Saturday, October 11, 2008

Free markets and fair markets

Either the bottom arrives as predicted by TMP on Tuesday, or it's time to plough those bowling green lawns and plant turnips. As the scope of the UK government's cunning "plan" gets analysed over the weekend, some flaws in Brown's strategy will emerge - not least the eye watering premium sought on preference shares. If Lloyd's TSB board accepts these terms on behalf of its shareholders after its opportunist move on HBOS, allegedly at the request of the Treasury, then the entire board should resign in shame and be replaced by those compliant monkeys that the Japanese have managed to train to serve in bars.

Ideally, what should happen is that "market" should respond to the government by simply sitting on its hands and doing nothing. Would it not be wonderful to revert to a barter economy so that as little revenue as possible touches the sides of government coffers? After all, they will only waste it on bin inspectors and painting stupid slogans on police cars - and bailing out idiot bankers However, back in the real world...

The problems stem mostly from the false assumption that markets managed and manipulated by bankers and politicians are in some curious way "free"; TMP can proudly claim prescience in the TMP 2008 New Year's Message to the Nation , so you'll have to suffer a bit of gloating we're afraid.

To summarize, here's the TMP simple 5 point plan to establish fair markets ("free" is a complete misnomer, so it goes), as opposed to the wildly distorted product of political and entrenched interests of the past 10 years. We also take into account making better use of the IT and communications revolution that has transformed everything about the way information is gathered and managed and over the past 20 years, apparently to no discernible purpose whatever in the efficiency and competence of government, other than to automatically send out parking and speeding tickets!

  • Ensure that no company can grow to the size where it "simply cannot be allowed" to go bust. Those that approach critical mass will be painlessly subdivided in a process that will release opportunities for innovation and create far more interest and scope for creative development than the sight of companies like Microsoft or IBM becoming inexorably larger and less lovely.
  • Separate each multinational companies' interests so that they are accountable (and therefore bustable) in the country of operation
  • Require all equities to be held for 24 hours before being resold. There must be some traffic calming measures to take into account the reckless speed at which much trading now operates.
  • Require all lending to be offset against deposits and credible assets, including the banks' boards' own personal guarantees.
  • Introduce the basis of real time online accounting and transparency. There is no (technical) reason why the balance sheet of any business from Arkwright's corner store to E.ON energy cannot now be displayed online in real time (with a contingency adjustment allowance of, say, up to 3% of turnover). And for those companies that will try to claim that that they are simply too big and complex for such analysis, then they will be downsized until they can comply.
Add a few extra reality checks and balances...
  • Recognise (at last) that democratic countries will/can never co-operate to the detriment of their own best interests. As we have seen, the voters simply would not allow it, so the EU can only ever be expected to operate as a free trade zone (which, coincidentally, is what we fondly imagined we were getting into all those years ago...). And in defence of the principles of free and fair trade, when a French or German energy company charges different rates in different EU countries, then they will be fined or replaced.

  • Government must be downsized and made relevant to a population that is going to have to be reintroduced to the notion of wealth creation, not speculation and manipulation and public sector pensions. The fact that the local council is the biggest employer just about everywhere must be addressed and alternatives evolved. Many more aspects of local council operation must be privatised and controlled by separately elected officials and budgets.

  • It is widely accepted in slick City circles that the easy money is made from exploiting insider advantage - shorting especially exploits this aspect of the market. But anyone expressing the view that this practise is actually illegal will ensure that person will be regarded as hopelessly naive by the other insiders. Retail shareholders are generally regarded as mugs, unless they trust their cash for equity investment to that group of sanitised insiders known as "funds". The immediate and practical answer to this would be to lock up most of the "inexplicably successful" investment professionals and take away their phones and Internet connections; a less draconian process would involve the introduction of the transparent accounting process outlined above.
TMP's deeply cynical view of the state of markets has been proved to be mostly correct. So after the past couple of weeks, does anyone seriously expect the whole process to carry on as before, in the ever more vicious boom and bust cycles that our woeful leader declared had been consigned to history?

Meantime, happy bottom fishing!

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