Monthly Archives: April, 2009

UK Banking bail out. Behind smokescreens The 1.3 trillion pound bank job

Source: The Independent, 1st March 2009

The 1.3 trillion pound bank job

The furore over Sir Fred Goodwin’s massive pension worked as an effective smokescreen for far worse financial news that the Government was happy to keep out of the public eye. David Randall and Margareta Pagano report

It is, as they say, the final insult. Nearly six months after Sir Fred Goodwin resigned as chief executive of Royal Bank of Scotland following its costly government bailout, not to mention the disclosures that he is to receive a £703,000-a-year pension, we face the prospect of seeing his signature on our bank notes for two more months.
Image from AFP/GETTY

It is, as they say, the final insult. Nearly six months after Sir Fred Goodwin resigned as chief executive of Royal Bank of Scotland following its costly government bailout, not to mention the disclosures that he is to receive a £703,000-a-year pension, we face the prospect of seeing his signature on our bank notes for two more months.

As scapegoats go, Sir Fred Goodwin is straight out of Central Casting. He’s a banker; he’s mucked up big time, cost the taxpayer sums still too large to calculate properly, and he’s walked away from the mess with riches beyond the avarice of a Premiership footballer. All he lacks, as a media villain, is a pair of staring eyes and record of cruelty to animals.

If Alastair Campbell were still around, Sir Fred might have been saddled with even that. But this week, as loomed the handing to banks of further barrels of public cash on what the furniture stores used to call easy terms, the Government had no need for nudge-nudge rumours of scuttlebutt to create a diversion. It had information even more incriminating and instantly unpopular: the size of Sir Fred’s pension pot.

It was huge; it was blood-pressure raisingly indefensible; and, above all, it seemed politically useful. Ministers had known the scale of it for months; something pretty close to its size had been reported on City pages as far back as 14 October last year. But it had never become An Issue. Now the time for it to do so had arrived. And so, on Wednesday evening, the exact magnitude of it was leaked to Robert Peston of the BBC. He went on air and could barely get the numbers out for hyperventilating: Sir Fred’s pot of gold was worth £16.9m; the man – so the story went – whose megalomaniac regime of compulsive acquisitions had brought down the Royal Bank of Scotland was now retired, at the age of 50, with a pension worth £13,000 a week for the rest of his life.

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The ploy worked. By the following day, Fred’s Pension was dominating the news and provoking all the anti-banker indignation that a government spin-doctor hoped it might: “These fat cats must have their fortunes neutered” (Daily Mail), “Obscene: I won’t give up a penny” (Daily Express), and “No shred of shame; RBS boss Fred” (Daily Mirror). Yet all the while, behind this smokescreen, hundreds of billions of taxpayers’ cash was being committed to the banks on terms that seemed bewildering. This – the biggest leap in the dark in British economic history – is what the row over Fred’s pension concealed. It is a story that should now be told.

For a long time, it has been known that the big scheduled domestic event of last week would be RBS’s results. Their gargantuan size was widely expected, and the final figures didn’t disappoint: £24.1bn in the red – bigger than any American bank could manage, vastly outscoring some of the week’s other losses (such as housebuilder Barratt’s £592m), and relegating to barely visible footnotes the other depressing statistics of the week, such as household spending declining at its fastest rate since 1991; house prices down 15 per cent in a year; and service sector job losses at a 10-year high.

RBS’s losses, and those of Lloyds HBOS the following day, meant a further extension to the Government’s bailout, and taxpayers’ exposure. The size of the potential commitment to the banks is estimated at £1.3trn, equivalent to the value of the British economy for a whole year, and a burden equal to possibly as much as £36,000 for every man, woman and child in the country. And there could yet be more unpleasant discoveries. Looming rather less large in the public consciousness than Sir Fred’s pot was the appearance before the Treasury Select Committee of Mervyn King, Governor of the Bank of England. Fully five months after the present crisis began with the collapse of Lehman Brothers in September, he told MPs that it is still not known just how big the liabilities of British banks are. In his evidence to the Treasury Select Committee last week, he said it would take “many months” to establish the scale of toxic assets held by banks, requiring a detailed assessment contract by contract.

Also overshadowed by Sir Fred’s pot was the size of the latest government support for the banks. For a fee of £6.5bn, RBS will place £325bn worth of toxic assets in the Government’s newly created Asset Protection Scheme. The bank will then be liable for only the first £19.5bn of these dodgy assets, with the taxpayer accepting the risk of the rest. The shadow chancellor, George Osborne, said: “The British taxpayer is insuring the car after it has crashed.” Lloyds Banking Group’s participation is not yet finalised, but is expected to involve about £250bn worth of toxic assets.

In return, there is now some progress in getting the banks to start lending again. Northern Rock and RBS have committed to increase lending by £25bn this year, and a similar amount next. This is important: for businesses – some of which need a line of credit to weather the present storm and, some months, even pay staff – and in getting the housing market at least stabilised. On Friday, it was learnt that the number of Lloyds and HBOS mortgage customers who are in negative equity has gone up from 4,000 in 2007 to more than half a million today.

And quickly hidden, too, by the Goodwin pension kerfuffle was the testimony of Lord Turner, chairman of the Financial Services Agency, to the Treasury Select Committee last week. He said of Gordon Brown’s watch at the Treasury: “All the pressure on the FSA was not to say: why aren’t you looking at these business models, but why are you being so heavy and intrusive? Can’t you make regulation a bit more light touch? We were supervising people like HBOS within a particular philosophy of the way you do regulation which I think, in retrospect, was wrong.”

His views, which no one in Government has had the brass neck to contest, vindicate Paul Moore, the HBOS whistleblower, and support the thesis that history will probably conclude that the trail of easy credit and light-touch regulation responsible for the present crisis leads to Gordon Brown’s front door.

Yet, for all that Sir Fred’s pension obscured, there were things it woefully exposed. First is the Government’s powerlessness to alter the culture of excessive rewards for the men responsible for some of the bailed-out banks’ worst errors. Sir Fred walks with a pot of £16.9m, and Peter Cummings is expected to leave HBOS with one worth £400,000 a year. Many are mystified that the Government, for all the enormous muscle that should come with a 70 per cent stake in RBS, and 43 per cent Lloyds, cannot stop such payments. How is it, goes the question, that the Prime Minister and Chancellor of the Exchequer are reduced to asking Sir Fred, in an increasingly plaintive refrain, to be a good chap and give up part of his wealth in a gesture of contrition and solidarity?

The answer is that while, through its present ownership and various inquiries, the Government can alter the rewards culture of the future, it can do very little about the past. Agreements were made and, for all the huffing and puffing to the gallery by Brown about lawyers at UKFI combing case books for a means to penalise Sir Fred, there is very little hope of it unilaterally and legally clawing back part of Sir Fred’s pot. Besides, part of his pension was accrued in previous employments.

Exposed, too, by the Goodwin pension fuss has been the Government’s claim that it knew only recently (“I became aware of this deal only a few days ago,” Brown said last Thursday) of the full size of the pot. This is curious, not least because of the role of the Treasury minister Lord Myners, a recently ennobled denizen of the City, who was privy to the negotiations over Sir Fred’s pension last October. Last summer, the RBS boss’s pension fund stood at £8m, which assumed a retirement age of 60. But, in return for waiving the right to a year’s salary and other benefits in lieu of notice, and also not taking any legal action over loss of office, he agreed to retire at the age of 50. And, to fund this extra 10 years’ pension, RBS virtually had to double the size of his pot.

Lord Myners knew this. He claims the reason he did not object to Sir Fred’s pension when he found out in October is that he was “unaware of any scope for discretion”. Yet Lord Myners has extensive experience in the field of executive remuneration: he sat on the remuneration committees of Powergen, O2 and the Guardian Media Group. He was chief executive of Gartmore and sat on the board of NatWest when it introduced significant bonus schemes, as well as being chair of the Low Pay Commission. An innocent in matters of remuneration he is not.

An RBS source said yesterday that Lord Myners, and therefore the government, had full knowledge that the pension was a contractual obligation. Another source said: “I was in the room when Lord Myners was talking to Sir Tom McKillop, the former chairman, over the phone that weekend in October, the 11th and 12th, when the talks took place and Sir Tom made it quite plain that Sir Fred was entitled to his pension.” An RBS spokesman added: “The fuss being kicked up now by the Government is complete nonsense as it has known since October that Sir Fred’s pension would be this amount.”

And not just the Government. Although the precise sum was not made public until last week, something close to its scale was being written about in the press as early as 14 October, when The Independent reported: “Goodwin forced out of RBS but still walks away with £580,000 pension.” For the Government to claim that it did not realise the size of Sir Fred’s stipend looks remarkably disingenuous.

But the hoo-ha about it had served its smokescreen purpose – and continues to. Yesterday the pleading to Sir Fred by ministers went on. Lord Mandelson, the Business Secretary, told ITV News: “I think Sir Fred Goodwin undoubtedly should give it, or the bulk of it, back. I don’t think he quite understands how people feel about this – how angry they feel.” Opposition MPs, and every passing blogger, join in. Sir Fred and his pension make an easily graspable scapegoat.

No doubt some gesture by Sir Fred – for charity, probably – will be made. The public will be grudgingly assuaged. The fit of national vapours will pass; Sir Fred will fade into gold-plated discredit, but the real problems will remain.

Obama looks at climate engineering. The environmental war.

Source: AP on Google Hosted News

AP Newsbreak: Obama looks at climate engineering

By: SETH BORENSTEIN, Apr 8, 2009

WASHINGTON (AP) — The president’s new science adviser said Wednesday that global warming is so dire, the Obama administration is discussing radical technologies to cool Earth’s air.

John Holdren told The Associated Press in his first interview since being confirmed last month that the idea of geoengineering the climate is being discussed. One such extreme option includes shooting pollution particles into the upper atmosphere to reflect the sun’s rays. Holdren said such an experimental measure would only be used as a last resort.

“It’s got to be looked at,” he said. “We don’t have the luxury of taking any approach off the table.”

Holdren outlined several “tipping points” involving global warming that could be fast approaching. Once such milestones are reached, such as complete loss of summer sea ice in the Arctic, it increases chances of “really intolerable consequences,” he said.

Twice in a half-hour interview, Holdren compared global warming to being “in a car with bad brakes driving toward a cliff in the fog.”

At first, Holdren characterized the potential need to technologically tinker with the climate as just his personal view. However, he went on to say he has raised it in administration discussions.

Holdren, a 65-year-old physicist, is far from alone in taking geoengineering more seriously. The National Academy of Science is making climate tinkering the subject of its first workshop in its new multidiscipline climate challenges program. The British parliament has also discussed the idea.

The American Meteorological Society is crafting a policy statement on geoengineering that says “it is prudent to consider geoengineering’s potential, to understand its limits and to avoid rash deployment.”

Last week, Princeton scientist Robert Socolow told the National Academy that geoengineering should be an available option in case climate worsens dramatically.

But Holdren noted that shooting particles into the air — making an artificial volcano as one Nobel laureate has suggested — could have grave side effects and would not completely solve all the problems from soaring greenhouse gas emissions. So such actions could not be taken lightly, he said.

Still, “we might get desperate enough to want to use it,” he added.

Another geoengineering option he mentioned was the use of so-called artificial trees to suck carbon dioxide — the chief human-caused greenhouse gas — out of the air and store it. At first that seemed prohibitively expensive, but a re-examination of the approach shows it might be less costly, he said.

Copyright © 2009 The Associated Press. All rights reserved.

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UK Turns Back Obama Brother Over Sex Arrest

Source: News of the World (UK), Apr 11, 09

Britain has denied a visa to one of Barack Obama’s half-brothers after identifying him as an accused sex criminal, the News of the World reports. Samson Obama, a Kenya-based cell phone saleseman, tried to enter Britain in January on his way to the president’s Washington inauguration. But immigration officials identified him as a man arrested for an attempted sex attack in Berkshire.

Police say Samson had followed several girls, including a 13-year-old, and tried to assault one in a cafe. When arrested, he gave officers a fake ID and the British address of his mother—the former wife of Barack Obama Sr. Samson was never charged and left the country. His recent run-in with immigration officers “was obviously an extremely sensitive issue,” a British government source said.

Pentagon preps for economic warfare

By: EAMON JAVERS, April 9 2009

The Pentagon sponsors a war game that examines how hostile nations might seek to cripple the U.S. economy.

The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.

The two-day event near Ft. Meade, Maryland, had all the earmarks of a regular war game. Participants sat along a V-shaped set of desks beneath an enormous wall of video monitors displaying economic data, according to the accounts of three participants.

“It felt a little bit like Dr. Strangelove,” one person who was at the previously undisclosed exercise told POLITICO.

But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

Their efforts were carefully observed and recorded by uniformed military officers and members of the U.S. intelligence community.

In the end, there was sobering news for the United States – the savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game.

The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia, participants said.

The war game demonstrated that in post-Sept. 11 world, the Pentagon is thinking about a wide range of threats to America’s position in the world, including some that could come far from the battlefield.

And it’s hardly science fiction. China recently shook the value of the dollar in global currency markets merely by questioning whether the recession put China’s $1 trillion in U.S. government bond holdings at risk – forcing President Barack Obama to issue a hasty defense of the dollar.

“This was an example of the changing nature of conflict,” said Paul Bracken, a professor and expert in private equity at the Yale School of Management who attended the sessions. “The purpose of the game is not really to predict the future, but to discover the issues you need to be thinking about.”

Several participants said the event had been in the planning stages well before the stock market crash of September, but the real-world market calamity was on the minds of many in the room. “It loomed large over what everybody was doing,” said Bracken.

“Why would the military care about global capital flows at all?” asked another person who was there. “Because as the global financial crisis plays out, there could be real world consequences, including failed states. We’ve already seen riots in the United Kingdom and the Balkans.”

The Office of the Secretary of Defense hosted the two-day event March 17 and 18 at the Warfare Analysis Laboratory in Laurel, MD. That facility, run by the Johns Hopkins University Applied Physics Laboratory, typically hosts military officials planning intricate combat scenarios.

A spokesperson for the Applied Physics Laboratory confirmed the event, and said it was the first purely economic war game the facility has hosted. All three participants said they had been told it was the first time the Pentagon hosted a purely economic war game. A Pentagon spokesman would say only that he was not aware of the exercise.

The event was unclassified but has not been made public before. It is regarded as so sensitive that several people who participated declined to discuss the details with POLITICO. Said Steven Halliwell, managing director of a hedge fund called River Capital Management, “I’m not prepared to talk about this. I’m sorry, but I can’t talk to you.”

Officials at UBS also declined to comment.

Participants described the event as a series of simulated global calamities, including the collapse of North Korea, Russian manipulation of natural gas prices, and increasing tension between China and Taiwan. “They wanted to see who makes loans to help out, what does each team do to get the other countries involved, and who decides to simply let the North Koreans collapse,” said a participant.

There were five teams: The United States, Russia, China, East Asia and “all others.” They were overseen by a “White Cell” group that functioned as referees, who decided the impact of the moves made by each team as they struggled for economic dominance.

At the end of the two days, the Chinese team emerged as the victors of the overall game – largely because the Russian and American teams had made so many moves against each other that they damaged their own standing to the benefit of the Chinese.

Bracken says he left the event with two important insights – first, that the United States needs an integrated approach to managing financial and what the Pentagon calls “kinetic” – or shooting – wars. For example he says, the U.S. Navy is involved in blockading Iran, and the U.S. is also conducting economic war against Iran in the form of sanctions. But he argues there isn’t enough coordination between the two efforts.

And second, Bracken says, the event left him questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. “There’s a graduated spectrum of options here,” Bracken said.

For those who hadn’t been to a Pentagon event before, the sheer technological capacity of the Warfare Analysis Laboratory was impressive. “It was surprisingly realistic,” said a participant.

Still, the event conjures images of the ultimate Hollywood take on computer strategizing: the 1983 film “War Games” in which a young computer hacker nearly triggers a nuclear apocalypse.

The film and the reality had one similarity: The characters in the movie used a computer called WOPR, or War Operation Plan Response. The computer system used by the real life war-gamers? It was called WALRUS, or Warfare Analysis Laboratory Registration and User Website.

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