Double Dip Recession

[Voidka]

So if the Tories dont have a Plan B, what are they going to do now? (Not including blaming the last government even though they have been in power themselves for 2 years!)

What personal risks do chief executives of long established plcs actually run? The risk that they'll have to be paid a colossal amount of money on which they could retire forever in order to get rid of them?

niceguy2

I was thinking at a corporate level and not SME level. It wouldn't work at SME level but it doesn't need to be done at SME level because the salary disparity doesn't exist. You don't have an MD earning £15 million and 5 employees earning £15,000.

Corporates have the HR infrastructure to handle such a project, and it's corporates that have this problem, not SMEs.

Should've been more specific. My fault.

minimathsmouse It sounds like your business was a victim of bureaucracy as much as anything. With less employee protection who knows how many people your otherwise successful business would now be employing, how many other small businesses would be employing people or how many fewer people there would be sat rotting on the rock and roll.

flatpackhamster "I was thinking at a corporate level and not SME level." Inadvertently you've just made an interesting point. Once you have one set of rules for 'big business' and another for SME's the government need to appoint a quango to determine the point where a large medium sized enterprise becomes a small large sized enterprise. Bureaucracy will always beget yet more bureaucracy.

Unfortunately, where you don't have bureaucracy, you have other irritations, dangers, bad and unforgivable behaviours. A society without any bureaucracy would be absolutely wonderful if it weren't for the fact that people don't always behave with any decency. I should imagine most people would be happy with a world without bureaucracy, provided everyone behaved according to the personal standards of the person fantasising about a society without bureaucracy.

But flatpack, like I said. It's all possible now. If the employee really does care that much about having a vote in the business, he/she can buy some shares and instantly be a shareholder.

Of course he/she would have to buy a hell of a lot of shares to own enough to control the company but I guess your point is that as a collective they can be empowered. Well if enough employees bought shares then you can have that already.

My company offers me shares through an employee scheme. You will find most large corporates already do this. It promotes exactly what you are suggesting. That employees have a stake in the business and interested in seeing the company succeed.

But I think what you were actually hoping for is some sort of system where the employees get the majority say in the business which i think would impossible in practice. Like I said, in a large corporate company like for example BT. Just how do you get 100,000 to agree on anything? All vote like an election? How many elections do you hold per year? On what decisions? And who decides what those decisions are which should be voted on and what the CEO/CFO/CIO can decide?

It's just socialist nonsense which has no place in the real world.

Yes, it is much easier to ensure that everyone on the pay committee already agrees with what you say you deserve.

Can I just point out that it is really silly to add to the end of a justification of your point of view, a remark about socialism and "the real world"? Far more interesting and thought provoking discussions can be had if people try to stick to the topic being discussed, rather than always dragging it back to general philosophy/politics and accusing people of either having one philosophy/political stance on everything or another, or telling them that only a mad socialist or capitalist could even raise the idea, particularly when the person in question has already stated they don't actually believe that they do take that general stance. Shutting down ideas because you personally think they are socialist is unnecessary - the justification of your own stance prior to that was the only necessary and interesting part of your post, niceguy2.

There seems to be an overlap of ideas from many different philosophies just as individuals don't accept a set of core beliefs in their entirety.

I am a socialist but I am not a big state socialist & I am sure that the people here who favour libertarian ideas come across as always being on the right but that is simplistic and misleading too.

R4 this morning, regulation of the banks, splitting the "casino" arm of the banks from the high street business. Is this a good way forward?

niceguy2

It simply isn't possible for employees to have a 'say' at any meaningful level by buying shares. Look at the sheer number of shares. For example, a Barclays trader was paid £33m in shares in 2011. One trader. Barclays has 140,000 employees. Each employee would need to find £235 just to match the voting power of that individual. That's not even looking at the shares controlled by the board.

I'm not talking about 'majority control in the company'. Absolutely not. This would be a single yearly vote on boardroom pay which happens anyway, it's just that the employees would vote, not the shareholders. HR already have the full employee lists and the voting slip could be sent out at the same time as the salary slip.

I don't know why you're trying to suggest that I'm some kind of evil commie looking to run business in to the ground.

MrPants

The government already makes a distinction between SMEs and corporates. There's a different corporation tax rate for SMEs. It doesn't require any more paperwork, or a quango, to make that definition.

minimathsmouse Re: separating the two banks. Vile though the term 'casino banking' and vile though radio 4 is, it's the only solution. It worked up until 1997 when the Worst Prime Minister In History (then still chancellor) changed the rules. Of course that wasn't the reason we're so buggered now. The reason we're so buggered now is that the Worst Prime Minister In History destroyed the economy because he was psychopath.

Radio 4 is vile Mervyn King is calling on the government to speed up it's reform of the banking sector. King blames the crisis on the banks, their policy of huge leverage and calls for them to hold higher levels of capital for lending. Will this effect growth?

Some banks only did high street banking and needed bailing out; others only did casino banking and were OK. Some banks did both and required bailouts and, finally, some banks did both and were OK. Amongst UK banks, there was no pattern to what the bank did and whether it needed a bailout or not.

To argue for the separation of banks into casino and high street types does make some sense in reducing risk for the Average Joe but it isn't the magic bullet to prevent this kind of crisis from happening again.

In my opinion, changing the law of share ownership / introducing a new category of company ownership structure for banks so that, in law, the bank?s shareholders are the first point of call should any additional financial input be required (with the tax payer as a very distant second) is the fairest system - after all, the shareholders make the profits in the good times, why not make them take the pain when it all goes sour?

It might make the shareholders scrutinise balance sheets of these banks better too, and that can be no bad thing.

mr p raises a couple of separate things.

First while in isolation it may be argued that bank exposure may not correlate with state intervention, interbank transactions would have brought down the market exposed to toxic debt, largely in western banks. The price of stemming that catastrophic market failure is effectively that the market restructure that was stopped has to happen now in drips. Lenders find their asset values falling, and borrowers find they owe less. Separately the lack of [direct] demand stimulation is adding a contracting dimension to market restructure. Quantitative easing has not improved liquidity or stimulated demand, nor was it really ever going to. But it's a nice show, and the fact that it's still happening means they think we believe it works.

Secondly the return [and not new introduction] to segregating retail from investment banking is a limited gesture to contain market failure. Market failure affects everyone who has bank dealings, not just shareholders. So that's bank account holders, commercial borrowers, staff, we all take the hit. The understanding of this exposure in the East [that is the state would definitely NOT bail out an over-exposed bank] meant the exposures our banks took were refused by Eastern banks. They did not expand [or get rich] in the way we did, so now enjoy the relative abstention from the market restructure we are going through.

You could say if we can't play markets properly, we shouldn't pretend that tinkering about the edges and building a dam here and there will stop the market from levelling out as it's meant to. And level out it will. In the old days we called market restructure "defaulting", which is exactly what we now have to do in drips.

The other trouble now with stimulating demand directly [which I doubt the current team is intellectually/politically agile enough to do] is that supply may come from other countries and we'd be importing their deficits rather than just growing our economy. UK depression is one thing. The rhetoric that accompanied it has infected others [so their austerity measures have also depressed them], hence changing direction is harder to control.

Despite all the obvious unfairness of foreigners pricing us out of UK assets [a common complaint], it may be better than free fall due to having nothing worth buying. After all, if the assets fall in value, then effectively they, and not we, have taken the market adjustment.

However we got here, getting out requires skill and somehow the economic lessons from previous depressions seem ignored [so far] or beyond our current Government. When you fail, it doesn't matter if it was intent or stupidity, you just fail. A mere two years into this administration, it's a long long tunnel out.

Not that I have gone as far as to say an alternative administration is better.

It would just be nice to listen to the experts sometimes. There were plenty of warnings and advice over the last couple of years, and the double dip is what comes of thinking they're wrong...

MrPants

I don't think these crises can be avoided. I think they're systemic. What is important is to ensure that when the crisis comes that those who didn't take risks don't pay for those who did. IMO HBOS, RBS and NR should have been left to fail. The pairing of HBOS and Lloyds has been a disaster for the latter (as a successful bank) and for the taxpayer.

When you reward failure you introduce moral hazard. You don't discourage the bad behaviour.

flatpackhamster recessions are cyclical and I doubt they can be avoided too. However, the reasons behind those recessions do differ. If we are to risk the collapse of our banks every eighty years or so (and the long term benefit to our wealth and rise in living standards suggests it's a worthwhile punt), it makes sense to limit that risk to, as you say, those who took risks (i.e. shareholders) in the hope of making a profit. This is why I suggested that a new legal framework (I'm not sure of the correct word to describe it) is created, specifically for banks and financial institutions, whereby the shareholders are responsible for bailing the bank out. It would work as an insurance policy for the rest of us and if, for example, a bank went under, it would be the shareholder who ran the risk of losing all their assets and not the taxpayer. Naturally, the health of the banks? balance sheet would be reflected in the share price. Also, if they faced the genuine prospect of having their houses repossessed, perhaps the shareholders would tolerate management teams who are more cautious in their approach to investment, rather than the 'fast buck' merchants which shoulder some of the blame for the mess we're in.

I don't think these crises can be avoided. I think they're systemic You are right, crisis is inherent in the system, predictable and necessary.

Mr Pants your "new legal framework idea" is strange in view of the fact that you don't like the idea of new forms of ownership with companies, what makes banks different?

The shareholders of banks are quite likely to include other institutions such as pension schemes. I believe that is the reason we couldn't simply allow the banks to go to the wall.

Surely the 'fast buck' merchants are the individual share dealers, traders and hedgefunds. You need to change the way bonuses are paid, the size of the rewards and make sure they are not rewarded for recklessness.How do you change the culture? these people are in the business of taking risks because it is the risk that creates the profit.

For me a sensible solution (not the only solution but a big step in the right direction) is to force banks to increase the amount of capital they must hold in relation to the gambling investments they are making. One of the big issues as I understand it with Northern Rock was that it basically had very little assets and relied upon borrowing money to lend to others. When their sources of credit dried up, so did their business.

As for the other debate about allowing employees to vote and have power in a company, the bottom line is that it comes down to your personal beliefs in ownership. A company can be owned. People put money into it. Their own money. Therefore in my opinion, if you haven't invested your own money then quite simply you don't get a vote.

Others may believe that a company is a collection of workers and therefore they should get a say in it. I disagree with that one.

If your only source of income is the company you work for, then all your present and future money is invested in it.

It's a matter of whether you are working hard for your money or whether your money is working hard for you.

ps niceguy, I'm not sure where you got the idea from that anyone is suggesting the employees of a company have a say in all its decisions. Nobody has suggested anything other than that employees have more say in the pay of the executive directors.

So, your only objection to what was actually said must either be that it shouldn't be solely up to the employees to decide the package, or that they shouldn't have any voice whatsoever. Which is it, and would you make any distinction with regard to the size of the company and/or whether it is publicly listed?

minimathsmouse "crisis is inherent in the system, predictable and necessary"

I agree absolutely. Although, whilst I suspect that you are looking at this from the Marxist definition of 'Creative Destruction', I prefer the neo-liberal Schumpeter?s definition instead!

"your "new legal framework idea" is strange in view of the fact that you don't like the idea of new forms of ownership with companies, what makes banks different?"

I don't have a problem with any organisation freely choosing how they organise their own affairs. I do, however, have a big problem with governments using force to compel companies, organisations and individuals to do something that may not be in their interest to do. The case in point, offers a legal framework to protect/insure depositors compared to the status quo where a deposit is only guaranteed on the whim of a government. My suggestion offers a simple method of allowing the market to decide which method is best - there is no compulsion in any of my arguments.

"The shareholders of banks are quite likely to include other institutions such as pension schemes."

Hence why a protected bank will be a safer bank to invest with, more investment means higher share price - everyone's a winner.

"You need to change the way bonuses are paid, the size of the rewards and make sure they are not rewarded for recklessness. How do you change the culture?"

Hey, as long as you are not expecting me to bail them out, and I don't stand to lose any money I may have invested, they can run the business any way they please. Simply put, it wouldn't be my problem anymore.

Schumpeter's book Capitalism, Socialism and Democracy deals with Marx. He concludes that capitalism will collapse and will be replaced by socialism.

He borrows the term "creative destruction" his theory is that the success of capitalism will encourage values hostile to capitalism, especially among intellectuals. (surely Mr Pants you would love to join our very clever socialist club just kidding)

His logic and reasoning seems confused to me because he thinks that politically we will move towards democratic socialism whilst embracing free market principles. In view of the fact that he was around during and after the two great wars (as were some other great thinkers incl: writers like Orwel and Huxley) I think his ideas are dated and very much the thinking of many people around that time.

On the other hand when you read Marx, it could have been written yesterday.

I think now, it's a question of what sort of models of accumulation will come out of this crisis. Will banks continue to leverage and lend money for it only to be invested into financial products or will we see investment into green energy? Will the growth come from investment into infrastructure and the shaping of the human environment, do we need, desire or want more suburban sprawl? are there new markets to exploit? china and russia are already open for business? where next? Why is Hillary Clinton having chats with china? what will happen if we can't find a way that will bring together those that wish to invest/who have the capital with labour? do we even need labour power? there is a surplus of both swishing about and yet we still have people dispossessed of home, work and future. Can the individuals with the capital surplus be trusted to invest in job creation?

Iv'e done some thinking about Schumpeter's analysis about the failure of capitalism. If he claims that the failure happens from the inside out, he admits that it is systemically flawed!

He believes that the disaffected intellectuals will rise up against capitalism when they experience directly the effect of slow job creation and lower living standards. In what way is this different to Marx? Supplement the word intellectual for bourgeois and we have the same theory.

In Schumpeter's thinking, we have the middle class (educated) people being thrown into the class below in times of crisis, in Marx theory we have the bourgeois being dispossessed of private property.

History suggests that it isn't the worker, the peasant, the serf that is the revolutionary but the bourgeois (intellectuals)

What is also interesting to note about Schumpeter is the fact that some of the leading Marxist economist such as Sweezy were taught by him. I think Sweezy wrote about monopolisation? where he showed that the crisis enabled the formation of a reserve army of labour, this made workers/non workers docile and controllable. I don't personally think our present mode of production and exchange does imbue equal freedoms to all.

I'm now working my way backwards I might get round to Schumpter but he seems to have concentrated much of his work on business cycles, I'm not even certain you can distinguish this from waves, are they different?