That Venezuelan trip

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A couple of weeks ago, it emerged that Boris Johnson had undertaken what was described as a ‘private’ trip to see the president of Venezuela, Nicolás Maduro. The extent to which this was genuinely an ‘unofficial’ trip seemed to me at the time to be doubtful, given the reports that the Foreign Office had ‘supported and briefed’ the disgraced former PM before the visit, even if it was really true that the Foreign Secretary knew nothing about it until Johnson was already en route to Caracas. It still seems unlikely to me that he would have been briefed and supported without the knowledge of Cameron, and it does seem as if the Foreign Office are less than forthcoming over what advice and support they did or did not give.

Doubts about the idea that Johnson would have paid for the trip himself were entirely well-founded, since it turns out that it was being paid for by the boss of a hedge fund. Classic Boris Johnson. Better yet, it turns out that he was actually being paid by the hedge fund to undertake the trip. Again, classic Boris Johnson. And that it was part of a job which he’s taken on without going through the normal vetting process for former ministers. Classic Boris Johnson squared.

It's easy to understand why the president of Venezuela, the hedgie, and Johnson would like to normalise relations between Venezuela and the West – in the first case because poor relationships are damaging to his country, in the second because poor relationships reduce the opportunities to make money, and in the third because he was being paid to attend the meeting, and he can’t resist the pull of being thought important. It remains a lot less clear why any of those involved thought that a meeting with a disgraced former PM, with no influence over anything, would help to achieve any of those aims except those of Johnson himself. If nobody had given Maduro the impression that Johnson still had some influence, why on earth would he have agreed to meet him?

The Labour Party seem to be concentrating their fire on Johnson’s apparent breach of the rules, but that’s just Johnson being Johnson. He’s never believed that any rules apply to him, so of course he breaks them. And given that he has form on precisely this particular rule, it’s reasonable to conclude that the breach was entirely conscious and deliberate. So what? Another breach of the rules is just business as usual for the man. The bigger question is about what the Foreign Office were up to. Did they really brief and support Johnson for the visit, and do so without informing the Foreign Secretary? Did they really believe that Johnson was a suitable person to carry out a potentially delicate diplomatic task? And put their resources to work in support of a hedge fund’s profit aspirations? Did they really lead Maduro to believe that Johnson was acting in at least a semi-official capacity in order to facilitate the meeting? It seems unlikely that the meeting would have taken place otherwise. Helping to organise and prepare for a meeting whose main aim is to further the accumulation of private profit for a hedge fund that happens to employ an ex-PM seems to me a much bigger scandal than Johnson merely breaking a few rules. Again.

Following the money

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When I read in the Sunday Times that the Brexit campaign was largely funded by the wealthiest people in the UK but that the fifth largest financial backer of the Brexit campaign was a hedge fund manager whose fund had lost half its value during 2016 following Brexit, my first reaction was that there is such a thing as karma after all.  But then I looked at the detail…

According to the story, one of the reasons that the fund lost half its value was that it took excessively gloomy positions about the immediate impact of Brexit on the UK economy.  This story from the Independent provides more details of the way in which the fund concerned bet on Brexit being a bad thing for the UK economy.  The hedge fund manager predicted that UK stocks would lose up to 80 per cent of their value amid a recession and higher inflation following Brexit, and bet heavily on that outcome. 

Had he been right in his prediction, he would have made a lot of money for his fund as the UK economy tanked.  Unfortunately for him (although, perhaps, fortunately for the rest of us), the Brexit vote itself did not have as serious an effect as he predicted (although whether actual Brexit, if or when it happens, will let us off so lightly has yet to be seen), and the result was that the fund gained heavily in the first few days when it appeared that the predictions might be right, but then went on to lose a great deal of money.

So, to summarise, a billionaire who believed that Brexit would be extremely damaging to the UK economy nevertheless donated more than £870,000 to achieving precisely that outcome; an outcome from which, had he been right, he stood to earn a very large profit.  Am I the only one who wonders whether there might just be something wrong with a political system under which this can happen?

Reward and Punishment

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There was an interesting juxtaposition, time wise, of two stories around the New Year, which highlighted for me the different standards applied to different groups and interests in society.

The first story was about the plans of the UK Coalition to crack down on council tenants who sublet their houses, by making it a criminal offence.  The detail was a bit hazy – I can’t see what’s wrong with taking in a lodger, for instance – but I think that they were really targeting people who move out of their council houses into alternative accommodation and then rent out the council house at a profit.  It’s a way of using someone else’s property to make a profit.  ‘Our’ property, in a sense, because the houses are publicly owned.

It was accompanied, of course, by a lot of guff about how council rents were subsidised by the rest of us (not really true these days), and how council houses were really only ever intended for those who could not afford their own homes (again, something of a re-writing of history).  It will have struck a chord, however, with those not entirely familiar with the details of the financing of social housing, and striking a chord is what such announcements are all about.

The second story was about the New Year Honours list, and more specifically about the honour given to the head of a hedge fund who had donated large sums to the Conservative Party.  He’d made large sums of money by betting that Northern Rock would collapse.  The techniques used by hedge funds, though, are a little more nuanced than gambling – this is the sort of gambling where the act of betting influences the outcome, if only you can bet enough money.

And, of course, the short sellers didn’t have enough money or shares to cause a collapse themselves, so they borrowed other people’s, and bought and sold things that they didn’t own.  Some might see that as using other people’s property to make a profit.  ‘Our’ property in a sense, because many of the shares ‘borrowed’ for the casino were owned by pension funds and other large financial institutions, usually on behalf of many of us.

But here’s the point.  In principle, the two actions seem to me to be quite similar, and there is no obvious argument that one is somehow more moral than the other.  So why do we criminalise the small scale abuse but honour and reward the large-scale abuse?  Which one causes the greatest misery for the greatest number?

Ozonomics

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The way the turmoil on the stock markets has been reported, it appears all to be a matter of  a lack of something called ‘confidence’ by people called ‘investors’.  Whatever this ‘confidence’ stuff is, it seems to be pretty elusive.  ‘Investors’ can be full of it one day, and completely devoid of it the next, it would seem.

I’m far from convinced that ‘investors’ is the right description for people and organisations who are buying and selling stocks on the short timescales which are at work here.  Gamblers and speculators seem to be much more accurate terms.  They’re looking to maximise their own short term profits, or at worst minimise their own short term losses; ‘investment’ is surely a more long term activity.

It’s also not made entirely clear in what they have lost their ‘confidence’.  There’s no obvious reason why a company which was worth £x yesterday is suddenly worth a lot less today, nor why its performance is suddenly going to worsen.  I suspect that what these ‘investors’ have really lost their ‘confidence’ in is each other.  They are acting on the basis that someone else might sell before they do, so they’d better get their retaliation in first, or else they’ll lose out.  From then on, the herd instinct takes over.

It’s a dubious strategy over the long term, even in a casino.  But as a way of driving the world’s economy, it’s a lot worse than dubious.

Since this ‘confidence’ seems to be entirely a matter of belief rather than anything tangible, rational, or measurable, perhaps what we need is an all-powerful wizard to issue confidence certificates to anyone who’s feeling a little short of the stuff.  And if it turns out to be no more than a small man with a loud-hailer behind a screen, that doesn’t really matter – once people have their certificates, they’ll be fine.

I’d like to think that this was a tongue-in-cheek suggestion, but I wonder whether it is really very far from the reality of the system which we allow to control us.

Still at it

Tweet According to yesterday's Sunday Times, 3.5% of the market value of FTSE100 companies has been lent to hedge funds to be short sold in an enormous bet that share prices will be falling. It's not as high as the 5% which was on loan during the financial crisis in June 2008, but it's still an awful lot of shares.

The short-selling game means that the hedge funds who have borrowed the shares sell them for one price and then buy them back at a lower price before returning them to their rightful owners, and pocketing the profit. Well, actually, they profit most of the profit; part of it goes to the Conservative Party, and part gets paid to the people who loaned them the shares in the first place.

But if they've made a profit, who's made the corresponding loss? After all, when it comes to share-trading, every profit must be balanced by a loss somewhere. The answer is that the owners of the shares – often pension funds, which effectively means an awful lot of us - have made the loss; they loaned the shares when they were valued at one level, only to get them back when the price has fallen. The total value of their assets has fallen by the difference.

Well, not quite. Because the hedge funds have paid them a small 'rent'; a share of the profit for the loan of the shares. So their loss is less than it would have been if they hadn't loaned the shares out. From their point of view, it's an apparently rational decision, because if the price was going down anyway, then they may as well mitigate the loss by taking at least a share of the profit made by the short-sellers.

But the really big question is whether the price would really have fallen anyway - to what extent are short-sellers simply betting on something that would happen anyway, and to what extent is the volume of selling which they do actually influencing the price on which they are betting? The greater the volume of shares that they can sell, the greater the influence they have on the outcome.

If they are influencing the price by their selling, then the action of those who lend them the shares to sell becomes a great deal less rational; they are then, after all, creating the loss which they are seeking to mitigate. They'd still do it though, for the simple reason that if others do it and they don't, then they still get hit by the losses but have none of the mitigation, and that affects their overall financial performance.

The practice is crazy when it's just betting; but it's insane if the people creating the losses are doing so deliberately purely because everyone else is doing it, and they can't afford to be left out. It's more Prisoner's Dilemma than roulette. 3.5% sounds like a small proportion, but it's enough to drive prices rather than simply bet on them.

Short-selling does not create wealth – it simply redistributes wealth from the many to the few. It should be outlawed.

In Paxton's footsteps?

Tweet There was a time when only the wealthy could afford to become MPs; but then Sir William Paxton was a very wealthy man. So when he stood for the Whigs in Carmarthenshire in the Great Election of 1802, he was in a position to spare no expense. There were only 2,500 people eligible to vote in the whole constituency, and Paxton assiduously set about winning their support.

By the end of the campaign, Paxton had spent £15,690 on trying to win over those electors – including the provision of 11,070 breakfasts, 36,901 lunches, 684 suppers, 25,275 gallons of beer, and 11,068 bottles of spirits. It was a very large sum of money in 1802; it would be an enormous sum today.

'Treating' electors, by providing them with food and drink, was legal in those days of course, but these days it is not allowed – largely as a result of such historical excess. Election candidates must not 'treat' by offering food or drink to electors, as the Electoral Commission's guidance to candidates and agents makes perfectly clear.

Or does it? Certainly, once an election has been called, the practice is illegal, but how about in the days and weeks before that? It's an interesting question – and far from being entirely academic, either.

The local constituency association of the Conservatives in Wales is also quite wealthy. Funded largely by hunters and hedgies, their own accounts reveal that they have a healthy reserve of £85,000 available to spend. Enough for the odd buffet or glass of wine, at least. And the postage to invite electors to come along and partake.

Last night, they held a little get-together in Cynwyl Elfed – described as an opportunity to meet the Tory candidate informally "over light refreshments". The invitation made it clear that there was no requirement for people to give advance notice of their attendance, but said that advance notice "would help us arrange the catering".

It's a sensible precaution – if you're inviting a lot of people to an event, I can see that it might be difficult to ensure that you have the right quantity of food and drink available. And they do seem to have invited a large number of people. A very large number of people. Everyone in Cynwyl Elfed and Llanpumsaint – including, of course, Plaid's many members and supporters in the area - seems to have been invited by letter sent out through the post. That's about 1400 people in total.

And it seems that t's not the only such event that they've organised – they held a similar one at the Pantyrathro Hotel in Llansteffan a few weeks ago, and seem to have invited everyone in the Llansteffan ward – around another 1600 people. I don't, at this stage, know whether any others have been held or planned, but I wouldn't be at all surprised.

There was a sting in the tail for Paxton. The people of Carmarthenshire were canny enough to recognise a bit of attempted bribery when they saw it. After partaking of his hospitality, and in the privacy of the polling booth, they voted for his opponent anyway.


A few years later, Paxton built a large folly, officially dedicated to the memory of Nelson. But many locals still claim that Paxton's Tower was actually built as a place from which he could look down on those who had rejected him; a permanent reminder of the events of "Y Lecsiwn Fawr".

Will history repeat itself? Only time will tell - but "Hart's Folly" has a certain ring to it.

Pink chinos and Barbours

Tweet It was no surprise to see that Carmarthen West and South Pembs featured on the hit list of seats to be targeted by supporters of hunting. The Tory campaign locally is largely funded by hunt supporters, and this one issue is the prime motivation for the Tory campaign. (Although the candidate continues to follow his own advice and avoid all mention of the subject).

I hadn't realised, though, that I should expect them to be dressed in pink chinos. But now they've been warned that they can be thus identified, I guess they'll resort to some sort of cunning disguise. All suggestions for other means of identifying them will be gratefully received.

Avoiding both tax and the question

Tweet After ducking and diving for 10 years, Lord Ashcroft has finally admitted what most of us suspected all along – he doesn't pay full UK taxes. It's still not entirely clear whether his donations to the Tories are from his UK earnings or from the overseas earnings on which he's avoided paying UK tax.

The Electoral Commission are still investigating whether the company used to make most of the donations is actually trading in the UK or whether it's just a device to channel money from Belize to the Tories, which would otherwise be illegal. Their investigation has taken a long time. It could have taken less, of course, if the Tory leadership had not been so "evasive and obfuscatory", presumably in the hope that all would not become clear until after the forthcoming election.

The proceeds of Ashcroft's tax avoidance do not seem to have found their way directly into local Tory coffers, but their own annual accounts reveal that staff from Ashcroft's office are regular attendees at their campaign meetings. Of course, they do not need money from Ashcroft locally, because they are largely financed from the proceeds of hedge funds with the single objective of repealing the Hunting Act.

(As I've noted before, one of the advantages of the way in which hedge funds are generally structured is that the profits are treated as being capital gains rather than income, and therefore taxed at a lower rate. It's another legal form of tax avoidance, and one which Plaid are pledged to stop.)

What I found hardest to believe was Cameron's response to Ashcroft's revelation. The first part was that everything is all right now, because after 10 years of ducking the question, we now know the truth, and the second is that there are one or two Labour donors who make use of the same tax avoidance loopholes. Wrong on both counts.

Finally admitting that one of their donors is avoiding UK tax on a massive scale, and pointing out that others do the same is not enough to excuse it. The second part simply means that Labour also have questions to answer; it's absolutely no reason to condone the practice.

After all that's happened recently, it just amazes me that they still don't get it. They really don't seem to understand why anyone would think that there's anything at all wrong with someone who avoids paying UK tax on most of his income sitting in the UK legislature and using his money to influence the results of a UK election.

Robbing Hood

Tweet I've never been a great fan of hedge funds. Buying things they don't want using other peoples' money and selling things they don't own in order to redistribute wealth from the many to the few has never struck me as being either a socially valuable activity, or a sound basis for an economy.

I've taken more interest since it became clear that these funds are donating large sums to the Tory party nationally, and that one of them is almost entirely funding the Tory campaign in this constituency.

Many people, myself included, have long harboured doubts that the people involved in some of the more complex financial instruments do not themselves fully understand the nature of those instruments, let alone the risks involved. If they were only working on the fringes of the financial system -- and if they were the only people taking those unquantified risks -- it might not matter. But it does matter -- firstly because their habit of shortselling directly contributed to the financial collapse, and secondly because it became clear that it was us, rather than them, who were taking the risks.

Wrecsam Plaid drew attention a few days ago to the massive payment being made to one hedge fund manager who admits that he made a great deal by short-selling the banks, including Bradford and Bingley. It seems that the people behind funds like this will completely escape the additional tax which is being imposed on bankers' bonuses.

Thee are two reasons for that. The first is, as Wrecsam Plaid points out, that they are not, in the strict sense of the word, 'bankers'. (Although some people may still consider them to be 'merchants'.) The second is that this company operates as a Limited Liability Partnership rather than as a limited company, as do a number of other hedge funds.

LLPs pay no corporation tax at all on their profits. Instead the profit made by the LLP (as opposed to the growth in the assets managed) is treated as the personal property of the partners, who can take it out of the partnership any time they want. And, whilst I don't know the details of the tax status of the particular company involved here, in most cases with companies like this the profits extracted are treated as coming from the purchase and sale of assets rather than as income - so they are subject to capital gains tax rather than income tax. This is an extremely beneficial arrangement - for those involved. It means, in effect, that they can pay themselves millions, but pay tax at a lower rate than the office cleaning staff.

Hedge funds do make some people wealthy, but they don't generate wealth, as some of them claim. The two things are quite different. They actually redistribute wealth - to themselves. They perform no useful function for the many, and the sooner they are closed down the better.

Quitting the day job

Tweet Tory MPs are rushing to quit their lucrative day jobs before 1st July, when they will have to publicly declare their earnings. Apparently as many as 40 of Cameron's top team have other jobs as well as being MPs, and there is some concern that they may find themselves embarrassed when the details emerge.

Interestingly, it seems that about 10 of these people hold directorships of hedge funds. It's been public knowledge for some time that the Tory Party has been benefiting from the activities of these funds, but I hadn't realised that so many of their MPs were active participants as well. It's no great surprise that none of these MPs were particularly keen to discuss their roles.

Whilst there is scope for debate as to how far the activities of hedge funds caused – rather then merely benefited from – the collapse of the banking system, there is no doubt in my mind that short-selling financial stocks on a large scale was a contributory factor.

I don't know which MPs held these directorships or with which hedge funds; perhaps that will become clearer over the next two weeks. But there is surely something very wrong when an opposition party can benefit financially from the collapse of the financial system – and it's even worse if some of them may have had a direct involvement in causing it.

I'd like to think that any members of Cameron's top team who are found to have been involved in short-selling shares in British banks would rapidly find themselves as ex-members of the team – but I'm not holding my breath.

Different Planets

Tweet It seems that one of the hedge fund managers who made a fortune last year by short-selling British banks, and thereby helping to wreck the economy, is now planning to emigrate. He gives two reasons - the new higher rate of tax, and the proposed new regulations on hedge funds. Other hedge fund managers are apparently thinking along similar lines.

Now, many might feel that a person who managed to pay himself £28 million last year might feel able to afford to contribute a little more to the tax revenues of the government to put the economy right. But I find myself wondering how much tax he's actually paying in the first place.

His company, like many other similar companies, is a Limited Liability Partnership rather than a plc. LLPs are effectively exempt from Corporation Tax, so the company probably paid no tax at all on its profits. And generally speaking, profits from this sort of activity are treated by the Inland Revenue as capital gains rather than earned income, and therefore attract a lower level of tax anyway. So, all in all, the new rate of tax probably won't affect him very much.

As for the other reason, he apparently feels that his 'industry' has been abandoned by the Government, who are allowing the wicked French and Germans to drive through new regulations which will prevent his company and others like it from doing some of the things that they were doing previously.

Presumably these people feel that once we as taxpayers have finished bailing out the banks which the short sellers helped to wreck, they should be allowed to start all over again. I think not.

It's also interesting that some of these companies describe their activity as 'wealth generation'. It is not - it creates no new wealth at all, it merely redistributes existing wealth. Mostly redistributing our wealth to themselves.

Reverting to type

Tweet The Conservatives have been busy locally delivering a little leaflet on behalf of their Westminster candidate.

He's clearly been following his own advice. "I am currently head of one of Europe's largest membership organisations lobbying for rural communities" is hardly an entirely open reference to the Countryside Alliance and its main aim. No reference at all to the main objective of the Conservative campaign locally (the restoration of fox-hunting), despite the fact that the campaign is almost entirely funded by people pursuing that aim.

He also follows Cameron's lead – don't tell them what you're for, just keep stressing that you're not Labour. As I've suggested before, with one lot campaigning on the basis that they're not Labour, and the other lot campaigning on the basis that they're not the Tories, this looks like being a pretty uninspiring campaign from the UK parties.

PS – Whilst previous efforts from the blue camp locally have tended to include one sentence in Welsh (telling people that a Welsh version of the leaflet is available as a special favour if they request one from the office), this one reverts to the Tories' normal monolingual approach. In an area where the majority of the population are fluent in Welsh, they are distributing a leaflet which, but for a change of logo, could have gone out in any constituency in England. Valleys Mam commented a few days ago on the lack of commitment by the Conservative Party to the language. It seems to me that, as far as Welsh is concerned,the English Conservative Party in Wales is merely reverting to type.

Tax and donations

Tweet I've never been a particular fan of hedge funds, even before I realised that they were giving large sums of money to the Tories. I don't think that there's any justification for turning financial markets into casinos so that the gamblers and speculators can use our money to destroy our economy whilst they get rich in the process.

The news that the Government is planning to extend regulation to hedge funds is news which deserves only half a cheer – better to regulate them than not; but better yet to outlaw them completely.

However, if Brown is serious about looking at the way they operate, he might like to start looking at their tax status as well. Some of them – including the one which donates so generously to the local Conservatives – establish themselves as Limited Liability Partnerships rather than as limited companies. This means that the organisation as such pays not one penny in corporation tax on any profits it makes.

It also means, of course, that the partners are personally liable for all taxes instead, when they take their money out. There is, however, another twist. Rather than paying it in salaries which would be liable to income tax, they can choose to take it out as a trading profit. This completely avoids income tax as well, leaving them to pay only capital gains tax at a much lower level.

So, not only are they acting against the common good for private gain - they also get away with paying much less tax on their income than the rest of us. And that means that they have plenty of cash left over to donate to the party most likely to allow them to continue with their anti-social behaviour. And the Tory party, in turn, seems quite happy to be funded largely by people who pay less tax than the rest of us.

Which message?

Tweet The leader of the Repeal the Hunting Act Party visited Carmarthen briefly yesterday. He came, he bought a bun, and he departed. He'd obviously been well-briefed by his party's local candidate to talk about anything other than his candidate's main objective.

The problem is that he seems to be less well-briefed on what to say about anything else. In an article in the Guardian today, he managed to say that "I am a confirmed localist, committed to turning Britain's pyramid of power on its head". But not when he visits Wales, apparently, since he seems to have ruled out any further transfer of powers to this corner of the empire if he ever gets into government.

He also maintained the line that the recession and collapse of the financial markets are all the fault of the government, and nothing at all to do with the short-sellers and gamblers who provide a substantial part of his party's UK finances, and almost the whole of the local constituency's funding.

No, it's nothing at all to do with his rich friends and their gambling and speculating. It's all the fault of Labour that Wales' GDP per head lags so far behind that of England after 10 years of Labour rule. Presumably it was also the government's fault that Wales suffered in the same way between 1979 and 1997 when his lot were making the decisions? Or maybe someone from Conservative HQ will make a quick visit to Wikipedia to change the facts and show that Wales was really well-off after 18 years of Tory rule...

A missed opportunity

Tweet I was disappointed, but not really surprised, at the decision last week to allow the short-sellers to start trading bank shares again. Nor was it any great surprise that the announcement was rapidly followed by further large falls in the price of banking shares. It's not yet been entirely clearly demonstrated that the two are directly connected, but there can be no doubt that the recommencement of short-selling in bank shares will inevitably make them more volatile.

No doubt the Tories – largely funded by profits on this sort of activity – will be pleased that their donors can start their gambling again, but it's bad news for the rest of us. Most of all, it looks like a major missed opportunity to reconsider what the markets are for, and how they should be organised and controlled.

To listen to some free market supporters, one might think that 'the markets' have some sort of existence independent of human society, and that we should all accept that we have to do whatever 'the markets' tell us. It's not true of course, and never has been.

Markets are a human invention, and they can often be an efficient way of trading goods and services. But we should never forget that markets are there to serve us, not the other way around; and we should be ready as a society to regulate and control the activities in our markets in order to make sure that they serve our needs as humans and societies.

The problem is – and although this isn't the only cause of the current financial disaster, it's certainly a contributory factor – that some markets, particularly financial markets, have become more akin to casinos than places for the exchange of goods and services. Gamblers and speculators have been betting on future movements of prices – and not just betting on them, but speculating in such large sums that they actually influence prices in a way which enables them to make money. They may become wealthy as a result – but they haven't actually created the wealth which they accrue, they have merely redistributed it – to them, and from the rest of us.

Best of all, from their point of view, is that they seem to have found a way of betting with our money. When they win, we lose, and when they lose – er, we still lose. Now, I don't have any great moral aversion to people betting, as long as they do so in places where they are staking their own money, where all those involved understand that they are betting, not investing, and that they can lose as well as win, and where their betting does not cause problems for the rest of us.

Using the markets as a casino adds no value to human society and works against the interests of most of us. There should be no place in an orderly market for people to use them in this way. Rather than re-opening the flood gates, the government and regulatory authorities should be using the opportunity to look again at how we can ensure that markets are made to operate in the interests of society as a whole.

Bolting stable doors

Tweet The news that some of our most respectable banks have been completely taken in by what appears to be the most gigantic pyramid selling scam in history is pretty alarming, but is just another indication of the way that corporate and personal greed can blind people to reality.

Not everyone was taken in, of course. As the Sunday Times pointed out, a number of investors were savvy enough to ask how on earth someone could manage a return of 1% to 1.2%, month in month out, and never have a down month. One even said "We could never quite work out what it was that he did". But some major banks ploughed their - our - money in regardless, seeing only an incredibly high level of return and wanting a piece of the action. The net losses from this latest example of greed could be as high as £33billion.

I have to say that I have little confidence that this is the last bubble which will emerge from the wreckage of the world's financial systems. The way that people were taken in over the securitisation of dodgy sub-prime debts was bad enough; but if they have also fallen for a pyramid selling scheme on this scale, it seems highly probable that other problems will emerge as accountants (and hopefully the police) pore over the debris.

That gives me an issue with the government's latest scheme to pump more into the banking system by purchasing 'assets' from the banks. I don't know – and nor am I convinced that anyone else does – whether these 'assets' are actually worth anything, let alone the large sums which we as taxpayers will be paying for them. The only thing of which I am certain is that the amount of 'assets' being traded on the markets is significantly higher than the amount of real, tangible value underpinning them – according to some estimates, possibly by a factor of as much as 10:1.

At the bottom of all this mess are two main factors, it seems to me. The first of those is greed – the pursuit of unrealistic returns which out-perform the market, and which are believable only by suspending critical judgement. And the second is that the financial instruments being traded on the world's financial markets have become too complex for most of the people trading in them – never mind the layman – to understand. Derivatives of derivatives; betting on the outcome of other people's bets – this type of market making serves the interests of only the few, and for them to gain, the rest of us have to lose.

We need to take the time to clean out the stable, not just bail out the banks, and do it thoroughly if we are to have a basis for rebuilding confidence. That means a great deal more regulation over what banks and other institutions can or cannot do, and a determined effort to purge the markets of the gamblers and speculators who think only of themselves. And it means an end to some of the overly-complex financial instruments which are at the root of recent problems.

In that context, the call by David Cameron for an inquiry into the causes of the financial crisis sounded praiseworthy at first – until I read the small print. In fact, for all the brave rhetoric, his call for those who have brought about the downfall of the banking system to face the music seems to be limited to those who can be proven guilty of actual illegal actions, which means that the vast majority of those who have behaved in an utterly irresponsible fashion would completely escape his clampdown. Not really surprising, given that his party removed the regulations which would have prevented some of the daftest decisions being taken. (Gordon Brown, of course, even lectured the rest of the world on why they should do the same. For either to criticise the other over the causes of the crisis is less than honest.)

I am absolutely certain that Cameron's call for those who have behaved irresponsibly to be punished will not extend to the gamblers and speculators who fund his party, for instance. And even after all that has happened recently, his friends and backers, the short-sellers, are still at it – undermining the UK economy by short-selling sterling in order to make large sums of money for themselves.

Properly run financial markets are an essential element of the world's financial systems; but markets should be there, first and foremost, to serve our collective needs. A market which operates primarily to allow the greedy to make profits at the expense of others is not serving the interests of the majority. Given that we all depend on the markets to keep the economy moving, we have every right to insist that they be run in a way which is transparent and honest and which serves our needs.

Still taking the money

Tweet It seems that David Cameron decided at the last minute not to attend a lavish birthday party given by a hedge fund millionaire and Tory donor on Friday night. He had been expected, but pulled out, apparently because he thought that such a party might not be in keeping with the new mood of political austerity.

He's still taking their money, though.

Distancing herself from the ill-gotten gains

Tweet My attention has been drawn to this little spat (full record available here) in the Assembly on Tuesday, when one of Labour's Regional AM's attempted to rattle the cage of our local AM. I think he failed, largely because of an inaccurate choice of words. Instead of a wholly justifiable criticism of the Tory party's source of funds, he ended up making an inaccurate and unjustified attack on Angela Burns herself, over a donation which was clearly given to the constituency rather than to an individual. He was, quite correctly, forced to withdraw his remarks.

The exchange does suggest, however, that Ms Burns (and perhaps Nick Bourne as well?) is trying to distance herself from the donation made by the hedge fund to her local association. I found it particularly interesting that she sees any suggestion that she might have any sort of relationship with a hedge fund as being a 'slur on her integrity'. I entirely agree with her on that point – her integrity would indeed be damaged by such a relationship.

So what does this say about the integrity of her local party – and the parliamentary candidate locally – both of whom most certainly do have such a relationship? To say nothing of Conservative Central Office, who have not only accepted large donations from the same company, but also a range of sizable donations ("Short-sellers bankroll Conservatives") from managers of other such funds?



Alun Davies: In speaking this afternoon, I will resist the temptation to roam across the range of this Government’s successes, although I would particularly enjoy a long discussion on the role of opposition here because, when I read the Tories’ amendment 2 this afternoon, I got the sense that they had given up not only on trying to be a Government, but also on being an opposition. I get the sense that the Tory Party has done a deal and has sub-contracted out to some Russian oligarch or other sort of undesirable that it has in mind. Perhaps you have done the same deal with the hedge fund in New York as Angela Burns did for her constituency.

I will focus my remarks this afternoon on the area in which I have a special brief.

Nick Bourne: Point of order. I think that the Member might like to reconsider his last comment unless there is some substance to the allegation that he made about a Member in this place.

Alun Davies: I was simply referring to the funding of a constituency association by a hedge fund based in New York.

Nick Bourne: You named an Assembly Member and you should withdraw your remarks unless you have any evidence to back them up.

The Deputy Presiding Officer: Can you rephrase that last sentence please, Alun?

Alun Davies: If the Conservative Party has not received any funding from that hedge fund, then I am happy to withdraw my remarks.

Nick Bourne: I am sorry Deputy Presiding Officer, but there was a specific allegation about an Assembly Member’s involvement with a hedge fund. Unless you have evidence to back that statement up, you should withdraw it.

Alun Davies: I think that there was such a relationship, and I am happy to sustain that—[Interruption.] I am not going to take another intervention.

The Deputy Presiding Officer: Order. Angela Burns wishes to speak.

Angela Burns: As far as I understand it, Alun Davies has just accused me personally of having a relationship with a hedge fund. I state categorically that I have never had a relationship with a hedge fund or with a hedge fund provider, and I would like him to withdraw that statement because it is a slur on my integrity; I do not play that kind of game.

The Ashcroft Loophole

Tweet I thought that last night's Dispatches programme from Channel 4 went a little bit over the top in its treatment of the Tory funding scandal. I've never been a particular fan of 'doorstepping' unwilling interviewees, and the 'drama' of being 'excluded' from Cameron's little meeting was wholly unnecessary as well. Apart from anything else, the story stands up well enough in its own right - it doesn't need that sort of treatment.

There wasn't a lot that was new, however. In large measure, this was a story already covered by the newspapers in some depth. But as long as the Tories continue to refuse to deal with the key questions, it's one that won't go away.

The issue of where Lord Ashcroft lives is of comparatively minor interest. It was useful mostly in highlighting the way in which Cameron refuses to answer a very simple question with a straight yes or no. It makes him come across as shifty and devious - he's surely bright enough to understand that failing to simply say 'yes' when asked whether Ashcroft has kept his promise to live and pay taxes in the UK will inevitably be interpreted by most people as being a 'no'.

But the real issue remains about the legality and morality of the Tories' funding. In the case of their hedge fund backers, the question is primarily a moral one. Many of us are blaming the activities of these sorts of people for bringing the banking system to its knees - how can the Tories justify being funded on the profits? Merely repeating the mantra – 'the donations are legal' – is simply not good enough. Do they, or do they not, think that there is a moral dimension here as well?

In the case of Ashcroft's millions, the donations seem to be sailing very close to the wind. There's a good explanation here by one of the contributors to the Sunday Times article. In essence, the company used as a vehicle to donate millions to the party was making a trading loss in each of the last three years in which it made large donations. Those donations served to increase the losses significantly.

Now there's nothing illegal about a company which is making a loss deciding to increase the scale of that loss by donating to a political party, but how is that loss to be funded? In this case, it seems that the losses (and therefore the entire donations to the Tories) were funded by issuing more shares, all of which were then purchased by another Ashcroft company based in Belize.

So, in effect, there is no doubt at all that the money donated to the Tories came from Belize – a transfer which would have been illegal had it been a direct payment. It highlights a key failure in the legislation, which only insists that the donating company is 'trading' in the UK. Clearly, those drawing up the legislation would have made the logical assumption that donations would have been made from trading profits, and I can't blame them for making that assumption. I don't think that I would have considered the possibility that a company would deliberately choose to make massive losses in order to donate, and sell more shares abroad to cover those losses.

It's a loophole, obviously, and people who depend on loopholes rather than the intention and spirit of the legislation will always look dodgy. It didn't help the Tory case for last night's programme to show one of Lord Ashcroft's (very) few appearances in the House of Lords; an opportunity which he used to seek to argue that the law should be changed to allow him to continue to fund his party from abroad. A flagrant attempt to open the floodgates doesn't look like any sort of indication that his party recognises the need to close the loophole.

He who pays the piper

Tweet Peter Black draws attention to a story in the Observer yesterday, "How short-selling profited the Tories". The Observer is not always the biggest friend of the Tory Party, of course. However, the Sunday Times, which is much more well-disposed towards them, also carried much the same story, under the heading "Short-sellers bankroll Conservatives". They both list a number of managers of hedge funds who have donated handsomely to the Conservatives, although they both appear to have missed our friends Christofferson, Robb from the list, despite their kind contribution of £181,000.

I suspect that that is because the stories were based on the information about the membership of the "Leader's Group", which is for personal rather than corporate donors. Most of the other hedge fund donors appear to have donated from their own personal share of the profits from their 'work', rather than that of their companies, it seems. The Observer claims that the information about membership of the Leader's Group has been placed on the Conservative Party's website, "in an attempt to quell a mounting row over the party's finances". I have to say that if it has, then I can't find it.

On Saturday, Tomos Livingstone in the Western Mail said that Cameron faced a difficult choice in his address to his party's conference about how far he should go in responding to what Gordon Brown said last week. Amongst his comments, he suggested that Cameron might want to try and distance himself from the 'share-dealing bogeyman'. He reports today that Cameron has duly obliged by stating clearly that bankers and financiers had "no influence over my policy at all".

So, that's alright then? Not exactly, no.

While his party is being bankrolled by these people, stating that their financial support has no effect on his policies is about as convincing as Labour's first reaction some years ago when they received £1million from the boss of Formula 1, and claimed that it had had no effect on their decisions. It didn't wash – and they eventually had to give the money back.

The precedent is a clear one; if the Tories want us to believe that they are not in hock to the bankers and hedge funds who have come so close to bringing down the entire financial markets, there is an obvious step that they can take - count up all the donations from those concerned, and return them, with a polite note. I won't hold my breath waiting.

It's interesting that it's a Spanish bank which is buying some of the assets of B&B, following the collapse of B&B. Spain seems to have been largely unaffected by the effects of the 'global' crisis in the markets. So too does France, and Canada, and a number of other countries. That raises an interesting question. If this is a 'global' crisis, outside the control of any particular government, how come it only affects part of the 'globe' so badly?

The answer is in the regulatory regimes applying to banks in different countries. In Spain (and other countries) much of the activity which has caused the financial crisis would be illegal, so that they are largely insulated from the worst effects. So why are UK banks so exposed? Because the Tories (who claim not to be in any way influenced by the donors who benefitted from their decision) de-regulated the financial markets, and Labour have done little or nothing to re-regulate them.