Category Archives: Society

Banking, Britain, Business, Economic, Finance, Financial Markets, Government, Society

Bank of England Governor turns fire on bankers…

BANK REFORM

… The bank governor is determined to prevent a Japan-style economic crisis in the UK.

The new Bank of England governor, Mark Carney, has launched a stinging attack on ‘socially useless’ bankers and has called for a ‘change of culture’ in the industry.

The former Golden-Sachs executive, who succeeded Lord King as governor of the Bank of England last month, hit out at self-obsessed bankers who are, he says, detached from reality.

The Canadian has also defended the decision to peg interest rates to unemployment – a move that looks set to see rates remaining at 0.5 per cent for at least another three years.

Mr Carney expressed ‘tremendous sympathy’ for savers who have ‘done the right thing’ but insisted drastic action was needed to ‘secure the recovery’ and prevent a Japanese-style economic crisis in Britain.

This followed his announcement last week that the Monetary Policy Committee (MPC) will not raise rates from o.5 per cent until unemployment falls to 7 per cent or lower. Unemployment is currently running at 7.8 per cent and is not expected to reach the new threshold until the end of 2016.

Turning his fire on the banking industry, Mr Carney said:

… There has to be a change in the culture of these institutions.

He said that ‘finance can absolutely play a socially useful and economically useful function’, but added it must focus on ‘the real economy’. The Bank governor said banking is ‘socially useless’ when it becomes ‘disconnected’ from the economy and society and ‘only talks to itself’.

Mr Carney, who is also chairman of global banking watchdog the Financial Stability Board, added:

… A lot of what we are doing internationally is to strip out this type of behaviour.

The Canadian said the decision to peg interest rates to unemployment – a tactic known as ‘forward guidance’ by central banks – would boost the economy by ‘more than half a percentage point of GDP’ over the next three years.

Amid a fierce backlash from savers he insisted low rates were required to ensure the economy finally recovers from the biggest boom and bust in history.

‘The best way to get interest rates back to normal levels is to have a strong economy,’ he said. ‘We’re in the very early stages of a recovery from the weakest period on record.’

He said Japan made two mistakes after its recession in the early 1990s – failing to fix the banking system and pulling back from measures to stimulate the economy too quickly.

… As a consequence, almost a quarter of a century later, interest rates are still at rock bottom levels in Japan… We don’t want to make those mistakes here in the UK.

COMMENT

Mark Carney’s predecessor, Lord King, started a hard line on the need for banks to reform their cultural practices, by being useful contributors to society and by insisting that they strengthen their balance sheets so they no longer expose the taxpayer to excessive risk.

In some recesses of the banking sector, the appetite for running their operations on wafer-thin levels of capital remained undiminished by the worst financial crisis the world has ever seen.

Some in the City of London had hoped that Mr Carney would administer a snub to King by letting off bankers more lightly.

Given the governor’s role as chairman of the Financial Stability Board, and his personal championing of higher leverage ratios whilst at the Bank of Canada, that always seemed improbable – and so, thankfully, it has proved.

The Bank of England governor, Mark Carney, has defended the decision to peg interest rates to unemployment – a move that looks set to see rates remaining at 0.5 per cent for at least another three years.

The Bank of England governor, Mark Carney, has defended the decision to peg interest rates to unemployment – a move that looks set to see rates remaining at 0.5 per cent for at least another three years.

In his first public pronouncement on the subject Mr Carney made it crystal clear that he, no less than King, wants the banks to start serving the real economy instead of just themselves. He made a point of praising King’s work in improving bank balance sheets and of name-checking Andrew Bailey, who heads the Prudential Regulation Authority, the body that controversially forced Barclays and Nationwide to raise more capital.

The governor’s backing for the moves to make these two financial institutions formulate credible plans to increase their base capitals can longer be in question.

The great myth put about by the banking lobby is that higher levels of capital automatically constrain their ability to lend to households and firms and so hold back growth at a time when the economy is weak.

Whilst this seems to be a notion that has been swallowed wholesale by some in the Treasury and the Department of Business, it is not true.

Banks can improve their capital position by retaining earnings, scaling down bonuses and cutting back on other types of less socially useful business.

The new rules will, over the long-term, increase lending to the real economy, not harm it, and will give us safer and more secure banks, which can only be good for stability and growth.

Undoubtedly, there are plenty of questions over Mr Carney’s big idea of forward guidance, from the impact it will have on savers and on pensions, the risks to inflation and the distinct absence of a clear message due to the get-out clauses.

But on bank reform and conditions for capital holdings, Mr Carney should be applauded.

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Arts, History, Philosophy, Science, Society

Quantum Leaps: ‘Galileo Galilei’…

1564-1642

In both his life and through the imprisonment which he was forced to endure in the years leading up to his death, Galileo more than any other figure personified the optimism and struggle of the scientific revolution. He was responsible for a series of discoveries which would change our understanding of the world, while struggling against a society dominated by religious dogma, bent on suppressing his radical ideas.

Galileo Galilei, was an Italian physicist, mathematician, astronomer, and philosopher who played a major role in the Scientific Revolution.

Galileo Galilei, was an Italian physicist, mathematician, astronomer, and philosopher who played a major role in the Scientific Revolution.

…A Mathematician

Although he was initially encouraged to study medicine, Galileo’s passion was mathematics, and it was his belief in this subject which underpinned all of his work. One of his most significant contributions was not least his application of mathematics to the science of mechanics, forging the modern approach to experimental and mathematical physics. He would take a problem, break it down into a series of simple parts, experiment on those parts, and then analyse the results until he could describe them in a series of mathematical expressions.

One of the areas in which Galileo had most success with this method was in explaining the rules of motion. In particular, the Italian rejected many of the Aristotelian explanations of physics which had largely endured to his day. One example was Aristotle’s view that heavy objects fall towards earth faster than light ones. Through repeated experiments rolling different weighted balls down a slope (and, legend has it, dropping them from the top of the leaning tower of Pisa!), he found that they actually fell at the same rate. This led to his uniform theory of acceleration for falling bodies, which contended that in a vacuum all objects would accelerate at exactly the same rate towards earth, later proved to be true. Galileo also contradicted Aristotle in another area of motion  by contending that a thrown stone had two forces acting upon it at the same time; one which we now know as ‘momentum’ pushing it horizontally, and another pushing downwards upon it, which we now know as ‘gravity’. Galileo’s work in these areas would prove vital to Isaac Newton’s later discoveries.

…The Pendulum

Galileo’s earliest work involved the study of the pendulum, inspired by observing a lamp swinging in Pisa cathedral. Following further experiments, he concluded that a pendulum would take the same time to swing back and forth regardless of the amplitude of the swing. This would prove vital in the development of the pendulum clock, which Galileo designed and was constructed after his death by his son.

…Through The Telescope

One of the inventions Galileo is often mistakenly credited with today is the invention of the telescope. This is not true; there had been numerous early prototypes that had been mostly developed in Holland before him, and a Dutch optician called Hans Lippershey applied for a patent on his version in 1608. Galileo did, however, develop his own far superior astronomical telescope from just a description of Lippershey’s invention, and quickly employed it to make numerous discoveries. A strong advocate of the Copernican view of planetary motion, Galileo’s initial findings published in the Sidereal Messenger (1610) provided the first real physical evidence to back up this interpretation. As well as discovering craters and mountains in the moon, sunspots and the lunar phases of Venus for the first time, he also noted faint, distant stars which supported the Copernican view of a much larger universe than Ptolemy had ever considered. More importantly, he discovered Jupiter had four moons which rotated around it, directly contradicting the still commonly held view, including that of the Church, that all celestial bodies orbited earth, ‘the centre of the universe.’

…Galileo and Copernicus

Galileo’s Dialogue Concerning the Two Chief World Systems – Ptolemaic and Copernican, in which the Ptolemaic view was ridiculed, attracted the attention of the Catholic Inquisition when it was published in 1632. Threatened with torture, Galileo renounced the Copernican System. His work was placed on the banned ‘Index’ by the Church where it remained until 1835, and he was subject to house arrest for life. But the tide of scientific revolution Galileo had helped instigate proved too powerful to hold back.

After being forced to renounce his heliocentric view of the Earth, Galileo said:

… Nevertheless, it turns!

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Britain, Business, Economic, Government, Society

Zero-hours employment contracts should be reformed, not outlawed…

ZERO HOURS CONTRACTS

In 2008 there were around 100,000 people employed on ‘zero-hours’ contracts offering them no guarantee of day-to-day work. That number has steadily risen since. In the last few days the Office for National Statistics upped its previous estimate by a quarter to 250,000. Other sources have quoted the figure nearer to one million, which equates to more than 3 per cent of the labour market.  Such employer tactics are not just restricted to sectors with sharply fluctuating demand such hospitality; the NHS, Amazon and large retail outlets such as sportsdirect.com also use them.

Employers benefit from arrangements under which they have a contingent workforce on call but must pay only when it is active. Some employees will appreciate the flexibility too, earning at times sums of money that may help them in their work-life balance, particularly as zero-hour contracts fluctuate with the seasons. More importantly still, in times of economic and financial uncertainty, when companies might otherwise not be hiring, it is better to have unpredictable and unsociable hours than no job at all. For small firms, in particular, such adaptability by having a flexible workforce will be a crucial factor for survival.

The problem, though, is that too often zero-hours contracts are a licence for employer exploitation. Commonly registered complaints include employees being required to be permanently available, despite there being no certainty of work. Many staff are also displeased with no entitlement to standard benefits such as maternity pay, sick pay or pension contributions. Holiday pay is another contentious area, although some firms offer discretionary holiday payments for some staff employed on zero-hours.

There is also an unhealthy concentration of power in the hands of individual departmental managers, who may allocate hours or withdraw them according to personal preference. In theory, at least, workers may turn down work, but most assume – probably rightly – that such a refusal would mean no further offers, with little or no hope of redress.

As estimates of the working-based concept inexorably rise, there have been calls for zero-hours contracts to be banned. The Business Secretary, Vince Cable MP – who is reviewing the situation – is resisting such moves. He is right to do so. The issue is not so much the contracts themselves, but more as to how and why they are used.

Consider a case in point: social care. Social care has long been disproportionately reliant on zero-hours contract arrangements because government funding is way too low to pay anything but meagre wages. As the population ages, and more people are expected to live longer into retirement, the situation will only worsen. By banning them, is to allow the specifics of one, very particular sector to skew a policy affecting all.

There are things, however, that should be done. The first priority for the Business Secretary will be to establish the true scale of the issue, and there is a strong case for reform. For instance, staff required to be always ‘on call’ should be compensated given the inconvenience involved. Basic employee rights should also be enforced. It might also be argued that businesses above a certain size, such as 50 employees, should be required by law to provide a minimum number of hours. For larger companies, what excuse do they have for passing on risks they can well afford?

It should come as no surprise that the number of zero-hours contracts has risen significantly since the recession of 2008. Economic stagnation has forced many firms to cut their workforces, but have required a degree of flexibility in the knowledge that expansion and growth would return. But as the outlook improves, it is essential that staff are given more typical terms. If the current spike in zero hours terms is no cyclical occurrence but, instead, is an emergence of a new and insecure, low-paid workforce, then the price of flexibility being asked of people will be too high.

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