steadily raising interest rates again. Canada didn’t see any significant banking crisis. In truth, the UK suffered so badly because of specific, home-grown policy mistakes.
It’s certainly fair to blame Gordon Brown. He over-regulated the economy, over-taxed it, and ran up too much debt. The FSA made a terrible mess of regulation: it concentrated on micro-managing who could open an account, whilst failing to notice that whole banks were going bust. And Britain was caught up in a worldwide financial storm as much as any other country.
And yet the Bank, surely, is guilty on two counts. It ran a loose monetary policy, allowing, if not actively encouraging, a runaway housing boom. And it did nothing to prevent the runaway build up of personal, corporate and government debt.
House prices have rocketed since the Bank was made independent in 1997. According to Nationwide data, in the thirteen years since then, the price of an average house in the UK has risen by 173%. True, the Bank’s Governor Mervyn King was one of the very few senior officials willing to warn publicly that the housing market was looking overheated. The Bank fretted about the housing bubble, and the impact it might be having on the economy. But it stopped well short of raising interest rates to choke it off.
Likewise, the UK built up extraordinary debts. According to McKinsey research, when you add together government, corporate and personal debt, the UK is now by far the most indebted of all the developed economies. Total debts are a staggering 450% of GDP. Most of that was built up in the last decade: total debt as a percentage of GDP roughly doubled since the Bank won its independence in 1997. Again, there are other culprits for that. The government borrowed a lot more than it should have done. Tax policy favoured debt over equity, stoking the boom in leveraged buy-outs. But you can’t exclude monetary policy. The interest rate is the price of debt. If people were taking out too much of the stuff – and in retrospect it is clear that they were – then surely it was priced too cheaply?
Both the housing boom and the debt bubble were fuelled by monetary policy that was too easy for too long. In the City, an independent Bank of England is viewed as a ‘good thing’, without any real debate. The fact remains that it has presided over a catastrophic collapse in the financial system.
In the US, they have started to rumble that the central bank might have had something to do with that. Here in Britain, we should at least be questioning whether ours did as well.
Monday, 12 April 2010
Why Britain Needs More Banks....
In my Money Week column this week I've been discussing why Britain needs more banks. Here's a taster....
We may be used to Virgin planes, trains, health clubs, and the dozens of other ventures that the serial entrepreneur Richard Branson has launched over the years. But a Virgin Bank? Thanks to a £100 million investment by the American billionaire Wilbur Ross, we may end up as familiar with Virgin banks on the high street as we are with Barclays, Lloyds and HSBC.
It would be easy to portray that as a brave incursion into a toughly competitive market. No doubt that is the way Virgin formidable PR team will be spinning it if the new bank does get off the ground.
And yet, in truth, it is more interesting to look at it the other way around. What is striking is not that someone is finally attempting to launch a new bank, but that so few people have done so. Eighteen months after the credit crunch caused the near collapse of the British banking system, the old players are still firmly in control of the industry. And yet, these companies are widely disliked, distrusted, and they sell poorly designed products at rip-off prices. In any normal industry, they’d have been blown out of the water by dozens of entrepreneurs.
The fact they haven’t been suggests banking is still an over-protected oligopoly, with too many barriers too entry. Until that changes, we aren’t going to get a safer, better value financial system.
True, there is plenty of interest in launching new banks in the UK.
Virgin has already made tentative moves, buying one small bank to acquire a license. The money million from Wilbur Ross is earmarked for a bid for 318 Royal Bank of Scotland branches which are due to sold off: if successful, that will give it an immediate presence in the market.
Sandy Chen, a former Panmure Gordon analyst, had put together plans for a new bank called Walton & Co. Vernon Hill, another US entrepreneur, is launching a new venture called Metro Bank: it plans to open branches in South Kensington and London later this year, with plans for a network concentrated in the South-East of England. And, somewhat inevitably, Tesco is sniffing around the market, with plans to turn its existing financial services arm into a full-scale bank offering current accounts alongside the dog food and bananas.
They are, however, are fairly small-scale. Their impact on the mass market is likely to be limited. And yet, there can be few industries as wide open to new players as British banking. It isn’t hard to think of reasons why this should be a great time to launch a new bank.
For starters, the banks are widely disliked. They took crazy risks, went broke, got us all to bail them out, then went straight back to paying themselves vast bonuses. Even estate agents are more popular than bankers right now. Parking wardens could probably out-poll them. If people could punish the banks by switching their business elsewhere, then they surely would.
Next, their recklessness in the run up to the credit crunch has left many people wondering if their bank is really that safe. Two years ago, most people hardly gave a second thought to whether their money was safe with one of the High Street names. Now they are nervous of leaving big sums on deposit. They have blown most of the trust they once had. An airline that did that would expect to be in trouble: there is no reason why a bank should be any different.
Finally, the products were never that great anyway, but in the last two years they have got even worse. The banks have been busy repairing their battered balance sheets, and they have been doing so at the expense of the customer. Interest rates are at a record low of 0.5. But can you get a mortgage at that rate? Or a loan for your company. Forget it. In reality, they banks have been widening the spread between what they pay their depositors and what they charge for loans. It is a bad deal for both savers and borrowers.
In short, these are unpopular companies, that nobody trusts, offering a poor value stuff that often doesn’t do what it’s meant to – but it is still an essential product that everyone needs. If that isn’t an open goal for an entrepreneur, it is hard to know what is.
In a normal, properly functioning free market, you’d expect to see lots of new players getting into the business. In airlines, Ryanair blew up the old, established carrier. In autos, first the Japanese and now the Koreans took huge chunks of the market from the old European and American giants. Apple has just taken Nokia and Motorola apart in the mobile phone business. In most industries, old established players are constantly getting challenged by new entrants. Rubbish companies get replaced by better ones. That’s how capitalism works. So why not in banking?
Of course, there are some barriers to entry. It’s a lot of bother to change your bank account. There is a certain amount of inertia on the part of the consumer. It’s hard work to get people to feel safe putting money into a bank they have never heard of.
Even so, it is hard to escape the conclusion that this is still too difficult an industry to get into. The obstacle of acquiring a banking license, the burden of regulation, and the way that payment systems between the banks are organised, all mean it is hard for new players to get a toe-hold in the market. And it’s getting harder. Regulators are so nervous of a bank going under, they are making it tougher and tougher to break into the market.
In the wake of the credit crunch we heard a lot about how the system of financial regulation should be reformed. And yet, in reality, there are very few economic problems that can’t be fixed with a healthy blast of competition.
What the government and the regulators should be doing is making it as easy as possible for new players to get into the industry. Not just Virgin and Metro and Tesco: there should be dozen of new banks, all finding their own space in the marketplace. Only diversity and competition will make the system work better. And if there is one thing the regulators should be focussing on for the next ten years, it should be that.
We may be used to Virgin planes, trains, health clubs, and the dozens of other ventures that the serial entrepreneur Richard Branson has launched over the years. But a Virgin Bank? Thanks to a £100 million investment by the American billionaire Wilbur Ross, we may end up as familiar with Virgin banks on the high street as we are with Barclays, Lloyds and HSBC.
It would be easy to portray that as a brave incursion into a toughly competitive market. No doubt that is the way Virgin formidable PR team will be spinning it if the new bank does get off the ground.
And yet, in truth, it is more interesting to look at it the other way around. What is striking is not that someone is finally attempting to launch a new bank, but that so few people have done so. Eighteen months after the credit crunch caused the near collapse of the British banking system, the old players are still firmly in control of the industry. And yet, these companies are widely disliked, distrusted, and they sell poorly designed products at rip-off prices. In any normal industry, they’d have been blown out of the water by dozens of entrepreneurs.
The fact they haven’t been suggests banking is still an over-protected oligopoly, with too many barriers too entry. Until that changes, we aren’t going to get a safer, better value financial system.
True, there is plenty of interest in launching new banks in the UK.
Virgin has already made tentative moves, buying one small bank to acquire a license. The money million from Wilbur Ross is earmarked for a bid for 318 Royal Bank of Scotland branches which are due to sold off: if successful, that will give it an immediate presence in the market.
Sandy Chen, a former Panmure Gordon analyst, had put together plans for a new bank called Walton & Co. Vernon Hill, another US entrepreneur, is launching a new venture called Metro Bank: it plans to open branches in South Kensington and London later this year, with plans for a network concentrated in the South-East of England. And, somewhat inevitably, Tesco is sniffing around the market, with plans to turn its existing financial services arm into a full-scale bank offering current accounts alongside the dog food and bananas.
They are, however, are fairly small-scale. Their impact on the mass market is likely to be limited. And yet, there can be few industries as wide open to new players as British banking. It isn’t hard to think of reasons why this should be a great time to launch a new bank.
For starters, the banks are widely disliked. They took crazy risks, went broke, got us all to bail them out, then went straight back to paying themselves vast bonuses. Even estate agents are more popular than bankers right now. Parking wardens could probably out-poll them. If people could punish the banks by switching their business elsewhere, then they surely would.
Next, their recklessness in the run up to the credit crunch has left many people wondering if their bank is really that safe. Two years ago, most people hardly gave a second thought to whether their money was safe with one of the High Street names. Now they are nervous of leaving big sums on deposit. They have blown most of the trust they once had. An airline that did that would expect to be in trouble: there is no reason why a bank should be any different.
Finally, the products were never that great anyway, but in the last two years they have got even worse. The banks have been busy repairing their battered balance sheets, and they have been doing so at the expense of the customer. Interest rates are at a record low of 0.5. But can you get a mortgage at that rate? Or a loan for your company. Forget it. In reality, they banks have been widening the spread between what they pay their depositors and what they charge for loans. It is a bad deal for both savers and borrowers.
In short, these are unpopular companies, that nobody trusts, offering a poor value stuff that often doesn’t do what it’s meant to – but it is still an essential product that everyone needs. If that isn’t an open goal for an entrepreneur, it is hard to know what is.
In a normal, properly functioning free market, you’d expect to see lots of new players getting into the business. In airlines, Ryanair blew up the old, established carrier. In autos, first the Japanese and now the Koreans took huge chunks of the market from the old European and American giants. Apple has just taken Nokia and Motorola apart in the mobile phone business. In most industries, old established players are constantly getting challenged by new entrants. Rubbish companies get replaced by better ones. That’s how capitalism works. So why not in banking?
Of course, there are some barriers to entry. It’s a lot of bother to change your bank account. There is a certain amount of inertia on the part of the consumer. It’s hard work to get people to feel safe putting money into a bank they have never heard of.
Even so, it is hard to escape the conclusion that this is still too difficult an industry to get into. The obstacle of acquiring a banking license, the burden of regulation, and the way that payment systems between the banks are organised, all mean it is hard for new players to get a toe-hold in the market. And it’s getting harder. Regulators are so nervous of a bank going under, they are making it tougher and tougher to break into the market.
In the wake of the credit crunch we heard a lot about how the system of financial regulation should be reformed. And yet, in reality, there are very few economic problems that can’t be fixed with a healthy blast of competition.
What the government and the regulators should be doing is making it as easy as possible for new players to get into the industry. Not just Virgin and Metro and Tesco: there should be dozen of new banks, all finding their own space in the marketplace. Only diversity and competition will make the system work better. And if there is one thing the regulators should be focussing on for the next ten years, it should be that.
Tuesday, 6 April 2010
The 100 Best Thrillers Of All Time....
David Morrell, who wrote Rambo, has put together a book called 'Thriller: 100 Must-Reads'. It's a great idea - essays by 100 different writers on the 100 best thrillers of all time. The list is pretty eclectic. It starts with Lee Child on Theseus and the Minotaur ('Jack thought the guy looked kind of strange. Bull-like. But it made no difference. He still bled when you shot him'), on to Beowulf, Macbeth and Robinson Crusoe before getting stuck into the 20th-century.
The thought is a good one. We think of the thriller as a fairly modern genre. Most people probably think it started with Ian Fleming. But really, it is just action-adventure storytelling, and that has been around since the beginning of time.
I've done an essay for the book on Hammond Innes's 'The Wreck of the Mary Deare'. I'm looking forward to reading the rest of the esssays - and I hope someone decides to distribute the book here in the UK.
The thought is a good one. We think of the thriller as a fairly modern genre. Most people probably think it started with Ian Fleming. But really, it is just action-adventure storytelling, and that has been around since the beginning of time.
I've done an essay for the book on Hammond Innes's 'The Wreck of the Mary Deare'. I'm looking forward to reading the rest of the esssays - and I hope someone decides to distribute the book here in the UK.
Monday, 5 April 2010
Why Charging for The Times Online Won't Work....
In my Money Week column this week, I've been discussing why charging for The Times website won't work. Here's a taster....
There are a small group of businessmen in the world you wouldn’t want to bet against. Warren Buffett, and George Soros are two of them. From a younger generation, Steve Jobs of Apple, and the hedge fund manager John Paulson, who made a fortune from betting against the sub-prime bubble. And one man would certainly top your list: Rupert Murdoch.
Over at least four decades the Australian media tycoon has consistently taken on the conventional wisdom, and triumphed time after time. The power of the print unions was broken when he moved his papers to Wapping. Sky turned the television industry upside-down. Price-cutting revitalised The Times. Fox broke up the old monopoly of American broadcasting. With bull-like determination, he took what people said couldn’t be done, and went ahead and did it – and usually with huge success.
That said, as he approaches 80, it looks like Murdoch may have just made the most catastrophic decision of his long career. The announcement last week that The Times and The Sunday Times would become the first general interest newspapers to charge for their content online looks a mistake. It will fail, and fail dramatically. The decision is a decade too late, the content isn’t right, and, in truth, the newspaper is itself too elderly a technology to survive in a digital era.
Naturally, nobody involved in journalism or the media can fail to be impressed by Murdoch’s determination to recreate the economics of the newspaper industry – and save it from oblivion.
The newspapers are losing money heavily. The Times is reported to be losing around £70 million a year right now. The Guardian and The Independent are losing around £30 million and £12 million respectively. Circulations are in steep decline. Sales of The Times are down to 505,000 a day, a drop of 16% year-on-year. The Guardian was down to 284,000 in February, another 16% annual fall. The Daily Telegraph has slipped below 700,000, when it used to sell well over a million copies every day. Falling sales, big losses, and not much sign of an upturn. Those aren’t trends that any commercial business can feel comfortable with.
Some of the business papers such as the Financial Times and the Wall Street Journal already charge for content. But this will be the first attempt by major international general interest paper to make readers pay online, although the New York Times has said it will start charging from next year. The entire media industry will be watching the experiment to see if it works.
It would be great if it did. The economics of the newspaper industry are so terrible, it is hard to believe that many of the papers can stagger on much longer. In a free market, businesses that don’t ever make money, and have little prospect of ever doing so again, don’t survive. That would be sad for anyone who believes in a diversity of voices in the media.
But the grim truth is that Murdoch’s gamble won’t pay off. There are three reasons for that.
First, it is way too late. If the papers wanted to charge for web content they should have done so from the start. Once you set a price – in this case, free – it is very hard to shift it. The price you set initially forms the expectation of what you should pay in the mind of the consumer. If the papers had started charging for their content back in 1998 and 1999 when they first started putting their content online, then they might have been able to make it work. A decade on, the opportunity has passed.
Next, the content isn’t good enough. That isn’t a criticism of The Times in particular. It is a point about all the broadsheet papers. They haven’t spent enough time concentrating on accuracy – after all, what’s the point of news that isn’t true? They haven’t focussed on making news comprehensible – why allow political and business coverage to be dominated by anonymous quotes, which don’t allow the reader to know who is saying what, how reliable they are, or what their agenda might be? In truth, the newspaper industry has spent too long moaning about technology, and not enough worrying about whether they are creating a product that people want. Many of the blogs are now more reliable, and more comprehensible than the newspapers. If they aren’t, other bloggers instantly correct them. The newspapers should learn from that, and think more about whether they are really serving the reader.
Lastly, and most importantly, newspapers were a product of Victorian technologies – the big, industrial printing press and the train. They bundled together news, comment, sport, weather forecasts, crosswords, and so on, into a package, and distributed it every day. But the web blows that up. A cricket fan will go to the world’s best cricket website for news and comment – rather than pay for rather modest coverage in The Times. Likewise, investors will turn to specialist magazines such as this one, rather than go to The Times for rather ordinary coverage of the subjects that interest them.
Imagine if EMI tried to sell us CDs with their selection of new music – some classical, some jazz, some pop. It wouldn’t work. The customers would just be baffled. Likewise, the package that newspaper editors put together doesn’t make any sense anymore. The web makes it possible for us to pick and choose where we get our news and opinion from. So we will. Now that the genie has come out of the bottle, it will be impossible to put it back.
People will pay for news. They always have done. But they probably won’t pay for a traditional newspaper online. In anther decade or so, it is hard to believe that they will pay for the printed version any more either. Murdoch’s stand is heroic. It is probably better than doing nothing – after all, giving the product away for free hasn’t worked either. But it is impossible to believe it has any chance of working, or any chance of turning back a tide that now looks unstoppable.
There are a small group of businessmen in the world you wouldn’t want to bet against. Warren Buffett, and George Soros are two of them. From a younger generation, Steve Jobs of Apple, and the hedge fund manager John Paulson, who made a fortune from betting against the sub-prime bubble. And one man would certainly top your list: Rupert Murdoch.
Over at least four decades the Australian media tycoon has consistently taken on the conventional wisdom, and triumphed time after time. The power of the print unions was broken when he moved his papers to Wapping. Sky turned the television industry upside-down. Price-cutting revitalised The Times. Fox broke up the old monopoly of American broadcasting. With bull-like determination, he took what people said couldn’t be done, and went ahead and did it – and usually with huge success.
That said, as he approaches 80, it looks like Murdoch may have just made the most catastrophic decision of his long career. The announcement last week that The Times and The Sunday Times would become the first general interest newspapers to charge for their content online looks a mistake. It will fail, and fail dramatically. The decision is a decade too late, the content isn’t right, and, in truth, the newspaper is itself too elderly a technology to survive in a digital era.
Naturally, nobody involved in journalism or the media can fail to be impressed by Murdoch’s determination to recreate the economics of the newspaper industry – and save it from oblivion.
The newspapers are losing money heavily. The Times is reported to be losing around £70 million a year right now. The Guardian and The Independent are losing around £30 million and £12 million respectively. Circulations are in steep decline. Sales of The Times are down to 505,000 a day, a drop of 16% year-on-year. The Guardian was down to 284,000 in February, another 16% annual fall. The Daily Telegraph has slipped below 700,000, when it used to sell well over a million copies every day. Falling sales, big losses, and not much sign of an upturn. Those aren’t trends that any commercial business can feel comfortable with.
Some of the business papers such as the Financial Times and the Wall Street Journal already charge for content. But this will be the first attempt by major international general interest paper to make readers pay online, although the New York Times has said it will start charging from next year. The entire media industry will be watching the experiment to see if it works.
It would be great if it did. The economics of the newspaper industry are so terrible, it is hard to believe that many of the papers can stagger on much longer. In a free market, businesses that don’t ever make money, and have little prospect of ever doing so again, don’t survive. That would be sad for anyone who believes in a diversity of voices in the media.
But the grim truth is that Murdoch’s gamble won’t pay off. There are three reasons for that.
First, it is way too late. If the papers wanted to charge for web content they should have done so from the start. Once you set a price – in this case, free – it is very hard to shift it. The price you set initially forms the expectation of what you should pay in the mind of the consumer. If the papers had started charging for their content back in 1998 and 1999 when they first started putting their content online, then they might have been able to make it work. A decade on, the opportunity has passed.
Next, the content isn’t good enough. That isn’t a criticism of The Times in particular. It is a point about all the broadsheet papers. They haven’t spent enough time concentrating on accuracy – after all, what’s the point of news that isn’t true? They haven’t focussed on making news comprehensible – why allow political and business coverage to be dominated by anonymous quotes, which don’t allow the reader to know who is saying what, how reliable they are, or what their agenda might be? In truth, the newspaper industry has spent too long moaning about technology, and not enough worrying about whether they are creating a product that people want. Many of the blogs are now more reliable, and more comprehensible than the newspapers. If they aren’t, other bloggers instantly correct them. The newspapers should learn from that, and think more about whether they are really serving the reader.
Lastly, and most importantly, newspapers were a product of Victorian technologies – the big, industrial printing press and the train. They bundled together news, comment, sport, weather forecasts, crosswords, and so on, into a package, and distributed it every day. But the web blows that up. A cricket fan will go to the world’s best cricket website for news and comment – rather than pay for rather modest coverage in The Times. Likewise, investors will turn to specialist magazines such as this one, rather than go to The Times for rather ordinary coverage of the subjects that interest them.
Imagine if EMI tried to sell us CDs with their selection of new music – some classical, some jazz, some pop. It wouldn’t work. The customers would just be baffled. Likewise, the package that newspaper editors put together doesn’t make any sense anymore. The web makes it possible for us to pick and choose where we get our news and opinion from. So we will. Now that the genie has come out of the bottle, it will be impossible to put it back.
People will pay for news. They always have done. But they probably won’t pay for a traditional newspaper online. In anther decade or so, it is hard to believe that they will pay for the printed version any more either. Murdoch’s stand is heroic. It is probably better than doing nothing – after all, giving the product away for free hasn’t worked either. But it is impossible to believe it has any chance of working, or any chance of turning back a tide that now looks unstoppable.
Thursday, 1 April 2010
The Pirates Business Model
When I started planning Shadow Force about two years ago, I wasn't realy certain how much Somali piracy would stay in the news. The book should be out about a year from now, with the paperback hitting the shops in the summer of 2011. The piracy issue is simmering along. According to the latest reports, the number of attacks by Somali pirates surged in March, as the pirates came back out onto the seas following the end of the rainy season.
There is a fascinatng report here on how the pirates make money. A whoile group of people benefit from each attack: not just the pirates themseleves, but the tribal elders, the middlemen and so on. Each has a prescibed share of the spoils. It is one of the elements I get into in the book. Piracy is not just a few rogues. It is a highly organised criminal conspiracy.
There is a fascinatng report here on how the pirates make money. A whoile group of people benefit from each attack: not just the pirates themseleves, but the tribal elders, the middlemen and so on. Each has a prescibed share of the spoils. It is one of the elements I get into in the book. Piracy is not just a few rogues. It is a highly organised criminal conspiracy.
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