Gordon's Strategy Captured: "Extend & Pretend"

Americans are so good at coining really excellent phrases and here’s a cracker, perfectly capturing Brown’s strategy for dealing with the financial crisis ...

Extend and Pretend

... meaning, to push a problem out into the future, close your eyes to the inevitable, and kid yourself everything will be all right.

This being a financial blog, and writing as an old deal-structurer, there’s extra resonance to this: one of the most venerable tools of the trade is known as Blend & Extend. This is where the client has a short-term problem with a deal. As a short-term fix, you sell them a swap or something that extends further forward in time than the original deal, and which is in-the-money in the near term (enabling them to ‘blend’, or dilute their immediate difficulties) but at the cost of being out-of-the-money in a later period. Difference being, that with proper mark-to-market accounting there’s not much chance of pretence about what’s going on.

Hat-tip for this to Bryan Marsal of the restructuring firm Alvarez & Marsal, currently unwinding Lehman’s (good luck mate!). He was being interviewed on CNBC here – why don’t we have TV like that, BTW ? The neologism arises in the context of bankers doing short-termist stuff like Gordon: and of course mark-to-market accounting has conveniently been suspended just now … so pretend away gentlemen !

For a government with an AAA rating, almost any problem can be postponed. But, like Nixon's deal for quitting IndoChina leaving South Vietnam apparently intact, Brown's QE is merely delaying the day of reckoning.

Extend and Pretend. Love it.

ND

How well do you score on the new UK citizenship test.

PATENTLY has put up a link to the Official practice citizenship test

C@W have another one

Your citizenship test starts now

A} Who holds the record for the most appearances in Eastenders

1. Ian Beale
2. Pat Butcher
3. Lofty
4. Mark Fowler

B} Which tube line is generally regarded as the worst

1. District
2. Bakerloo
3. Northern
4. Central

C} Where does the English Assembly meet

1. York
2. Leeds
3. Swindon
4. Nowhere

D} If you need to report a crime what should you do

1. Dial 999
2. Dial 0847 number for out of hours police service
3. Write to your MP
4. Visit the appropriate police post on the days when it is open

E} If you believe you have swine Flu you should

1. Call NHS direct
2. Stay at home and do nothing
3. Phone the newspapers
4. Visit doctor to obtain Tamiflu

F} To get your child into one of the best schools you should

1. Live within the catchment area, have siblings at the school already, have special needs.
2. Pretend to live in the catchment area
3. Child has an excellent record of academic and social achievement
4. Study hard, take out a loan, get a PhD, work long hours in the city, marry similar,take out giant mortgage, put children into private education.

G} Who won Britain’s got talent in 2009

1. Paul Potts
2. Susan Boyle
3. Diversity
4. Gordon Brown
   

H} Britain went to war with Iraq in 2003 for which of the following reasons

1. To prevent Al Qaeda operating there
2. To topple an evil dictator
3. To prevent weapons of mass destruction being used against the UK
4. No real reason

I} A British train is considered LATE if it is delayed in excess of

1. 2 minutes
2. 15 minutes
3. 10 minutes
4. 25 minutes

J} The ruling party {Labour} controls how many of the 34 county councils in England

1. 0
2. 26
3. 7
4. 33

K} The Prime Minister of the United Kingdom needs to be elected by the people.

1. True
2. False

L} A bank holiday in the UK is usually spent

1. In traffic
2. At the sea side
3. At a DIY store
4. In traffic on the way to a DIY store by the seaside

M} The average wait in an A+E hospital before seeing anyone

1. 5 minutes
2. 15 minutes
3. 4 hours
4. 24 hours

N} Tax Payers in the North East have seen their council tax bills__ since 1997

1. Double
2. Triple
3. Quadruple
4. Half

O} The Public Spending revue is held

1. Every year
2. Every other year
3. Every three years
4. No longer held
   

P} The main religion of the UK is

1. Shopping
2. Sex
3. Christianity
4. Football

Q} In England it is traditional to drink

1. Vodka and Red Bull
2. Bacardi Breezer
3. J2O and Southern Comfort
4. To Excess

R} In England the unemployed are also called

1. Chavs
2. Property developers
3. Bankers
4. Estate Agents
   

S} In the UK lunch is taken

1. Between 1pm -2pm
2. Between 2pm- 2.05pm
3. At the desk
4. Lunch is for wimps

T} In the UK people are encouraged to eat five portions a day. What does this mean?

1. No one really knows
2. Mars bar, cheese stick, crisps, Coke, Big Mac
3. Five unspecified amounts of fruit and veg
4. Five portions of chips

EACH CORRECT ANSWER SCORES 5 PTS. YOU MUST SCORE 70 TO PASS THE CITIZENSHIP TEST

IF YOU FAIL, NOT MUCH WILL HAPPEN.

Answers A.1- B.3 C.4 D.4 E.2 F.4 G.3 H.4 I.3 J.1 K.2 L.1,2,3OR4. M.2{for an assessment} N.1 O.4 P.1 Q.4 R.{any} S.3 T.1 or 3.

"Reforming the Markets": Still Craven After All These Years

Yesterday the Government’s “Reforming Financial Markets” dropped on the virtual mat, and what a waste of electrons it is: let us hope they don’t physically print too many copies. The introductory parts are so blinkered, complacent and self-serving that we must assume Brown wrote them himself. It’s all there, complete with typos and grammatical errors, so clearly the Civil Service wasn’t invited, even at the proof-reading stage.

All the heavy lifting on the main issues has already been done by Turner and the FSA back in March: Turner’s review was very much more open, honest, philosophical and academically sound; I feel almost guilty at having criticized it at the time. The Government can do little more than (a) agree with everything he said, but (b) run away from macro-prudential measures (we’ll just get M-P ‘analysis’ instead).

In other highlights, we learn that:

- no part of the crisis was the Government’s fault;
- yup, the blame rests with failure to recognize risk on the part of “market participants …regulators, central banks and many other authorities and commentators” (I always knew it was Peston’s fault);
- “investors … frequently failed to carry out sufficient due diligence” (yes, and Lloyds-TSB comes immediately to mind, eh Victor ? eh, Gordon ?)
- action taken in respect of … wait for it … the Dunfermline Building Society (!) shows how clever Gordon has been;
- “no model of regulation has been successful in fully insulating a country from the current crisis”

So the fact that his crap tri-partite system didn’t work, doesn’t matter. Actually, of course, ‘fully insulating’ is not the test: ‘insulating better’ is the appropriate measure, by which standard there are several more successful systems around the globe.

Conversely, Brown is still fixated with not getting out of step with other regulatory systems: at every turn we find the refrain: “measures can only be effective if implemented on an international basis”.

In short, he is as paranoid about being "outside the mainstream" as ever – which pathetic reason is exactly why the UK is languishing today: the victims of his blind and cowardly rush to the bottom. He seems to like it there.

ND

Bank of England can't see beyond more Quantitative Easing

Yes, that is what the Bank of England is likely to say today: print more money, the Government spending is the only thing keeping the economy alive.

This is an horrendous trap, see FT here, we have fallen into, now that the UK is existing on printed money for its government financing, it will be difficult to see how this can be stopped. The Bank of England may need to keep extending the 'window' and I have no idea where that will lead, but Zimbabwe is the worst option and Japan, with 20 years of sclerotic economic activity, is the other.

Many economists are now openly saying more stimulus is needed, what they are not saying is that the markets are seriously considering another September to November event like last year; that is the fear. Not so much a double dip a as tombstoning.

However, why are no alternatives being put forward by the Opposition? The need for stimulus is quite clear, even to me. Allowing the economy to collapse to make Austrian Economists and goldbugs happy is not the answer.

However, the stimulus could be provided by tax cuts and holidays; OK, VAT did not really work as it was too small and mixed with Christmaes in any event, but there are options on income, property and business taxes.

The net affect in the short term will be to increase public debt as with QE, the difference is the sector being stimulated is the private sector, not the non-producing (in a fiscal sense) public sector.

This is what the Tories should be recommending, they need to look into their own ideology to see solutions and not be blinded by the socialists decrying only the State can save us. The state is bankrupting our futures at a record rate; time to stop it.

Quiz of the day: 2010 oil price

One year ago today the oil price was $147 per barrel. Oh, what a different world it was then pre-Lehman bankruptcy and the meltdown of September to October.

Today the price of oil hovers around $62, a huge discount to last year, but nonetheless 100% up since the lows earlier in the year of $31 dollars.

These are indeed the ups and downs of the Assyrian Empire.

So in an extra special competition I want you to guess predict the price of Oil a year from today.

Anyone who gets it right (rounded down to the nearest whole dollar) wins that amount of Money from me this time next year.

So what do you think, deflation, hyperinflation or more of the same?
(Answers in the comments, competition entry closes midnight 8/7/09)

That’s Why I Hate (Most of) the French

This is Robert Louis-Dreyfus, of the famous French merchant family. He died on Saturday. Yes, he did indeed sometimes look a bit like Jeremy Clarkson.

As well as being a rogue, and prominent in business (CEO of Saatchi, Adidas, owner of Marseille soccer club), in the family tradition he was a great believer in open markets, and was active in efforts to kick-start competition in the French electricity and gas sectors. This is a noble calling, as the majority of the French (along with the even more strategically situated Germans) are doing their level best to prevent competition from taking hold. To the detriment of all of us.

You sometimes encounter other highly competent French businessmen who’ve seen the light. If they and M. Louis-Dreyfus can see the merits of competition, why can’t the rest of the froggies ?

ND

Michael & Willie in clown competition; BA-Ryanair

I will give Ryanair some credit, they believe that they have the market cornered on being cheap. This latest stunt is just incredibly funny; the idea that there can be a ledge to sit on in a plane and no seat.

I cannot for the life of me believe the CAA would ever regulate such a thing on an aeroplane.

No doubt Mr O'Leary knows this too, but he can't help himself in promoting Ryanair as the cheapest of cheap brands.

Good luck to him, I vowed never to fly with them long ago after a truly miserable experience (which did not even involve being able to get on a plane).

Next up though, British Airways look set for another summer of strikes. Willie Walsh, a decent man with a near impossible job, has decided to play hard-ball with the staff. The trouble is they are highly unionised at BA and it seems they think he is lying when he says BA might go under. Well, maybe the staff will get to find out soon enough.

Which of these jovial Irishmen would you rather work for Willie or Michael?