Cheap Working Capital For Small Business

Over at Oikonomics, we are discussing how to balance the relative importance of what happens inside the bubble of the City with what happens in the 'real' economy.

From a regulatory standpoint, the credit crunch should have taught us to acknowledge the links between the wholesale and retail markets and regulate them both as part of a whole.

Excessive investment banking fees and bonuses are a direct result of a regime that reserves the job of matching investment funds and opportunities to a privileged few. "Democratising" the financial markets, or opening them up to public participation via simple, transparent products and 'thin' intermediaries who charge proportionate fees could break this stranglehold and result in a more inclusive, reliable financial system.

Artificially separating consumer and small business credit from the FSA's narrow remit has also allowed giant banking groups to 'shade' their unduly high margin downstream distribution activities from regulator sunlight, even though they feed the wholesale markets for CDO's etc. Left to fend for itself as 'independent', the OFT has not had the clout to constrain the likes of high bank charges and  card interchange fees (it's failure to clean up mortgage lending became so embarrassing it lead to the creation of the FSA's 'high street firms' division). Even now, lending to the 4.3m small businesses in the UK is pretty much unregulated and banks are getting away with all the old tricks in that market. Yet improving SME access to affordable working capital must be a top priority if we are to grow our way out recession.

So these things should all receive the same regulatory sunlight as the mis-selling of endowments, mortgages and payment protection insurance. Limiting bank margins to appropriate levels in the 'forgotten' markets would encourage competition from simple low cost products distributed by 'thin' intermediaries. Again, this would result in a more inclusive financial system and cheaper working capital for small business.

Spend Now, Cut Later - But Stop Wasting Money

Leading economist, Paul Krugman, continues to argue forcefully that Governments of economies in recession should spend now to support economic recovery and repair their giant budget deficits when the recovery has taken hold. If governments engage in "penny-pinching" now, he argues, economic recovery will take so long that the unemployed will become unemployable, and there won't be enough tax revenue generated to ever get the deficit under control.

This does seem wise, but also seems to assume that all government spending supports economic recovery. But surely idiotic schemes that employ few people and merely generate further cost are not going to aid recovery. Similarly, investing in ways to remove structural inefficiency would seem a better re-allocation of existing resources than simply waiting to fix the inefficiencies when the good times roll. Presumably this would mean re-assigning the management consultants who were tasked with dreaming up New Labour policy nonsense to improving public sector efficiency instead.

Or does Mr Krugman want us to keep wasting money at the same rate?

Image from Look Up Fellowship

Would More Mystique Help England?

Well, well, yet another English sporting campaign veers off target.

Having come to London from Downunder 16 years ago, I've had many opportunities to wonder what lies at the heart of this strange English tradition - and equally why, occasionally, the Ashes are won or a rugby world cup victory is achieved.

Of course there's nothing peculiarly English about losing sporting series or tournaments. Even the All Blacks have problems winning a second World Cup, despite the Haka, being ranked first in world rugby and winning the most games in the lead-up years on two occasions (both won by the Springboks).

But what is singular is the consistency with which English national teams that appeared to be capable of winning on paper seem to fracture internally or never gel in the first place. Note the entire French football team has gone on strike in this World Cup, leaving their manager to explain, as opposed to an individual English player holding his own press conference about a challenge to the manager, and another player holding a press conference to allay concerns.

It's tough to find a root cause for this tendency to fizz rather than bang. But this latest melodrama suggests to me there's no great shared mystique associated with an England cap, no sense of a higher calling that subordinates all the individual egos in the team and galvanises them in pursuit of victory. No ethereal link between all players, past and present, that drives a steadfast belief that England will do whatever it takes to win.

At least not on the scale of, say, Brazil, or the way an All Black, Springbok or Wallaby jersey, or the 'baggy green' cricket cap, appear to transform and bind those who wear them into a cohesive unit, more often than not. Manchester United has succeeded at creating this sort of mystique, so that no player would claim to be more important than their club. But any attempts at branding the England team (as opposed to the 1966 England team) as bigger than the stars who play in it from time to time seem to have fallen well short of the others I mentioned.

So how could such a team mystique be generated?

Sir Clive Woodward appeared to build mystique around the England rugby team, which he coached from 1997 to 2004 (59 wins, 2 draws, 22 losses - and a World Cup). Only Jack Rowell (1994-1997) had a slightly better win record, though he only coached 29 games - and no World Cup. There have been 5 England coaches over the past 6 seasons. In 2003 the England rugby team was ranked first in the world, yet today it is sixth - behind New Zealand, South Africa, Australia, France and Ireland. The following extract from a report of Woodward's departure points to some of his distinctive methods (tellingly, these also earned him a reputation in England as "the crazy professor"):

"Woodward went as far as asking BBC TV's Changing Rooms team to revamp the home dressing rooms at Twickenham.

He set high standard of discipline for his players. They were banned from swearing in public and had to adhere to "Lombardi time" - named after the legendary Green Bay Packers coach Vince Lombardi - meaning they had to be 10 minutes early for all pre-arranged meetings.

Anyone who made public what went on inside the camp was out - as hooker Richard Cockerill found to his cost when he spilt the beans to the media and was never selected by Woodward again.

Woodward was fiercely loyal to those players who believed in him.

On tour in South Africa, he moved them out of their hotel - booked by the RFU - when he deemed it sub-standard, and took them instead to a five-star establishment.

"Who is paying for this?" asked the concerned hotel manageress.

"I am," replied Woodward, handing her his credit card."

One obstacle to building team mystique may be the English media, as is hinted at in Woodward's sacking of Richard Cockerill. They seem more focused on the foibles of individual players rather than the success of the national sides. And that approach probably suits the tabloids in particular, who would otherwise lose valuable sources of content. So it's important to persuade the players of the value in controlling themselves in this department.

A worthy example of a mystique-building approach to an individual tournament was that of Alan Bond's Australia II syndicate, in their successful attempt to win the America's Cup for the first time in 1983. Their efforts included shrouding the winged-keel; flying a vivid re-design of the boxing Kangaroo flag; reviving the 1981 Men At Work song "Down Under" and ensuring it was played loudly every time the yacht entered or left Newport harbour; and putting the crew through a fairly public, brutal, early-morning physical training regime.

But possibly the best team mystique award should go to America's Team, the Dallas Cowboys, who've won an NFL record 33 of 55 postseason games, the longest consecutive streak of winning seasons (20), the most appearances in the NFC Championship Game (14), and the most Super Bowl appearances (8), of which they've won 5 during two periods of sustained success, 1966-85 and 1992-96. I confess to having been a fan since 1981.

The complexity of American Football defies any brief summary of the mystique-building tactics that supported this level of sustained success. And the fact that Woodward borrowed from Lombardi's playbook in this regard suggests that the Cowboys' ethos may be too much to instil rapidly. But it is worth noting that the Dallas Cowboys Cheerleaders squad has evolved from this in 1969:

... to this in 2009:

Perhaps England teams should employ such mystique-building tactics to more tightly bind successive star players to the plight of the team and instil the sense of belief that seems to be lacking...

She'll tell you the same thing.

More Complex Proposals To "Simplify" Saving

The Centre for Policy Studies is reported as saying today "long-term savings are overly complex, with multiple tax regimes that deters people from saving."

I agree.

As the report notes:

"The pension and savings industry has suffered a near fatal erosion of trust, fuelled by mis-selling scandals, excessive costs and a long period of poor investment returns. This has catalysed a regulatory backlash."

Then it goes way off the rails:

"The industry must now embrace the Retail Distribution Review and work collaboratively with the FSA to help it rebuild that trust. Only once this has been achieved could the industry credibly commence negotiations with the FSA to reduce the regulatory burden."

Why not start with the Treasury? The FSA is as much a victim of all the complexity as anyone else - check out the virtual swamp that is the FSA's "Money Made Clear" web site.

While the proposals to simplify financial regulation are proposed by reference to the current arbitrary product categories, mystifying jargon, pots and limits, the situation will only become worse.

Let's start with a clean slate that supports all the ways people want to use money.

For those with surplus money, we should aim to deliver diversification without the average person needing to understand more than the concept of not putting "all your eggs in one basket".

Ask yourself: why can't I put suitable financial services in a shopping cart, like I can buy other stuff?

Gone Phishing

Interesting report from All Spammed Up that the 'Avalanche' gang, based in Eastern Europe, was allegedly responsible for 75% of phishing in the second half of 2009.

The alleged 'Avalanche' modus operandi is to create forgeries of genuine, major web sites then send emails inviting customers to log-in. They're alleged to have cast their net about 84,000 times in the period, however, the 'uptime' of the bogus sites apparently declined.

Maybe they got bored. Or rich.

Meanwhile, the uptime for the other 28,000 alleged phishing expeditions increased, possibly reflecting the ever-expanding range of phishing methodologies.

The moral of the story? Don't bite: never log-in to a site that you didn't locate for yourself, and take care to read the full web address of the site you're about to log into.

Oh, and look out for "tabnabbing", whereby the phishermen re-direct one of your open browser tabs to a fake site - more a fish trap than your traditional bait-and-hook or net approach.

Image from Blog Inmobiliario de Bolsa Profesional Inmobiliaria