Wednesday, 20 June 2012

Defender of the 1%

For me the biggest shock of Jimmy Carr’s tax “efficient” Barrymore moment has been discovering Rufus Hound has 628,440 followers on Twitter. I didn’t realise, give or take Alan Davies, that such a non-funny comedian could be so popular *.

Rufus Hound’s support for Jimmy Carr has been fun though. If you didn’t know any better you’d wonder when he said Jimmy “is a very nice man who works incredibly hard and has donated loads of money to good causes” if he was defending a paedophile caught with his cock in the cookie jar. And when he said “He's done absolutely nothing illegal”, that simply sidestepped the issue here which is fairness.

But, hey, that’s dead heavy, serious and highlights the intellectual vacuity of C list celebs whereas this is all about cheeky, cheeky comedy chappies who never lick the arses of more popular bods to get regular gigs.

Like am sure there’s no serious points to draw from this about how in tax terms Jimmy Carr exemplifies how in Britain today there is very clearly one law for the rich and another for the rest of us, that we most certainly aren’t all in this together or that there is clearly a lot of wealth out there not being fairly taxed, which is a shame because doing so would pay for the kind of vital public services that save and change lives.

So yeah, Jimmy Carr, funny fella. And presumably, every other “edgy” comedian is already having words with his or her accountant.

In the meantime, so what could the £168m Jimmy Carr and others actively chose to place ina tax shelter have actually bought if it was taxed fairly i.e. at 50% i.e. £84m? Well £41.5m would buy a brand new Edinburgh secondary school, but is only enough to buy a chunk of a £150m new sick kid’s children’s hospital. Iz zat all? Never mind, am sure us plebs will pick up the rest of the tab.

Oh hang on, actually we’re picking up all of the tab cos we’re PAYE and don’t choose to pay accountants to finesse our finances, facts that to me imply the 1% rich are fucking scum that deserve to be publically spat on then horse raped.

* I wonder if this is an English thing of liking wet, inoffensive, bland, terribly ambitious but dim, smirking no-marks. Yesterday Tom O’Connor, today Rufus Hound, etc.,

Sunday, 10 June 2012

Augean Stables

So that’s a Spanish bank bail out then. Lovely. Except it reminded me of this blog post written in 2009 (!) called “Are the Spanish banks hiding their losses?” What was/is so good about this post is how the author shows how one of the 2 big Spanish banks appeared to take an overly optimistic stance when it came to declaring losses on its US mortgage book, the implication being its “loss hiding culture” was probably company wide i.e. it applied to its Spanish operations as well.

Old news? Nope because this year it had become increasingly hard to reconcile the Spanish unemployment rate with the much lower rate of mortgages going bad that the Spanish banks were collectively willing to declare. Alongside this were other suspicions about how Spanish banks were artificially propping up house prices, again to minimise their losses. When confronted with this kind of stuff in April, the Santander CEO declared “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”

There you are then. Except, alongside this you had Bankia restating its annual accounts for 2011 in a way that turned a Eur309m profit into a Eur4.3bn loss before taxes.

To be fair the Spanish government does finally appear to be aware of the credibility issue surrounding Spanish bank accounts, hence independent outsiders have been brought in to establish how much capital the Spanish banks need before the bail out gets doled out. Except, outsiders already audit Spanish banks so they can produce annual accounts; they’re called accountants.

So what makes this lot any different? Err, they’re management consultants as opposed to bankers or accountants, which is kinda confusing. Like are accountants no longer fit to audit banks, are current annual reporting requirements that inadequate, are Big 4 firm Spanish accountants bent? Am sure all of these things will be examined at length and in great detail.

Back in the real world, there are a couple of things to consider. One is the extent to which a blind eye appears to have been turned towards the general dodginess of Spanish bank accounting practices both at a Spanish and at an EU level. Practically, this left the Spanish government playing catch-up, placing sticking plasters here and there as new problems emerged. The consequent Spanish and EU failure to sit down and sort shit out once and for all led to a drip, drip dripping away of confidence and credibility that I’d guess means the bill now in the process of being paid is far bigger than it would have been say 2 years ago (compare/contrast with the last British government's approach of bank recapitalisations and the introduction of an Asset Protection scheme to draw a line under potential, future losses).

Another is how this modifies interpretations of the current situation that focus exclusively on government debt. Spain had a debt fuelled property bubble to be sure, but a private sector led one; the Spanish government was by comparison a global model of fiscal probity. So rather than debt, I reckon the main parallels to draw between Spain, Greece and Italy concern the significant contribution the behaviour of their political and economic elites made to their current woes, be it institutionalised Greek tax dodging, Italy’s general bentness or Spain’s overly optimistic bank accounts. Note how in every case these issues cut across both the public and the private sector. Note also, give or take Berlusconi being got rid of, how bail outs don’t directly address them i.e. the European debacle is going to continue for the foreseeable future with presumably Portugal and Italy next in line.

Wednesday, 6 June 2012

Who dat

Watching Paul Krugman bitch slap Jon Moulton on Newsnight was fun. Like for all Jon Moulton, rightly, made his (public) name speaking vast amounts of common sense about Rover as the Phoenix debacle took shape, it turns out he’s a pro-austerity fella and as such deserved all he got. One wee thing that confused me though is the way he keeps getting introduced/described as a venture capitalist, because my understanding is he’s not.

Like calling Moulton a venture capitalist is like calling a dentist a gerontologist. So sure a dentist and a gerontologist are both medical fellas, but they’re ones with very distinctive specialisms/areas of expertise, who do different things and use different tools. Similarly, whereas a venture capitalist typically focuses on early stage businesses and typically, besides commercial savvy, provides technical expertise related to what it is a business does as well as equity, yer man Moulton is better described as a private equity bod, who targets well established concerns e.g. Reader’s Digest, and provides/inflicts generic financial engineering alongside commercial savvy. Plus, his deals typically involve oodles of debt with a cheeky wee bit of equity on the side.

Rather than pedantry, the nomenclature being used matters. A lot. Back before the credit crunch crunched private equity became one of capitalism’s more evil, unacceptable faces, one dominated by multi-millionaires who paid less tax than their cleaners and who couldn’t attend a black tie do without protestors barracking them as they rolled up in their respective Aston Martins, Ferraris, Bentleys etc.,. And while that was here and then, over in the US right now there’s a wee, politicised debate about the worth of private equity prompted by the fact Mitt Romney made his fortune in it.

Ahhh, I’ve answered my question about howcome private equity people are now being called venture capitalists by the mainstream British media haven’t I? It’s a way of involving them in public debate whilst avoiding debate and disassociates them from what was previously said and thought. Plus, venture capital is a much more moral, credible and legitimate activity – the strike rate for venture capital investments is much lower than it is for private equity i.e. venture capital really does involve the risk taking that provides one of the major justifications for economic inequality. Plus, venture capitalists genuinely do help bring new things to the table, Facebook being an obvious example, a media thang that’s in as sharp a contrast with the investment made in Reader’s Digest by Jon Moulton’s company as it’s possible to find. So perhaps rather than be inaccurate the BBC etc., should use a new label in line with how these guys are now being presented, howzabout they call Jon Moulton et all, the bearer’s of God’s golden balls of economic common sense?

Except, getting some accuracy into the chat would also highlight private equity’s current problems (though funnily enough not ones that apply to venture capital to anything like the same degree, which stem from the fact we’re in a credit crunch.

This is because the private equity model and private equity profits are predicated on the ready availability of credit; the more private equity borrows to leverage a deal and the cheaper it borrows, the more profitable it is. Unfortunately, since late 2007/early 2008 there has been a step change in the availability of credit and the terms on which it’s lent. Basically, it’s far harder for private equity investors to buy up a company and make money primarily on the back of swapping expensive equity for cheap credit. Instead, they have to work a damn sight harder and be more creative i.e. they actually have to add value.

Now a couple of things follow on from this. One is what in fucking hell was a high profile private equity boy i.e. a player in an entire industry/asset class predicated on borrowing as much as possible as cheaply as possible, doing arguing against the use of cheap debt to ease the economic misery of tens of thousands of people. Seriously. Like private equity loading a business up with debt so half a dozen people can buy more Tuscan villas is a good thing whereas government borrowing to build necessary infrastructure that also cuts unemployment is bad why exactly? And to borrow Paul Krugman’s chat about how economies differ from households, my liability/debt is your asset i.e. the holes in British bank balance sheets that taxpayers subsequently filled were partly punched into them by private equity boys who made personal fortunes as a result.

The other thing, of course, is that if I was a venture capitalist, “ahem” private equity investor, I’d be smart enough to realise the cheap credit days are gone for the foreseeable future so would be looking elsewhere to make my millions.

I know, if we can’t cut the cost of the debt that’s integral to the private equity business model, lets look at influencing other costs, most obviously labour. And hey presto we’ve just had another “venture capitalist” Adrian Beecroft i.e. no he isn’t he’s a private equity bod who just happens to give money to the Tories, producing a government report recommending changes to employment law geared almost entirely to cutting labour costs in ways that (a) would have a significantly adverse impact on what lots of people earn and (b) would consequently increase the tax credit subsidy employers already receive.

So the view of leading “venture capitalists” is that only private equity should be allowed to borrow big, with the taxpayer taking the risk, and that taxpayers should also hand over even more money than they already do to “venture capitalists” via the tax credit subsidies paid to the recipients of shit wages in the companies they buy so they can get even more Aston Martins, Ferraris, Bentleys etc.,. Alternatively, howzabout spades start getting called spades and private equity, private equity.

A July 24th P.S. -  the distinction between Private Equity (was leveraged buyout as a mate minded me) and venture capital clearly matters in the US if not here judging by the attempts now being made by venture capitalists there to disassociate themselves from Mitt - he was private equity not venture capital , geddit! - Romney.