Wednesday, 28 August 2013

BS2 and The Planning Fallacy

In his excellent book Thinking, Fast and Slow, Daniel Kahneman explains that governments tend to reward bidders who over-estimate the utility of large-scale projects, while under-estimating the cost. This is known in the trade as "The Planning Fallacy". While Kahneman cited research that demonstrates the fallacy in relation to many railway procurement exercises over many years, we also saw if firsthand recently in the West Coast railway fiasco. Now the government is trying its hand again, with BS2 HS2.

The Planning Fallacy suits all those involved, except commuters and taxpayers. At the time of the West Coast debacle, costs were about 40% higher on Britain’s railways than comparable European networks. And taxpayer subsidies, adjusted for inflation, had reached approximately £7 billion per annum. Approximately 10% of trains didn’t arrive on time. Only 42% of rail customers were satisfied with value for money for the price of their ticket. Only 69% said there was sufficient room for all passengers. And only 80% of rail customers were satisfied with punctuality.

This spring, the figures don't look any better. In fact, only 29% of UK commuters thought they got good value for their rail fares. Adding a fancy new rail project doesn't seem likely to fix their day-to-day experience.

There are numerous hard-headed dismissals of the alleged viability of HS2, including John Kay's piece yesterday. And it wasn't reassuring to learn from a Channel 4 news interview with the Transport Secretary that he has set aside a £14bn 'contingency' in an apparent budget of £40bn. It smells like 'waste' to me.

There must be ways to spend that kind of money to improve the lot of today's commuters, rather than saddling the next generation with a whole load of BS.

Wednesday, 21 August 2013

Banks Can't Even Be Bothered For The Rich

Oh those poor, poor bankers. Now, we're told by Spear's, that the new 'retail distribution' rules have made their lives so complicated they even have to stop fleecing servicing wealthy customers. Bernie Madoff must be relieved to have got out before the well ran dry.

Ironically, for a magazine that bills itself as "the essential resource for high net worths", Spear's argues the bankers' case. The article seeks to persuade wealthy readers to stop being so demanding if they wish to avoid being 'managed out' by private bankers who find them too costly to serve. In particular, customers must stop expecting services aligned to their needs and behave in a way that suits the banks: 
  • agree what the banker will do for you up front, then wait for the quarterly reports and limit any discussion to those times instead of pestering for more frequent advice;
  • don't change your instructions (the banks already chew through 3% of your return by making 'adjustments' to your portfolio, so don't make it worse); and
  • behave as if you're part of a team - cut your banker some slack when he is slow to realise gains or avert losses and, most importantly, recommend him to your friends (bankers just love the bandwagon effect).
Puzzling, until you realise where Spear's probably gets most of its advertising revenue.

Definitely a sign that yet another area of the financial services market is ripe for innovation by facilitators.

Monday, 5 August 2013

There Is Not A Great Retail Bank In The UK

Ross McEwan's appointment as CEO of RBS roundly endorsed his remark that he has been "quite surprised by how bad this industry is. There is not a great retail bank in the UK." 

This from a banker who's reported to have twice failed an accounting module, been passed over for top dog at Commonwealth Bank of Australia and to be "more comfortable with people than figures." 

It's hardly an insightful comment, given the enormous publicity surrounding the damning testimony to the Parliamentary Banking Standards Commission, but McEwan is the first senior banker to have the self-awareness to actually admit the appalling state of the industry. As such, the remark even topped today's editorial in the FT. I mean, there's only so much the pink propaganda machine can ignore.

Amidst all this, the Information Commissioner's Office finally revealed the miserable little saga of Bank of Scotland's "chronic and repeated" disclosure of sensitive customer information. Apparently it sent faxes from many different machines to wrong numbers from 2009 to 2012, despite alerts and complaints from mistaken recipients, and notification that the ICO had begun to investigate. The fine: a mere £75,000. Another speeding ticket on the road to oblivion.

Add this to the revelations of UK banks' gross misconduct and poor controls over the past few years, and you have to doubt the wisdom of handing shares in these businesses to the general public

Unless, of course, you want taxpayers to experience the banks' terminal decline firsthand. A sort of 'scandal to end all scandals'.  That would be nice.

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