The Next Financial Crisis Starts Here

I laughed out loud when reading yesterday's FT article on plans for an investment fund to enable banks to "unlock" capital that would otherwise be tied up under Basel III rules. Surely a spoof?

"The CRC Capital Release Fund will work by entering into “bilateral synthetic securitisations” with banks, whereby the fund will effectively buy a small amount of exposure to the riskiest portion of a segregated pool of bank assets, cushioning the bank with a “first loss” position.
The potential capital unlocked could be large, fund documents said.
In one example, the fund could reduce money required to be set aside by a bank against a €3bn ($4.1bn) pool of enterprise loans by up to 85 per cent.
The fund is expected to make between seven and 15 deals with four to six European banks.
It is targeting an average annual return of 20 per cent over its lifespan."

Wait, don't tell me. The six European banks will all "put" a share of their interests in pretty much the same underlying risky assets into the fund, which in turn will be rated AAA by one of a few major ratings agencies adopting the same old approach to due diligence and 'audited' by one or more of the Big Four accountancy firms (which will also provide the accounting advice on how to structure the fund and how one or more of the six European banks can reduce the capital they need to hold under the Basel rules). Then a bunch of other banks - and maybe the lucky six banks themselves - will invest in the fund, directly or indirectly, attracted by the 20% "return".

And pretty soon, the same structure will be replicated throughout the whole banking sector...

Image from Globlogisation.

Social Impact Bonds: Enough Social Impact?

The "Social Investment Bank" is an interesting experiment that's taken more than three years to bring to pilot stage. Its vision is to leverage money in dormant bank accounts ("unclaimed assets") to help the non-profit sector (aka "the third sector") "to grow and meet its goal of supporting marginalised communities in a way that neither the state nor the private sector can." To leverage the unclaimed funds, the SIB will raise money from 'non-government' investors by issuing "social impact bonds" - each being "a contract between a public sector body and Social Impact Bond investors, in which the former commits to pay for an improved social outcome."

For example, the pilot project "will prepare around 3,000 short term prisoners for their lives post-release [from Peterborough prison] and will work with them to prevent a return to a life of crime... If ... re-offending drops by more than 7.5 per cent within six years, investors receive a payment [from the Ministry of Justice] representing a proportion of the cost of re-offending. The payment will increase based on the reduction in re-offending with the total cost of the project capped at £8m. Social Finance [expects to raise £5m] from social investors that will be used to pay for the services in the prison and outside in the community."

There is a bit more complexity in the way it is explained here and in the Guardian, but perhaps you get the drift.

I'm not sure that I share the reported view of "sceptics" that this is "about city slickers making a fast buck," though the board and executives have some roots in the City and are offering "commercial investors, and high net worth individuals... greater financial return as the social return improves." This is "a risky business", as the Guardian article notes, so it's probably a bit hot for you and me anyway, even on such small numbers and moving at such a glacial pace. Public sector figures are notoriously, shall we say, inexact. And, by definition, we're talking about an area where the public sector body concerned doesn't have a good grip on the situation now, and obviously will be starved of funds to monitor closely in future (otherwise, there will be duplication in resources).

If I were a sceptic, however, I might prefer to consider this initiative as consistent with New Labour's reputation for public sector financial engineering, albeit gratefully endorsed by the Coalition as a "Big Society" initiative that might partially compensate for public funding cuts, at least in the justice budget. A sceptic might also consider that the focus on areas of apparent public policy failure begs certain questions that I'm sure have already been answered, or will be during the pilot:

1. Is it purely for lack of funds that the government doesn't grasp the nettle and reform the public policy areas in question? In other words: If the bonds don't sell, will no one implement the proposed fixes?
2. Does this proposal merely allow the public sector to outsource its accountability for difficult policy areas to a special purpose vehicle?
3. Does this proposal encourage public sector bodies to dump more of their work into the "too hard" basket and hope it will be picked up by taxpayers or private investors directly? Note the irony, for instance, in the quote from "Paddy Scriven, general secretary of the Prison Governors' Association, [who] has welcomed the scheme but warned those running it not to "cherry-pick" the least difficult offenders and leave the hardline cases to the prison and probation services." Isn't it his members' job to reduce recidivism?
4. If the bonds for one type of project perform well for investors, will the government ensure the policy lessons are learned and reap the savings, or allow repeat projects/returns?

Personally, I am left with two concerns, which are really two sides of the same coin, as it were:

1. The nature and scale of the risks to capital may be hugely under-estimated, giving rise to complaints and compensation awards that are underwritten by the taxpayer; and

2. The nature and scale of the risks to capital may be hugely over-estimated, giving rise to windfall gains to investors, again, underwritten by the taxpayer.

Yes, like all investment banks, this one comes with a taxpayer guarantee. Which means we're all on the hook for this in the end, whichever way it goes.

Don't get me wrong. It's fantastic that we are getting excited about making improvements and saving costs in these very difficult areas of public policy. And we should never lose sight of the root causes of apparently intractable social problems, nor cease in trying to resolve them. I just don't see the need for all the chicanery around getting the liability for fixing them off the public books when the liability sits there anyway.

Worse still, it distracts our great regulatory minds from the real challenge of how to finance growth in the 'real economy' while the government and our ailing banks attempt to rebuild their balance sheets. To that end, rather than tinkering with yet another public sector investment bank, surely the government will achieve greater lasting social impact by clearing the way for genuinely private, social funding initiatives aimed at creditworthy people and small businesses, as well as alternative energy and other socially productive projects.

It took about 6 months to actually plan and launch Zopa, for example, and it's members generated about £100 million in the time it's taken to get the SIB to pilot phase. There are at least a dozen other examples out there, which have either launched or are in development, some of whom are no doubt engaged in needless technical analysis - as Zopa was - because the authorities lack the time or other resources to publish helpful guidance on how such platforms ought to be structured.

Image from The Tool Factory blog.

What Is More Socially Important Than The Creation Of Wealth?

I've been reading article after article, and book after book about our financial crisis, and the really bad news is not the continuing poor risk management and regulatory failings despite decades of warnings in the form of scandals and mini-crises, or bank ram-raids on the Treasury to cover their losses while they retain their profits and keep paying giant bonuses, or £81bn in public sector spending cuts, higher unemployment, lower house prices or a decade of economic malaise.

The really bad news is that all this stems from a western cultural problem that is nowhere near resolution, so that we are doomed to repeat the whole, sorry saga.

Of all that I've read so far, perhaps John Lanchester's Whoops! has been most emphatic in elucidating what that cultural problem is - recently borne out by the ending to Money Never Sleeps (and, indeed, "The Other Guys"). Lanchester alerts us to the fact that John Maynard Keynes, the great god of economic thought, wistfully looked forward to a new world without greed and acquisitiveness:

"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues."

J.M. Keynes, "Economic Possibilities for our Grandchildren", 1930

In other words, the root cause of all this financial mayhem is that we have no higher, universally accepted social ambition(s) than the accumulation of wealth.

So when will the accumulation of wealth cease to be of high social importance?

When there is enough wealth? Surely not. There will never be 'enough wealth', because we seem to have no idea what 'enough' is as a society, nor how to figure that out. And there will always be greedy people, and people in great need, who will be compelled to find a way to accumulate wealth. So don't look to change people's desire to accumulate wealth as a solution. That will never happen. Especially when the financial crisis is putting everyone under pressure to make a penny to survive, although an Age of Conspicuous Thrift and a focus on sustainable capitalism may help.

No, if we are going reverse an ugly trend in our financial system, our society must agree on at least one higher ambition than the accumulation of wealth.

What's it to be?

Learning?

Late Payments Directive And SME Trade Finance

The Late Payments Directive should produce a rush to implement reasonable supply chain finance arrangements for any private or public sector customers who want to try to insist that payment terms exceeding 60 calendar days are not "grossly unfair to the creditor".

That's all very well if the financing package is big enough to interest the usual suspects, but alternative models are needed to finance the early repayment of invoices on a smaller scale, and this bodes well for online social finance platforms.

A Social Finance Association?

The past 5 years have seen the launch of many innovative business models aimed at enabling people to provide funding directly to other people and businesses via online finance platforms, rather than 'traditional' financial institutions. The terms 'crowdfunding' or 'social finance' seem to encompass most models out there.

The 'social' element is critical to the success of these models, because there are very real social and economic benefits to people - rather than financial institutions - sharing most of the margin between savings/investment rates and funding costs.

But I've witnessed firsthand how social finance platforms and their members tend to wrestle with the problem that social finance does not fit neatly into our financial regulatory framework, which is designed, ironically, to force recalcitrant 'traditional' providers to deal fairly with consumers. We are also currently victims of the delay and uncertainty caused by reforms to that regulatory framework. Because when they aren't rescuing banks or attending to 'business as usual', the key regulatory staff are understandably taken up with figuring out the new regulatory regime rather than vetting the legality of innovative business models that may remain outside the regulatory perimeter.

These problems add a huge amount of time and expense to starting and developing a social finance business, precisely at the time when banks are both lending less and paying lower savings rates.

Of course, it's common for the participants in new market segments to jointly discuss the development of the sector, including the characteristics and boundaries of regulatory 'safe harbours' and if/how they ought to be regulated. An appropriate forum for such discussion makes it easier to innovate and compete. But it also creates an efficient contact point with regulatory officials and opinion formers for discussing policy and regulatory concerns which individual participants wouldn't otherwise voice for practical reasons of time and cost, or for fear of inviting adverse attention.

There is no need for incorporation or office space. Trade associations often begin on ad hoc, unincorporated basis in response to a threat or opportunity that presents to all the participants.

Has that moment arrived for social finance?

Image from the Trade Association Forum.

Does Debt Due Diligence Scale Well Enough?

I've often made the point that we will only curb excessive fees and risk-taking in the financial markets by vastly simplifying products and making them more broadly accessible. In debt terms, think of this as the 'flat' distribution of risk - or parcelling each loan amount into tiny loans at inception, like at Zopa - rather than the hierarchical or vertical distribution of risk in today's bond markets - where a series of separate loans is packaged into 'tranches' that a bank and credit rating agency estimate will perform similarly, and bonds are issued (and derivatives concocted) according to the varying grades of likely default risk.

The critical potential downside to hierarchical risk distribution is being illustrated by the ongoing 'fraudclosure' and 'forced repurchase' problems in the US mortgage-backed securities market. A root cause may be that due diligence on the scale at which loans must be packaged to fuel the existing bond markets may not scale well enough to provide adequate risk estimates, particularly when the loans have a short history or there is a lengthy chain of loan ownership or loan servicing obligations. Of course, we have a similar challenge on a grander scale in the market for credit default swaps and collateralised debt obligations. But that's a layer above where the current problems are occuring.

The 'fraudclosure' problem arises from allegations in a large number of cases that subsequent loan-owners have not satisfied the formal requirements involved in foreclosing on problem loans. JP Morgan analysts reportedly believe that delays in foreclosures while the technical issues are addressed "will damage senior-ranked non-agency mortgage securities, costing as much as 4 cents on the dollar for certain bonds if postponements take six months."

The 'forced repurchase' saga centres on allegations that certain loans that were sold did not meet underwriting or appraisal standards under the relevant debt sale agreements. The same JPMorgan analysts reportedly believe the banks' losses from repurchases of such loans "will likely total $55 billion to $120 billion, or potentially $10 billion to $25 billion for the next five years."

The fact that these risks have gone unnoticed on this scale until recently suggests a substantial flaw in the due diligence methodology employed in the securitisation and/or subsequent 'collateralisation' process. And one wonders whether any different methodology has since been used by those reporting on whether or not they have an issue amongst their existing holdings, and the scale of any such issue. The explanation of one methodology allegedly used by an anonymous 'whistleblower' to package loans into bonds, was published today by Zero Hedge, and makes interesting reading. In short, the person says:

"...we worked with underwriters of the deal to perform due diligence. That is where this process breaks down. They use sampling to verify the makeup of the pools. There is a lot of pressure to get the deals done in a timely manner so they don’t have time to check every asset. The most I’ve ever checked on a deal is 30%. We’ve done some pools that came back very different from what the trader originally told us.

...

Don’t get me wrong, I’m not saying that all deals are incorrect, most aren’t. I’m saying that many are, and we have no way of knowing which deals are tainted. Fortunately, most deals have been seasoned a bit which make them easier to value, but the foreclosure documentation is just one instance where my shady scepticism has been vindicated. I knew there was shit floating around in the pools we were putting together, but the sampling technique and level of due diligence was never going to clean it out."

In other words, the scale of bond issuance, pressure of time and the cost of 'full' due diligence seem to encourage costly short-cuts which generate hugely uncertain outcomes.

But this seems to be far less of a problem where loans are appraised and parcelled out at inception according to transparent underwriting standards. Lenders' experience at Zopa is instructive here. But I would say that, wouldn't I? Funding Circle and the Receivables Exchange are examples in the small business finance space, as is the idea of reverse invoice discounting.

Greed Is Still Good

If you don't want to know the ending to the film Money Never Sleeps, stop reading now.

For the rest, I have to say I'm troubled by whether audiences believe the ending to this movie is a positive "Hollywood" resolution, instead of the grimly ironic testament to persistent greed that it actually is.

To cut the story short, Gordon Gecko, immortalised by the line "Greed...is good", leaves jail after doing time for crimes committed during Wall Street, only to trick his 'leftist' daughter and her naïve fiancé into returning $100 million of the ill-gotten gains Gordon had salted away in his daughter's name. She'd been going to give it to charity, but her fiancé convinced her to invest it via him and Gordon in a 'clean-tech' alternative energy company (the nature of whose connection with the fiancé is never satisfactorily explained). Gordon somehow diverts the cash, ruining their plans and their relationship in one hit. As a result, he's told he'll never see his grandson-to-be, which seems to be the only thing in the world that really bothers Gordon. In the final scene, however, Gordon is redeemed in the eyes of his daughter and her fiancé - and heals the emotional rift between them - by dropping by to announce that he's deposited a freshly laundered $100 million in the bank account of said energy company. Gordon can now spare the cash, he happily explains, because he's just made another fortune shorting the markets and managed to skim a little cream for himself via the Cayman Islands. Cue the wedding and dancing.

I guess one can't blame a daughter for wanting her dear old dad to be around her child, even if he is only anxious to teach the kid the equivalent of safe-cracking. But I was struck by the fact that she's also billed as a 'leftist' and that she and her fiancé share a passion for 'clean-tech' alternative energy. And I reckon the example of their easy forgiveness in the film might be a sign that audiences think that the Bernie Madoffs of this world - indeed our financial institutions - can redeem themselves simply by investing their ill-gotten gains in 'worthy causes' - or by repaying their bailout money - rather than by behaving ethically.

Or, in other words, that greed is still good.

This is chilling enough when you consider that such a view would endorse the illegality, or at least the immorality, of the mortgage brokers and bankers who gleefully shoveled the likes of NINJA loans into the bond markets and even simultaneously shorted the resulting bonds - all at the taxpayers' expense. But it's especially chilling given the recent sober reminder from Hank Paulson, formerly both Chairman/CEO of Goldman Sachs and US Treasury Secretary at the start of the financial meltdown (somewhat simultaneously, some seem to be suggesting):

"Speaking close to the two-year anniversary of Lehman Brothers' collapse, Mr Paulson said that while he welcomed much of the new financial regulation, it would not be enough to prevent another crisis. "We have to assume that regulation won't be perfect. We'll have another financial crisis sometime in the next 10 years because we always do.""

Timely, too, that UBS, the global investment bank, should announce today that it won't be pursuing the former senior managers who appear to have put in place “incentives...to generate revenues without taking appropriate consideration of the risks [that]...facilitated losses” because any such court action would be “more than uncertain”, expensive and “lead to negative international publicity and thus hamper UBS’s efforts to restore its good name in the markets” [my emphasis]. What's that a 'good name' for, exactly? And what sort of message does that meek surrender send to the current management, clients and other stakeholders?

Why, that greed is still good, of course.

Paulson, perhaps ironically, is right. No amount of regulation will change this cultural belief. It's a crisis of leadership, yes, but only because we get the leadership we deserve. Cultural change is something that must evolve bottom-up.

And that's what troubles me about the forgiveness, wedding and dancing at the end of Money Never Sleeps. If Hollywood had been confident that our values had changed, the only thing that would have united the young lovers would have been a strenuous and simultaneous citizens' arrest.

Of Exhaust Pipes, Tyres And Social Lending

I was lucky enough to be invited to Tuesday night's Financial Services Club talk by Giles Andrews, CEO of Zopa. It was a real treat to hear an update on progress at the 'old firm', especially when Giles showed the unmistakable 'hockey stick' inflection point in the £100m of social lending on Zopa since March '05. Zopa estimates that its members have cornered a 1% share of the personal loan segment of the UK lending market, but with an average default rate of 0.7%.

In an intriguingly fresh take on the social lending phenomenon, Giles explained that savings and loans are in the same class of vulnerable, cosy-little-profit-centre for retail banks that exhaust pipes and tyres once occupied for car dealerships before Kwikfit came along. And just as Kwikfit's focus on price and convenience enabled it to steal an unassailable march on the incumbents in the car servicing market, Giles estimates that in another 5 years Zopa members could easily achieve a 10% share of the personal loan segment of the UK lending market - and people's participation in social lending of all forms could account for half of all UK personal loans.

Given everything else likely to be going on in the retail banking market over the next 5 years, I guess banks could be forgiven for leaving a little more money on the table for the rest of us.

Of course, economically, the reality of social lending is starkly different from the cosy-little-retail-bank-profit-centre represented by traditional savings and loans. Individual lenders and borrowers divide most of the 'spread' between social lending and borrowing rates, not Zopa itself - and certainly not retail banks.

In addition to the economics, Giles believes that transparency is a key driver of Zopa's success. That's not an empty statement, given that members set their own terms and seasoned Zopa members moderate their discussion boards rather than Zopa staff. Zopa also encourages members to use Twitter for informal requests, queries or non-sensitive admin, because it's faster and more accessible, efficient and transparent than email or spending ages holding on the phone or visiting a physical branch.

With these competitive advantages, social lending is definitely here to stay.

Here is Chris Skinner's in depth report on the evening.

That Government Waste Report In Full

Isn't it annoying that the 'news' media 'report' on the results of research, but never provide a link to the source? Well, here's the link to "Efficiency Review by Sir Phillip Green", without any link to media reports. So there.

It's only 33 slides, and I urge every taxpayer to take it in.

My 'takeaways' are that nobody knows enough about how the public sector spends our money to ensure we get real value for it. So we don't even know how much money could be 'saved' by finding out. But Sir Phillip's best guess is that getting a handle on it all will be very worthwhile in terms of policemen, teachers and other essential front-line public services, if not outright spending cuts.

I hope they get on with it. Fast.

Gen Y: Rise of The Pragmatists

On Wednesday I attended the launch of The Faith of Generation Y by Sylvia Collins-Mayo, Bob Mayo and Sally Nash, which the Daily Telegraph responded to on its front page on Monday.

Bob and Sylvie are friends (well of course, but also friends of mine), so this is a bit of a plug.

But in the course of the co-authors' presentation of some key findings, one of many interesting observations struck me in particular. Bob explained that Generation Y people are not so reactive to organised religion as their elders in Generation X, who tended to have had it forced on them as kids. Instead, Gen Y'ers are just as interested to hear what religion is and what it stands for, as any of the other spiritual messages out there. However, they aren't interested in whether the message represents the 'truth' in some dogmatic sense, but pragmatically whether it 'works'. So you will find a Gen Y person chilling out in a church because it is a chilled, spiritual place to be, rather than because he 'believes'.

Bob says this attitude is also encouraged by Gen X people as parents (and teachers?), who tend to be friends with their kids and tolerant or permissive of independence, critical thought and discussion, rather than more authoritarian or controlling as their own parents' generation tended to be.

I suspect this has at least two broad implications for all of our society's public and private institutions. First, while other research shows there has been a decline to low levels of trust in our institutions, this may be driven by and limited to Gen X'ers, as a result of the previous generations' tendency to trust in or tolerate institutions, regardless of how badly they perform. Secondly, Gen Y may be free of the emotionally reactive element of Gen X's attitude to institutions, but very focused on what those institutions stand for - what they promise - and whether those institutions 'work' or perform accordingly.

So if you thought the internet and Web 2.0 marked a revolution in personalisation, you ain't seen nothing yet.

Beer-Belly Revenge 2010

In the course of writing this post, I confess it did strike me as a little weird and obsessive to have derived real satisfaction from carefully planning and executing a successful year-long assault on one's burgeoning girth, only to start again next week.

Am I bored? Terrified of 'old age'? Addicted to endorphins? I pondered the motivation for a few days. Then I thought, f*ck it, I'm having fun.

I said at the end of last season that to arrest a decline I'd have to do "something radical". A "decline" because after 50 weeks of increasingly patchy training for the Rower's Revenge, I'd only achieved the same pace in the dry as I had during a deluge in 2008. Worse (but undeclared at the time), I'd ended the season a little, well, heavier. "Something radical" because I couldn't simply add to my existing target of 6 training hours a week and hope for the best. I'd have to train far more efficiently to make the limited time count. And I didn't want to 'waste' another year doing the wrong thing.

There are plenty of personal trainers, coaching books and web sites out there dedicated to physical fitness, which vary in helpfulness depending on your own strengths, weaknesses, and target events. But I was more interested to learn how other amateurs had converted all the advice into a realistic personalised training programme that worked for them, without all the hype and packaging.

Unfortunately - perhaps understandably - few people take the trouble to publish a neat summary of how they approach the physical side of triathlons. Though there are numerous valuable individual tips on specific aspects of training, events, tactics, kit, diet and technique. See this 19 minute video guide to transition, for example - though please note: while I DO clip my cycling shoes onto the bike, using rubber bands to keep them off the ground until mounting, I DO NOT attach the left shoe to the rear-wheel quick-release lever. The seat-stay is just as conveniently located, yet incapable of releasing the rear wheel onto the road if the rubber band refuses to snap immediately. And see the videos and this discussion of the dreaded "cyclo-cross dismount", which I've not attempted sober and relaxed, let alone drunk on lactic acid in the heat of transition.

So to really burrow into the physical training aspects I had little choice but to buy and study (okay, obsess over) Joe Friel's "The Triathlete's Training Bible".

My old training programme had evolved only slightly from when I first attempted the Rowers Revenge in 2005 after nearly 20 years of not competing very much at all. I loved the idea of row-cycle-run, because I hate swimming training, and did a lot of rowing in the '80s. Despite enjoying my first Revenge, I had to miss it in 2006 and tried an alternative rowing triathlon at Dorney Lake in 2007. But I returned in 2008 and 2009.

To train for 2005, I went from a fairly relaxed 3 sessions a week to a panicky 3 months of 8 or 9 sessions a week (only to 'race' the bike leg on my 3-ton hybrid...). Having established that I could finish and still make it to work on Monday, I borrowed a little from Mark Allen, the 6-time Ironman champion, and developed a year-round, 4-6 sessions-a-week programme that didn't put so much strain on the diary or cause perpetual exhaustion but offered improvement through consistency. In 2007 I made life a bit easier by acquring a sub-£1,000 racing bike with carbon forks and seat-stays, a basic cycling computer, clip-in cycling shoes that have a single velcro strap to aid transition, and a basic heart rate monitor. To spice up the calendar, I added a few shorter duathlons and rowing triathlons with DB Max. These taught me how to resist the overwhelming temptation to blast through the first leg amidst the adrenalin-crazed crowd, so as to avoid a seizure in the final run leg. Transitions gradually improved on average, but were horribly inconsistent.

But, frustratingly, during the '08/'09 season I missed 55 sessions due to various 'niggles', only a few of which were better described as 'hangovers'. I'd also started to dither in transitions - which I put down to a lack of fitness. And I ended the season heavier, as I mentioned.

So I began 2010 with a new, Friel-based programme that provides more opportunity for recovery, but progressively more intensity. It's broken down into 3 four-week 'base' periods, followed by 2 four-week 'build' periods and a final two-week 'peak' period. Repeating that framework after a 'transition' week allows for two 'peak' events a season. Each four-week block involves 3 progressively more intensive weeks, followed by a light week of low-intensity sessions (sometimes missing a run, since that's hardest on the joints). There are 3 endurance and 3 interval sessions each week, except for short, lighter sessions in recovery weeks. I dropped weights, but retained some pilates exercises at the end of 2 or 3 sessions a week to stave off back problems. I also added a mile to my basic 'endurance' run, invested in a GPS heart rate monitor to keep an eye on my running pace as well as heart rate, switched to a spinning bike for the cycling sessions for safety and consistency, and ate less carbs and more protein.

The results?

Well, the recovery weeks definitely removed the niggles and I only missed 7 between January and October 2010, as opposed to 44 during Jan-Oct 2009. I also lost a stone.

Out on the track, I made big improvements in the first 'peak' event - a mid-season Votwo duathlon on the flat Dorney Lake course. I was an average 40 secs/km faster in the two 5km run legs, and 10 secs/km faster over a 20km ride. I was also more clear-headed and a lot less shaky in the transitions, which were faster as a result.

Comparisons for the Revenge itself are rough because it was dry and sunny for last year's Revenge, but wet last Sunday. And they cut the run from 7.1km to 5.5km because of mud and bridge repairs. Disclaimers aside, the 4km row was a fraction slower, leaving more for the bike and run. The bike pace improved only 5 sec/km over last year's time for 23.4km, but the run pace improved a healthy 27 sec/km over last year (slower than the mid-season duathlon, but the Revenge course isn't flat, and it's tougher starting with a 4km row than a 5km run). Again, I was more clear-headed and didn't dither in the transitions. However, my heart rate seemed a bit lower than usual, so maybe I needed to give it a bit more welly - though the finish photo suggests that was not a realistic option and there's a worse one than that ;-)

In competitive terms, the result was 7th out of 52 in the Mens 40-49 category and 37th out of 166 individual competitors overall, versus 11th and 58th last year. Of course that may just mean there were fewer quick competitors this year, having other fish to fry. Or they hate the wet - I was 9th and 49th respectively in the deluge of 2008.

While places don't mean much outside the top 3, it's worth considering the difference just a few minutes can make. For example, if I'd run just a minute faster this year, I'd have been 5th in my age group and 30th overall. Another minute faster on the bike, say, and I'd have been 4th and 27th respectively, and so on. Daydreams like that provide a bit more motivation than beer-belly avoidance, especially when it's dark, very cold, raining heavily or snowing.

Of course, a fresh batch of 40 year olds next year could easily place me 20th in the group. And I'm under no illusions about the natural ability and giant training load required to bridge the 11-minute gulf between me and the fastest guy over 40, or indeed the 5 minute gap to the fastest over-50 year old(!). But I reckon there's still some improvement in pace to be gained from the current training programme... we'll see next year.

Evolution of Contract Law

Enjoyed an invaluable workshop on contract law and drafting this morning, facilitated by Marion Smith, a barrister at 39 Essex Street.

Challenging for 8am on a Thursday, but a very worthwhile 90 minute canter through a factual scenario and the law on pre-contract negotiations, implied terms, entire agreement clauses and rectification by interpretation and for unilateral mistake. There were great notes on these aspects, as well as termination and the ethics of drafting.

Marion's top-tip on where to find open legal discussion about drafting contracts: AdamsDrafting - now on the blog roll.

The Weakness Of Postive Thinking

As an avowed pragmatist, I've been savouring Barbara Ehrenreich's Smile or Die, about the tyranny of positive thinking.

Barbara traces the rise of 'positive thinking' out of the misery of Calvinist soul-searching amongst people deemed non-productive by that religious movement, through 'christian science' to popular psychology and self-help books, to academic psychology and, finally, to major corporations, banks and other institutions, where critical thinkers tend to be ritually sacrificed as having a "negative attitude". Barbara patiently explains why "positive thinking" will not of itself produce a desired outcome, and how it has proved positively harmful to suppress critical thought and to avoid addressing genuine doubt and 'negative' sentiment. She also helpfully points out that 'positive' does not equate to 'good', and 'negative' does not equate to 'bad'.

All of which will seem trite to anyone who hasn't seen Up in the Air, or been subjected to the ramblings of a 'success coach' or 'motivational speaker', like Tony Robbins, or had a colleague earnestly suggest you read "Who Moved My Cheese".

Of course it's helpful to approach life positively. Committing to a particular goal is certainly enormously helpful - if not critical - to achieving it. But it is not determinative of the outcome. Similarly, to imagine or envisage a successful performance in a given scenario will contribute to your confidence when the time for performance arrives, and that should help you perform better. But that's only one factor that contributes to your performance, not the 'cause' of your success.

Otherwise, the world would be governed by repressive dictatorships that command optimism. And Kim Jong-il really would be able to control the weather with his mood.

Instead, we do our best to figure out and cope with all the variables likely to significantly affect a scenario, including all the 'bad things' that might happen, as well as the fact that the world is random and heavily influenced by surprise events, or "Black Swans". Approaching that process proactively and positively is also clearly going to be helpful but, again, not of itself determinative of success.

Ultimately, Barbara questions the effect of positive thinking on 'happiness', and it's easy to see that adherence to positive thinking does not end well - the inevitable result of suppressing and repressing all 'negative' news, thoughts and emotions. Barbara cites the Lehman Brothers top brass, Dick Fuld and Joe Gregory, who may have made plenty of money eschewing analysis and 'going with their guts', but eventually the blew the bank. Joe Stalin, too, was big on 'optimism' and a little hard on 'defeatist' critics and others who didn't 'get with the programme', and doubtless Kim Jong-il constantly curses the 'naysayers' for the under-performance of his 'optimistic' regime.

And let's not forget, among the long list of victims, all the angry and confused positive-thinkers out there who hot-desked, travelled incessantly, ignored their friends and family, slept with their Blackberries and generally drank the corporate Kool-Aid, only to discover they were surplus to requirements.

I hope they don't get fooled again.

Here's Jon Stewart's interview with Barbara on the Daily Show.