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Stunted By Reality Just another know-it-all talking about life, business, technology, sports and music.


Obama to seek Bush advice for Egypt crisis

There once was a time when we all thought that Barack Obama was the luckiest man alive, however nowadays you'd have to say that not even the turn-meister Nick Clegg would swap places with Mr Obama.

Such is his luck that barely had he got a bounce in approval ratings following his handling of the Tucson shooting and his delivery in the State of The Union, than the Egyptian citizens came and spoiled it all. Obama and the US' policy towards Egypt and their autocratic President of 30 years has been a case of "better the devil you know". Like all such relationships it has only been comfortable when both parties have a weapon at hand.

However that strategy has been coming in for much criticism over the past few days, with Mr Obama and Hilary Clinton not quite calling for Hosni Mubarak to stand down  but to deliver more freedom, refrain from violence and other ambigious statements somewhat supporting the Egyptian Man On The Street.

The funny thing is that people are lining up to criticize Obama for not using stronger words and action meanwhile forgetting that only 2 years ago there was such a forthright American President who most of them absolutely detested by the end of his tenure. Make no mistake George W. Bush always liked to call a spade a spade, even going so far as to call a diamond a spade; just to uphold his straight-talking reputation. Had he been in power now, it's fair to conclude based on past outrage that we would all be in uproar at Bush's means and methods of exporting democracy.

It's a tough job being a leader, but one thing I think is better in this situation is for those in power to be realistic and wait to see which way the chips are going to fall. At this moment though severely weakened and discredited Mubarak may well hang-on. On the other hand the people could manage to overthrow Mubarak and where would a President who has been in support of him stand then?

It's totally understandable Mr Obama being cagey on this one. Or as it was called before Wikileaks, appearing to be diplomatic. Even a guy on the prowl for loose pickings in a pub at closing time knows not to put all his chips on one lass. Things are never as black and white as George W. Bush always had us believe. Remember the good vs evil BS he spouted for so long he was beginning to sound more like an arch-angel than a President?

In my book it's better to be a realist than an idealist; especially when the stakes are so high.

Karl Rove's biggest challenge was to present Mr Bush as a 'realistic idealist'.


Economics 101 – Your currency must work for us!

A few rules apply in the world of currency exchange rates. And if the current furore over China's currency (the Renminbi) is anything to go by, no rule is more important than the one outlined below.

When the western world wants to buy loads of cheap commodities (and goods) from your country to satisfy demand fuelled by (toxic) credit; then your currency is probably over-valued.

If the western world no longer wants your country's cheap goods competing against their expensively produced alternatives; then your currency is probably under-valued!

It's a very simple concept which China and the Yuan have found themselves on both ends of in the space of a few years. Well as much as any wannabe super-power, intent on pushing it's weight around can be in the wrong end of something!

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Labour’s dismal housing record highlights their failures

The British Labour party has been in power for 13 years now during which they've done some good things, a lot of bad things and some terrible things. In my mind housing is where they really screwed up because it ensured that the Labour's economic, social and immigration records are arguably poorer than they would have been. In this context when I say housing I'm talking about housing their citizens and giving those who need a lift the ability to house themselves. That last bit relates to the housing market.

For those who don't know I'm not a Labour supporter but I'll try to be as objective as possible. In fact I started this blog because I more anti-media than anything else. I feel that balanced reporting is important and at Stunted By Reality I try to discuss my interests in a balanced way. But, that's for another post.

The housing issue has been going through my mind for some weeks now and the news today that house prices have risen 10.5% in the last year is what finally prompted me to write this. Personally I feel that the housing market is linked to many things and has effects outside of its sector one of which is the economy as a whole. As far as I can see the credit crunch really came about because of the rate at which people where borrowing money to buy houses. In the US it seems that an artificial boom was created on the back of money being made available to people who were riskier than normal. Sub-prime borrowers. In short there was too much money chasing too few customers. In the UK it was because of the fact that UK house prices had risen way too much over the time that Labour had been in power to the extent that a lot of people borrowing money had a higher risk profile than before.

Historical UK House prices vs earnings graph

For example in 1997 when Labour came to power the average person would need to borrow about 2.5 times their salary to be able to buy the average UK house. By 2008 when the housing bubble burst average UK income was £38,302 with the average house costing £197,000. That is 5.1 times the average person's salary; a huge increase by any measure. Effectively, even the average buyer was bordering on being a sub-prime borrower! This, as I recall is when people started taking out 40 year mortgages. 40 years to pay back the mortgage on your house! Imagine that. People buying in the early 2000s used to be able to take out 25 year mortgages. Within 5 years just to afford a mortgage you had to stretch it to 40 years, or else you couldn't afford it. That's sub-prime for you folks.

A lot of people (egged on by the government of course) blame the banks for the credit crunch, but I'm not one of them. I blame the people who bought houses they couldn't afford. Moreover I blame the government who didn't create the market conditions so that people could afford to buy a house. Of course the banks were implicit in that they then packaged these loans into bunches of hundreds of thousands and sold them onto each other knowing that there were now increased risks that people would default. However there came a time when no bank knew which other bank had the dirtiest mortgage customers; and because banks lend to each other more than they do to us, they became concerned amongst themselves. That concern resulted in banks NOT lending to each other and there was an impasse during which Northern Rock amongst others couldn't borrow money. They of course had to get it from somewhere so they asked the government. Correct me if I'm wrong but in laymen's terms that's what happened except of course they used complicated financial instruments to do all this.

From a UK perspective the main reason I blame the government in this is because they could have done a lot more before the housing bubble burst to avoid the sub-prime mess. They could have done things differently after the bubble burst too, but they didn't. Here's what they could have done;

1. Increase the threshold of stamp duty.

Stamp duty is a tax payable on all house purchases in the UK provided that they go above a certain value. That value is set by the government and it works on "slab" basis, so percentages apply to the whole of the purchase price in a defined band. For example, a house priced at £250,000 would attract a tax of £2,500, but one of £250,001 would be liable to tax of £7,500. The result is that duty has a hugely distorting effect on the market, because a house is very difficult to sell at prices just above each threshold, for example, £255,000. The UK government could have used this to control house prices more than they used it to line their pockets. In 2002 when house prices went up 25% in one year, it should have been abundantly clear to Labour that it was now necessary to do something about stamp duty. The threshold remained at £60,000 yet house prices were now well over a £110,000. Meaning that even first-time buyers would have to fork out stamp-duty in addition to a deposit. Setting the threshold higher (at just below the average price) would have actually resulted in some house prices being brought down to take advantage of the new level.

2. Build more houses

The market and by extension the government really just didn't build enough houses. At the time we knew that a lot was being done, but it just wasn't enough. I applaud John Prescott's efforts in Hull, Stoke and other places, but a lot more needed to be done. Beautiful though Britain may be there are huge areas of dereliction not just in Stoke and Hull. London, Manchester, Birmingham all have acres and roads of dereliction that would have been good for redevelopment. An increased supply of houses would have resulted in a decrease in prices. The old supply and demand thing. Ironically this is one of the reasons that US house prices fell thereby triggering the credit crunch. But I'm being selfish here and only discussing the UK market. If the American market screwed some buyers after supply increased, too bad. A house is an investment. Buyers MUST be told that prices can go up as well as down and the best thing to do is to be in it for the long run and make sure you can afford your repayments.

3. Sell council houses

This is a practise that for some reason Labour did not embrace even though you'd have thought it was mostly their constituents. Margaret Thatcher was a big proponent of this in the '80s and I have to say I'm with her. I just don't see the point in not encouraging people in social housing to buy the home they leave in. I know that house ownership is not the be all and end all of life. So long as you have an affordable place you can call home that you can raise a family from I should think that should be good for most people. Germany has lower ownership rates than most countries and they are doing ok.

However, council houses though they are no longer built still make up a big part of the UK housing stock. Releasing some of that to the occupants and using the proceeds to build more would help increase the supply of houses for sale. This ties in with point 2 above. Councils have huge economies of scale and would be able to build and sell properties just as cheaply as house builders whilst still doing some good. They would be able to make money off properties. Crucially getting the social balance right so that yobs do not eventually take over new estates would be of utmost importance.

Overall these are all things that I think Labour failed to get right, which in my opinion led directly to the credit crunch affecting the UK the way it did. It's also ironic that one of the major issues of the upcoming election is immigration and as I heard one commentator say yesterday "Immigration is a proxy for Labour's failings in the economy, crime and housing. People love a scape-goat." You've got to admit that there's none better than the immigrant who takes someone's job, robs their kid and lives in a council home that they could have occupied. That this is not the case especially when it comes to the economy and housing is neither here nor there. The UK government would rather it was 'the immigrant wot did it' than the good man Mr Brown.

After the crisis began I felt that the government should have let the banks fail and only made sure that customers got their money back. I also believe that sub-prime borrowers should not have been rescued from their bad mortgage deals because if repossessions went up, houses prices would go down.

As it is we haven't had a proper correction in house prices and we're still sitting on a bubble. I believe the bubble didn't really burst. Some air was let out and now (horror of all horrors) we're starting to pump the bubble up again. No-one apart from the banks got burnt so borrowers are still looking to borrow more than they can afford. And now we hear that the politicians are planning to force the banks to lend. Well correct me if I'm wrong, but is that not what the banks were doing before the politicians let it all get out of control?

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The gap between rich and poor doesn’t matter

The gap between rich and poor

There has been a lot made recently about the gap between rich and poor getting bigger. In the UK, the opposition Conservatives blame Labour who have been in power since May 1997. Labour of course blames the Tories saying this is one of the legacies they inherited. Specifically they blame Margaret Thatcher, that bastion of evil, the wicked witch of the west. Their words not mine. OK I'm paraphrasing here but those may as well be the words they use seeing as Mrs Thatcher is blamed for pretty much everything that has gone wrong in the UK since 1980. Considering that she hasn't been in power since 1990, you'd have to say her powers of destruction would be up there with the Dick Dastardly, Lex Luthor and all other super-villains rolled into one.

Funnily enough plenty of research will support both arguments, but my thinking is that the premise doesn't matter at all! Why should society care about the gap between the rich and poor when in fact we should only concern ourselves with the poor?

I believe that it's the level of poverty in our society that really should be the focus of government and by extension the society itself. If opportunities are made available to the poor (I don't mean benefits and welfare!) and our leaders are able to mobilise society to reach for those opportunities by being aspirational, then I think we will be in a better place.

I know that others also rail against aspiration and say it's overrated. That's correct if by aspiration you mean getting the cars, bling, flat-screen TVs and Armani jeans. No my friends. Wanting to get those things is NOT aspiration. That's just being materialist. Aspiration is when a person wants to make a lasting difference to their WAY of life, which results in material benefits being a by-product of the hard work that's been put in and the success it brings. As one commenter put it in the article linked to above

If the top of society becomes too rich, (which I don't think there is such a thing) then that's not a bad thing. What matters is how poor the rest are and whether or not the rich do not take advantage of them. Should you care that Richard Branson has x billion in the bank when you and your wife have a combined income of 40,000 per yr, your kids go to a decent school and providing they work hard they can make it through university? That would be just stupid right? It's bordering on envy, and that's pretty much where this whole debate on the gap between rich and poor seems to lead to.

Coincidentally university education, which is one of the traditional means for aspiring working class kids to uplift themselves, has been made way more expensive by the self-appointed working class party. Labour. It's ridiculous to blame the Tories for the society gap which supposedly increased more during the 80's because Thatcher brought this country up to date economy-wise. By spoon feeding the poor Labour has stagnated the living conditions of the bottom 10% which I believe is the true crime. I won't go into that debate too much right now, but I believe Labour (and the Tories when they get in) should just concentrate on providing opportunities to the poor and making the conditions that will enable us to help ourselves.

If the rich get richer during that time, I couldn't care less. And that is why I don't begrudge the bankers, footballers and other high earners. Just so long as you all can be a banker, doctor, footballer or MP, had you wanted and been able to.


Blair confirms his status as world’s dumbest smart man

How to win wars and alienate citizens.

I didn’t want America to feel like they had to do it by themselves“, the words of Tony Blair as part of his testimony to The Chilcot Inquiry into the Iraq War.

Duh, if someone’s going to do something bad you’re supposed to stop them! Not fall behind a dumb plan, conceived by a dumb President, to convince a great country that he is looking after their interests!

Whilst Mr Blair didn’t really get flustered during what was supposed to be his day of reckoning, much of his reasoning leaves a lot to be desired. The thought processes are lacking substance in a lot of the issues he spoke about. Given he is such an intelligent man. The only good thing I took away from his testimony is that he didn’t apologise and has no regrets. I really dislike people who say sorry after the fact and the un-reversible deed has already been done. If nothing else at least he didn’t stoop that low.

In the meantime George W. Bush can rest easy knowing that he has once again pwn3d Mr Blair! It’d be funny if it wasn’t so serious.


Polanski finally gets his comeuppance

So Roman Polanski finally got arrested for “unlawful sexual intercourse with a minor“, relating to his guilty plea in 1978. Yes that’s right, an acclaimed and award winning film director evaded justice for more than thirty years, whilst the establishment looked on and still revered him. The minor involved if you don’t know, was a thirteen year old at the time who trusted him to photograph her for Vogue. Classic paedophile trap.

In the 30 years he has evaded justice he has jetted around the world doing as he pleases save for going to the US from where he skipped bail. What I find particularly galling is the way people in the industry and society have seemingly looked the other way and forgot about the fact he is a convicted sexual offender.

Society has a tendency to do this in cases where it is quite obvious that someone has being wronged in a serious and amoral way. The only requirement that we forget all about it is that the perpetrator has to somehow have previously in some way. It’s unforgivable on our part as a society that we can let injustices lay like that. Sometimes I feel embarrassed for the sake of future generations. They will look back and wonder how we ever lived with a clear conscience through this and other even more serious injustices, which we have done nothing about.

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How many Postmen want their kids to be Postmen?

Sorting office - Jobs worth striking for!

I absolutely hope the answer to the title question is none or at least not many. However the way the Communication Workers’ Union (CWU) is carrying on you’d think that working in a sorting office is a job worth aspiring to. Don’t get me wrong (yeah this is the bit where I say some unpalatable things) because being a postman or working in a sorting office is not a bad thing in itself.

People’s situations vary and of course there are many reasons why someone would be working there, but one thing I can say is that I look down upon anyone who works there and doesn’t aspire for more. Either for themself or their family. Themself because if you’re not working there to better yourself then I really hope you’re doing it to elevate your family.  Note that I used the word elevate, by which I mean those workers shouldn’t just be looking to feed their families. There’s more to life than food. Really there is.

Anyway, the gist of the strike if you don’t know or are working in a sorting office (in which case you don’t know) is that the Royal Mail wants to modernise. In 2007 they rolled out a four phase plan to help achieve that modernisation, which the CWU agreed to. I’m not sure why they couldn’t have five phases as it’s common knowledge that all good plans either run for five years or have five phases!

Fast forward to 2009 and they have surprisingly implemented three of those phases save for the last one which calls for rolling out a ‘walk sequencing machine, a device which organises letters into the order the postmen and women will deliver them the next morning.’ A pretty neat idea which to my untrained ear says ‘lower costs, efficiency, speed’ and all the good things that any decent business and it’s customers should hope for. Of course it probably means many jobs in the sorting office will be lost, but hey who wants to haggle over menial jobs being lost? Oh……. the CWU?

The situation would be really funny to me if people’s skilled jobs didn’t rely on the Royal Mail. Losing professional jobs is one thing. But sorters *%?!! This really takes the biscuit. The CWU wants to save menial jobs even though surely the modernisation will result in skilled jobs being created. Granted there’ll be fewer than the lost ones, but hey who really wants their kids to grow up to be Post Men?

A truly hazardous profession.


let the bankers get their money

Cut the bankers some slack. Greed is good.

Cut the bankers some slack. Greed is good.

I’ve just been reading about George Osborne (the opposition Conservative's Shadow Chancellor) statements about how bankers' large pay awards were "unacceptable" for any bank backed by state guarantees. I was stumped once again because I’ve heard this before from him, the press and the Man On The Street.

The Conservatives are making some mistakes on their journey to government. They'll get there despite themselves and because of Labour's ineptitude. However, this banker's pay issue is not going to be responsible for the Conservatives attracting voters and as such they should just stop taking vote-buying stances like these. The public is disillusioned by the banking sector, amongst other things, but thems the times we live in. All of a sudden the Man On The Street is not talking about Osama Bin-Laden, Kandahar and the Tora-Bora mountains, but about quantitative easing and the stimulus package. This doesn’t mean the Man On The Street is adequately informed as I’m about to point out.

For me to believe that the self-appointed party of business is sincere in not wanting the banks to issue big bonuses is quite hard. Why? Because we have to look at what a bonus is in the first instance for us to think about whether or not the practise is a good idea.  By definition a bonus is a reward for greater than expected performance. Success, in other words. Anyone who owns a business should be glad if they have to pay out a bonus. Simply put it means that things are going well and that the people responsible are being rewarded for helping to bring about that success. By extension large bonuses are probably a result of big success. I hear that HSBC delivered almost £200,000 in net earnings per head in their investment banking arm the other week. That was just for one quarter by the way. Stunning.

The only issue we should be arguing about is how bonuses are structured. Fred Wilson on touched on it some time ago, though I didn't agree with all his points. Among the contentious issues I'm against that he pointed out are;

  • Guaranteed bonuses - This, I believe, was a big part of banking remuneration practise prior to the crisis. Guaranteed bonuses are not in anyone's interest other than the person receiving them. No company has any business guaranteeing a bonus, though I understand the thinking behind it.
  • Contractual obligations - "all bonuses should, at the end of the day, be subject to board and compensation committee approval (even if the goals that trigger the bonuses have been met). The board has a fiduciary responsibility to look after the stockholders first and foremost. If paying the bonuses (even if they have been earned) puts the company in trouble, then there needs to be a mechanism for the board to avoid paying them. Compensation committee and board approval does that." Where the compensation committee has approved remuneration they should not however, backtrack as happened with RBS and their former CEO.

Having taken into account the above two scenarios I believe bankers (and any other worker) must be given whatever bonuses their success dictates. If that bonus is large and based on a percentage of the business they've brought in, so be it. The bonus just has to be measurable and the business they've bought in, traceable.

Mr Osborne thinking that large bonuses are a bad thing is just something I can’t buy into. Maybe his, the Man On The Street and the press’ sentiments are driven by the prevailing economic crisis, but I think that it’s misguided and an over-reaction. On the contrary, some of these troubled banks like Northern Rock and Lloyds could do with attracting as much top talent as they can to get them out of the messes they’re in. How do you think they can do that?

Of course the Man On The Street is also a voter (probably a former Labour one at that) and thus Mr Osborne wants to be on his side. But hey, I believe voters are a stupid bunch anyway. Mr Osborne doesn’t need to placate them by giving them the bankers’ heads when he may just need those same bankers if he gets to government.