A State-Hating Climate Change Sceptic

[Cogs]

http://www.guardian....ern-rock-ridley

Matt Ridley used to make his living partly by writing state-bashing columns in the Daily Telegraph. The government, he complained, is "a self-seeking flea on the backs of the more productive people of this world … governments do not run countries, they parasitise them". Taxes, bailouts, regulations, subsidies, intervention of any kind, he argued, are an unwarranted restraint on market freedom.

Now read on...

[Potwalloper]

http://www.guardian....ern-rock-ridley

Now read on...

Being the idiot in charge of Northern Rock does not make him right or wrong about the state or about climate change.

[Tiger Woods?]

Being the idiot in charge of Northern Rock does not make him right or wrong about the state or about climate change.

Agreed. Having said that, he has always been a free market idealogue, and not one whose writing I have had much time for.

Just because there are nuts who disagree with the AGW catastrophist hypothesis, it doesn't mean that catastrophic AGW is true. I think you will find just as many loonies on the other side. Once again the catastrophist camp uses ad hominem attacks to prove their case. When one side resorts to personal attacks, you know they don't have the facts to back themselves up. It is a corollary of Godwin's Law.

[Cogs]

Agreed. Having said that, he has always been a free market idealogue, and not one whose writing I have had much time for.

Just because there are nuts who disagree with the AGW catastrophist hypothesis, it doesn't mean that catastrophic AGW is true. I think you will find just as many loonies on the other side. Once again the catastrophist camp uses ad hominem attacks to prove their case. When one side resorts to personal attacks, you know they don't have the facts to back themselves up. It is a corollary of Godwin's Law.

I was more interested in his failure to put his ideas about free markets into operation. It failed and the only reason he is still breathing and able to write more junk is that the evil state saved his hide. We've become very casual about what the implications of a full collapse of the banking sector would have been like, much as people are angry about the debt incurred, I think its as nothing to do the violence that would have resulted from the real thing. What I do agree with is that those who whine about the state in an extreme way do so from a position of considerable luxury provided by the institutions they attack.

Edited June 1, 2010 by Cogs

[Tiger Woods?]

I was more interested in his failure to put his ideas about free markets into operation. It failed and the only reason he is still breathing and able to write more junk is that the evil state saved his hide. We've become very casual about what the implications of a full collapse of the banking sector would have been like, much as people are angry about the debt incurred, I think its as nothing to do the violence that would have resulted from the real thing. What I do agree with is that those who whine about the state in an extreme way do so from a position of considerable luxury provided by the institutions they attack.

Sorry for mistaking your point. Monbiot just makes me see red, just like Matt Ridley. (Who should not be confused with the other evolutionary biolgist, Mark Ridley, who writes very balanced apolitical books on evolution, and who is a true gentleman.)

Yes. Very true. Modern "free marketeers" always seme to have blind spot with respect to their industries. My industry is part of the countries infrastructure and must be bailed out. Your's is inefficient and needs to fails etc.

The free market is a good idea, provided it exists in a strictly regulated environment that enforces the break up of monopolies and oligopolies and sets basic standards...and I don't believe that is a contradiction. You want competition, on a level playing field and set in a framework that prevents "tragedies of the commons." Unfettered "free markets" leads to monopolies and instutitions that are too big to fail. The current financial disaster should have been dealt with in 2000/2001 (ideally), or in 2005 (at the very latest). By the time it all popped, I suspect there really was no choice but to bail out the banks in some form, without leading to a complete global breakdown with much bloodshed. However, what has been done is criminal, and perhaps has done nothing other than postpone the bloodshed and violence by a couple of years. It may well have been better to have gotten it over and done with, instead of dragging it out through the next couple of decades (at best) or just delaying it and making it worse (at worse).

The frugal will fully pay for the profiligate and criminal by the end of this. One could perhaps bear that if one thought the lessons would be learnt for a few generations, but at present all I see is the looting of the moral by the amoral/immoral. The moral hazard induced by the socialization of losses this time around is beyond the pale in my opinion. Globalization of the Argentine social model, here we come...

Edited June 1, 2010 by D'oh

[1929crash]

I was more interested in his failure to put his ideas about free markets into operation. It failed and the only reason he is still breathing and able to write more junk is that the evil state saved his hide. We've become very casual about what the implications of a full collapse of the banking sector would have been like, much as people are angry about the debt incurred, I think its as nothing to do the violence that would have resulted from the real thing. What I do agree with is that those who whine about the state in an extreme way do so from a position of considerable luxury provided by the institutions they attack.

Yes, some fine writing in that piece.

It is only from the safety of the regulated economy, in which governments pick up the pieces when business screws up, that people like Ridley can pursue their magical thinking. Had the state he despises not bailed out his bank and rescued its depositors' money, his head would probably be on a pike by now.

[aa3]

Good points from the posters on this thread about free marketeers supporting bailouts and state protections for their industry.

On the climate change issue.. the whole thing is dead in the water. It died in Copenhagen when the developing nations refused to stop their rightful development. The big plan was for us to lock in our emissions but deny the third world the same levels.

No one is talking about climate change anymore.. a few years from now I expect no one will even remember it. A few nutters online will jokingly bring it up sort of like when we were all going to die of swine flu.

Don't worry though the powers that be will need to find a new boogeyman to fight.

[blankster]

I noticed that climate change has gone very quiet since Labour left office.

I'm a skeptic because what looked like very strong evidence for man-made climate change in the 1990's has been diluted by 'unhelpful' global temperature statistics over the last 10 years.

However, whether right or wrong, the belief in climate change has helped us because it has moved us towards energy policies that will benefit us when oil and gas start to become scarce, which might be only a few decades away.

Although I'm a skeptic, I'm not a denialist. We still need to remain open to the fact that we could be affecting the global climate, even if some experts and politicians have jumped to conclusions far too early.

[Lone_Twin]

The man in question does sound like a dreadful hypocrite.

But I'm confused how the writer can pen this:

It is only from the safety of the regulated economy, in which governments pick up the pieces when business screws up, that people like Ridley can pursue their magical thinking. Had the state he despises not bailed out his bank and rescued its depositors' money, his head would probably be on a pike by now. Instead we see it on our television screens, instructing us to apply his irrational optimism more widely. And no one has yet been rude enough to use the word discredited.

and only see one of the possible answers. i.e. greater regulation and state control.

Mr Ridley was only able to do any of those things because of regulation and intervention, yet this somehow escapes the author.

Edited June 1, 2010 by Super Ted

[jareth]

I am minded to agree with Super Ted. By his own words Monbiot is pointing out that we haven't had a free market in banking. I wonder if he realises this.

Banking was regulated into chaos by a bunch of corporatist idiots making the space for their chums to flourish and then abusing their authority to get taxpayers to pay for some gross mistakes. The banking crisis is an example of the bad the state can do when it colludes with other vested interests. Government condoned the frauds which prevented proper consideration of investments. Government merrily believed and repeated the rhetoric on houseprices and funny financial products. Government sided completely with banks in order to claim triumphantly that London was a world leader in finance and to bribe the populace with galloping house prices.

If Ridley did put his alleged free market principles into action (and I see no evidence that he did, Northern Rock simply followed the herd on bad lending but starting as a small player ran out of puff sooner), more fool him for either thinking a free marketeer would ever succeed in a rigged market or simply not seeing that it was rigged.

[Traktion]

This is a long post, but please take the time to read it.

I read the article and many of the bile filled comments below. TBH, I find it sad and disheartening that so many can read just the last chapter of the book and declare it was an awful read.

Why do so few of these people who are chastising the free market not see that the government support helped them arrive at the point of no return? The central bank management of interest rates, the government deposit guarantees, the limited liability granted by the government etc. These are all factors which triggered the bankers to behave in the way they did - recklessly.

The state's very actions in trying to make the banking system risk free, when in reality risk was ever present, is what lined up the banks for a big fall. A fall which, they judged, would be too big to be allowed to happen, thus creating the moral hazard of 'too big to fail'.

People need to reflect on the whole banking system. They need to reflect on why it wasn't a free market during the boom and why it certainly wasn't allowed to be during the bust. The calls for 'more regulation' can be forgiven by the commentators, as they likely understand little about the way the system works, but the author should know better if he is to write about it. It's not that the commentators are wrong, nor the author, but they are looking at it from the wrong angle - you simply can't regulate enough, a system which is so inherently risky, unstable and complex*, such as banking. However, a layman calling for 'more regulation' is a call to 'stop the bankers getting away with everything and giving us the bill', which is exactly right and fair; the banking system is broken, corrupt and unworthy for our globalised, computerised world.

The solution, as I have mentioned in several threads, is something more radical. Nothing short of changing the way the banking system works is sufficient. As I have just finished reading the chapter on Limited Purpose Banking, in Kotlikoff's new book (see sig), it has re-enforced my view on this further. Utility banking, of which LPB is an implementation of, is the answer, not 'more of the same but with a regulator in every meeting'. Mervyn King understands this, as do many other renowned economists. When will the politicians wake up to this, along with a few more laymen?

You cannot insure the uninsurable. You can't say that all deposits are 100% safe, all of the time, while returning interest from risk baring investments, especially with different time preferences. All you can do is make deposit accounts 100% reserve (zero counter party risk), then offer risk baring investments to individuals which are as well documented and as fraud free as possible (LPB uses a government agency, with support of private ratings agencies for this).

You want essentially zero risk to your savings? You put them in a 100% reserve deposit account. You want little risk and some interest, you buy into gilt bond mutual funds. You want high risk and a high return, you buy into start up company mutual funds. No systemic risk to tax payers and you choose your level of exposure.

In LPB, anything finance company which isn't running a mutual fund, has no limited liability (private company insurance), no deposit guarantees and no bailouts. This is made clear from day one and all those putting their money in would have to acknowledge this. Any losses fall to the company owners (they would get wiped out in disaster, with no walking off into the sunset with a big pension, bonuses etc) and could wipe out investors too - in essence, true free market banking, warts and all. As a result, many people would prefer the safety of mutual funds (100% reserve or less opaque alternatives to the aforementioned banks), of which the main foundation of LPB rests.

Instead of central bank interest rates, open market operations and such, there would be mutual fund auctions. These would connect the borrowers to the lenders, priced at the market rate. If the central bank wanted to intervene (although, should rarely be required) and inject/extract money into the economy, they could buy/sell a share in the mutual funds. No central bank interest rates. No inflation targeting (CPI, RPI, including house prices or otherwise - all junked).

As I said above, I can forgive laymen for blindly calling for 'more regulation', but then a layman doesn't understand the complexity in doing this, nor the flaws in the current system that make it nigh on impossible. Glass-Steagall (which I assume the laymen would call 'more regulation' too) doesn't go far enough either in our modern world, as counter party risk is spread between high street and investment banks in our modern financial system.

I just hope that the spite and bile is pointed in the correct direction. Yes, our banking system isn't up to the job, but this wasn't the fault of the free market; it was never and still isn't a free market, while ever it needs government liability insurance, deposit insurance, centralised monetary policy etc in place. It needs to change.

P.S. Some would say that any fiat money isn't indicative of a free market. I say that while ever we have governments and taxes, it is a convenient method of recording promises (of payment). People who mistrust the government could always invest in gold mutual funds or any other commodity based funds.

EDIT: grammar

EDIT: * Also, you don't want a system which is stifled by heavy regulation - you want a system which doesn't need much regulation. You want firewalls in place to stop us being exposed to systemic risk being possible in the first place, not Mr Regulator micro managing day to day operations.

Edited June 1, 2010 by Traktion

[fluffy666]

Agreed. Having said that, he has always been a free market idealogue, and not one whose writing I have had much time for.

Just because there are nuts who disagree with the AGW catastrophist hypothesis, it doesn't mean that catastrophic AGW is true. I think you will find just as many loonies on the other side. Once again the catastrophist camp uses ad hominem attacks to prove their case. When one side resorts to personal attacks, you know they don't have the facts to back themselves up. It is a corollary of Godwin's Law.

What's this 'AGW catastrophist' hypothesis, then? (If it's not a personal question, of course)

[Lone_Twin]

This is a long post, but please take the time to read it.

<<snip>>

Thanks for a considered post.

A question, could your system ever work as long as FRB exists?

As long as I am chasing value being destoyed by the creation of epic ammounts of future money hauled into the present how could I ever be satisfied with no or low returns on savings accounts?

Or do you invisage a Hayek style competing currency situation?

[huw]

I know nothing about the man apart from having read one of his books.

However, According to his wikipedia entry he was non-excecutive chairman.

Also according to wikipedia:

A non-executive Chairman of the Board is and does the following:

• A part-time officeholder who sits on and chairs the main board of a company.
• Provides support and advice to a CEO.
• This position usually entails fulfilling a similar function on a number of additional board committees, as well as being a political figurehead of the Company.

Clearly there's plenty of tar on the brush for all the officers of NR, but is it reasonable to single out a non-exec for responsibility/blame? (I honestly don't know).

[jareth]

EDIT: * Also, you don't want a system which is stifled by heavy regulation - you want a system which doesn't need much regulation. You want firewalls in place to stop us being exposed to systemic risk being possible in the first place, not Mr Regulator micro managing day to day operations.

Limited purpose banking requires the public to take responsibility for the first step of investing (deciding what balance of risk and reward they want) rather than blindly bunging it into the highest rate account they can. People would have to think for themselves and I'd be all for that.

[Cogs]

I know nothing about the man apart from having read one of his books.

However, According to his wikipedia entry he was non-excecutive chairman.

Also according to wikipedia:

Clearly there's plenty of tar on the brush for all the officers of NR, but is it reasonable to single out a non-exec for responsibility/blame? (I honestly don't know).

Corporate governance. He isn't to blame for operational decisions, he is to blame for 'bigger picture' stuff like strategy and risk management at the corporate level. Also senior remuneration... so guilty as sin really. Northern Rock's problems ran through it from top to bottom like a stick of, er, rock.

Edited June 1, 2010 by Cogs

[huw]

This is a long post, but please take the time to read it.

Thanks, it was an interesting read.

In LPB, anything finance company which isn't running a mutual fund, has no limited liability (private company insurance), no deposit guarantees and no bailouts.

I wonder if anyone would be prepared to own a bank on that basis. Would you allow them to build limited liability into the contracts they offer, as opposed to having it come from a state-supported corporate structure?

[huw]

Corporate governance. He isn't to blame for operational decisions, he is to blame for 'bigger picture' stuff like strategy and risk management at the corporate level. Also senior remuneration... so guilty as sin really. Northern Rock's problems ran through it from top to bottom like a stick of, er, rock.

Thanks for the info.

[Traktion]

Thanks for a considered post.

A question, could your system ever work as long as FRB exists?

Kitlokoff suggests that the only way FRB could/should exist, would be as private companies, with no limited liability, no government deposit insurance and no chance of a bailout - it can only exist in a completely free market, IMO, otherwise you get moral hazard/collapse. Essentially, it would be high risk for both the owners of the companies, as well as the investors/savers. However, I can't imagine this privilege being extended to the current large banks, as them falling on their swords caused a systemic crisis. I could imagine FRB with a role as a boutique financial service though, with the damage it can cause limited therein.

As long as I am chasing value being destoyed by the creation of epic ammounts of future money hauled into the present how could I ever be satisfied with no or low returns on savings accounts?

If you were presented with the risk of losing money, would you be prepared to chase the high returns? Ultimately, the banks are taking the risks on our behalf, knowing that the taxpayers will have to pick up the tab, should they get it wrong.

Also, compared to FRB, you are not decreasing liquidity by as much as is first thought. Apparently, the US government (assume similar for the UK) has bailed the banks out with enough money to cover all demand deposit accounts (i.e. current accounts). You could make these 100% reserve overnight, without any additional funding. All other savings could be spun off into mutuals fund shares over time, which would be time locked. As a result, compared to FRB, the total amount of credit available would only be the same as now, minus that in current accounts (which, I am lead to believe, is a relatively small amount).

But wouldn't people be unable to access this money, while it is invested in a mutual fund? Yes and no. Yes, as people would have to get used to not having immediate access to this money. No, as they could still sell their mutual fund share on the market - as long as there is a buyer, they can get hold of their money immediately. If there are no buyers, because we are in a deep recession for example, the central bank could step in as a buyer if they chose to. In this regard, time locked savings with mutual funds are more flexible than having to pay redemption fees on current time locked savings accounts (which are at the mercy of bank charges).

Or do you invisage a Hayek style competing currency situation?

I used to think this was the best way to go forward, but I have refined my view on this. That's not to say I am against the idea/concept, but I think LPB can deliver a free market for mutual funds, which are in essence "currency". A commodity based mutual fund could be traded on the open market, just as currencies are. So could any other sort of mutual fund, which is surely the very essence of what freely competing currencies concept promises.

In addition, there would only be one money supply measurement, M1, which would be controlled by central bank buying/selling mutual fund shares as required. This would result in steady prices (could even have 0% monetary inflation => steady price index inflation), but is open to 'help' from a central bank should it be needed (not sure it would, but people fear hoarding with a fixed supply, disasters etc - a political discussion really). There wouldn't be this boom/bust credit cycle (just a smaller economic cycle), but most of all, we wouldn't be held to ransom by the financial system.

[Traktion]

Limited purpose banking requires the public to take responsibility for the first step of investing (deciding what balance of risk and reward they want) rather than blindly bunging it into the highest rate account they can. People would have to think for themselves and I'd be all for that.

Exactly! This is what is sorely missing with our current banking system.

[Tiger Woods?]

What's this 'AGW catastrophist' hypothesis, then? (If it's not a personal question, of course)

Sigh. That we are looking at net positive feedback instead of net negative feedback with increasing CO2 levels. i.e.. 4 to 6 degrees of temperature rise instead of 1.

Edited June 1, 2010 by D'oh

[Traktion]

Thanks, it was an interesting read.

I wonder if anyone would be prepared to own a bank on that basis. Would you allow them to build limited liability into the contracts they offer, as opposed to having it come from a state-supported corporate structure?

I would imagine some brave souls would go for it, but without all of the safety nets which the state provides to the banking system, I doubt many would have the appetite for it. Covering them with health and safety warnings, like they do with cigarettes for instance, would certainly make people think twice too.

Kotlikoff did say in a lecture recently that he thought that even the above may be open to abuse though. Imagine if, say BP, decided to put all their cash into a free bank like the above, then it failed - would the government be forced to step in? In his mind, they would as it would be political suicide not to. I would think with enough warnings and without LL and deposit insurance, most sane people would avoid unless they knew what they were doing though.

As for offering their own insurance (essentially, needed for limited liability, I assume), Kotlikoff has a lot to say about that too. He thinks the entire insurance industry needs reforming too, as they are essentially operating like a FRB too. He thinks we need insurance mutual funds (pools) which simply pay out at intervals, with returns dependant on how many people claimed in that period. To guarantee any amount would simply be fraudulent, as there is no way of knowing if it can be covered. Take AIG and all their daft, undeliverable "insurance" as an example - many can only be delivered on if the government pays for it.

So, to answer your question, they could insure against some risk, but to claim they could completely limit the liability of the investor would be fraudulent; pay outs would have to depend on how many people needed payment and how much had been put in originally.

It is a really interesting idea, as it's not from the traditional argument about the credit cycle, but instead viewed from the angle of risk. His solution removes the government backing which is required by the current system to function, which is key. Not only does he argue that this prevents moral hazard, but also the chance of hyperinflation, when the governments are forced to print to cover liabilities.

[huw]

As for offering their own insurance (essentially, needed for limited liability, I assume)

Not needed with a limited liability model ... shareholders contribute a fixed amount of capital, beyond that they are not at risk.

Unlimited liability would be more like a Partnership where all your assets are on the line, not just the capital you subscribed to the business. That's what leads me to believe that not many people would be prepared to own a bank on a UL basis, unless there was some alternative way of ring-fencing losses.

(The above UL model is how Lloyds of London [used to?] work, which is why some Names lost everything during the fraud/scandal of the late 80s/90s).

[edit: none of which is to say that shareholder-based banking is essential or even desirable ... maybe these reforms would lead to a healthy burgeoning of the mutual sector].

Edited June 1, 2010 by huw

[Cinnamon]

What's this 'AGW catastrophist' hypothesis, then? (If it's not a personal question, of course)

All this silly rubbish: http://numberwatch.co.uk/warmlist.htm

[fluffy666]

Sigh. That we are looking at net positive feedback instead of net negative feedback with increasing CO2 levels. i.e.. 4 to 6 degrees of temperature rise instead of 1.

So, that would be pretty much every single geologist, physicist, and atmospheric and oceanic scientist who has ever seriously looked at the problem for the last century is an 'AGW catastrophist'.?

(Ok, sensitivity for CO2 doubling is almost certainly in the range 2.5-3K, making your statement utterly bizarre in excluding pretty much everyone.. but there you go. I'll give you the benefit of the doubt and assume that 4-6K means by 2100)