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Martin_Gales

Listed below are comments made by Martin_Gales between Thursday, 22nd January 2009 and Wednesday, 29th April 2009.

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Newsnight caption challenge 11:38pm on 29 Apr 2009 BBC editing "was unfair", said Downing Street aides who had attended the briefing.
Newsnight caption challenge 11:12pm on 29 Apr 2009
"This is what I'm talking about. Science, not ideology."
Newsnight caption challenge 10:29pm on 29 Apr 2009 U.S. voter watches green shoots of recovery go up in flames.
HBOS: Strong men will weep 9:50pm on 01 Mar 2009 Apropos of the healthcare discussion (which shows an astute appreciation of the likely true costs of state-funded artificial profit schemes for loss-making investment businesses), please find below approximates of the percentage of GDP devoted to healthcare by selected exemplar nations:

U.S. %: 17

France %: 9.5

Canada %: 9.7

The European mean is circa 9% (depending upon whether or not nursing home care for the elderly is included). Included or necessary. Many societies, for example, Italy, are less 'atomised' than others.

That is indeed 17% for the U.S., projected to rise to 20% by 2017.

U.S results?

Forty-seven million people uninsured.

Hospital patients with a national MRSA infection rate of 23 percent (for the year 2007) according to the Association for Professionals in Infection Control.

And that when a Johns Hopkins study in 2006 demonstrated to anyone who hadn't yet heard of Lister that following "a checklist of precautionary measures when inserting central lines in intensive-care-unit patients, all catheter-related [MRSA] bloodstream infections were eliminated within three months."

Step 1: Hygiene. Procedure. Statistics. The universalisation of best practice.

Clearly, healthcare is a matter of organisation, not budgets.

Healthcare will always be expensive. The question is as to whether or not it will be also universal in provision and effective in application.

The universal systems of the United Kingdom, France and Canada will have typically half the cost of the U.S. system. Organise as per France, Canada or the United States.

To put the 1.3 trillion pound U.K. commitment to banking in perspective, given that U.S. spending in 2007 on healthcare was $2.4 trillion, the U.K. bailout commitments would have allowed the U.S., or any economy on its scale, to almost double healthcare provision this year (on a conversion rate of 1.4 dollars to the pound).

And that when, according to a lobby group (careful here), U.S. health care spending is 4.3 times the amount spent on national defense.

Four times the U.S. military budget. For junkshop "synthetic assets". Allegedly prompted to be re-evaluated by a measly 7% default rate on sub-prime mortgages.

U.S. sub-prime mortgage market: 1.2 trillion.

U.S. sub-prime mortgage default rate: 7%

7% of 1200 billion is 84 billion.

Please forgive the brutal crudities and approximations of static, unconnected numbers, but while this default rate will be old news by the time it all feeds through, the fact remains that Citibank (which had been the largest bank in America) received circa 40 billion in preference share capital and 250 billion in asset insurance.

Sound familiar? 37 billion in preference share capital and 325 billion in guarantees?

Conclusion: Substantial and serious declines in industrial output and “Taxpayers are being ripped off” statements coming out of the House Financial Services Committee.

'Without state aid control, governments would simply be subject to the biggest corporate blackmail in history"

Neelie Kroes, EU Commissioner, January 2009.

As Robert put it in a typically hard-hitting and prescient analysis in March 2008, "They've been reducing official interest rates, but that's done little to cut the cost of credit for most of us or increase its availability, because banks have taken the opportunity to rebuild their profit margins. And what about central banks' new willingness to allow banks to swap financial assets of dubious value for hard cash or liquid government bonds? Well that may have encouraged lenders to seize dodgy assets from borrowers that are in trouble in order to dump them on a central bank like the New York Fed. In other words, central banks may inadvertently be accelerating that fateful deleveraging process." BBC News, 17 March 2008.

Ball. Your court.
Thursday, 26 February, 2009 9:27pm on 26 Feb 2009 To return to a point from the RBS statement:

"The assets would be drawn from RBS' and certain of its affiliates' portfolios of corporate and leveraged loans, commercial
and residential property loans, structured credit assets and such other assets as the Treasury and RBS agree are to be
included in the Scheme. It is also envisaged that the Scheme may include structured synthetic assets and counterparty risk
exposures associated with certain derivatives transactions with monoline insurers and credit derivative product companies. RBS expects that the Scheme will protect: £225 billion of third party assets, £44 billion of undrawn commitments, and £33 billion in other counterparty risk exposures."

Insuring £44 billion of lending for a promised increase of £25 billion in lending in 2009?

Matching paper write-downs (of amortised assets) on one side of the ledger with cool, hard cash (in a lump sum) on the other?

RBS is giving £44 billion pounds of lending out into an economic environment that Bill Gates says may last for up to a decade. The taxpayer is covering 90% of this. This is despite a Goldman Sachs report opining that corporate debt that is high-risk is going to hit a 14% incidence of corporate default in 2009 alone. And neither the taxpayer nor any Parliamentary committee is absolutely entitled to determine the destination of these funds, before or after the fact.

Because all the facts of these agreements are going to be laid before Parliament except what is covered by "commercial
confidentiality" agreements, according to the Treasury's January outline.

According to RBS, they intend, to "insure third party assets". That's legal now, is it?

Or is that jargon for asset-"backed"
derivatives completely out of their control?

Synthetic assets, hedges, etc., should be excluded. Certainly, at a 90% level covering terraced houses in Wickham country.

Why 90% for a synthetic instrument and similar crud (up to 303 billion and not conceivably repayable based on B-shares)?

And only 50% loan insurance to medium-sized British industry (up to narrow million-pound limits on strict criteria and repayable inside of a year)?

Foreign-denominated assets (mentioned by the Treasury) should also be excluded.

Quantitative easing pressing against the insured value of a foreign-denominated asset? A nightmare which would not depend on a bad day for timeshared Swiss ski-cabins, just a bad day for the rate of conversion of sterling to the Swiss franc.

The RBS statement has been fair and clear.

It is just also disturbing.
Thursday, 26 February, 2009 7:48pm on 26 Feb 2009 On "B-shares":

Well placed quotation marks.

The RBS report is frank: these shares are "irredeemable".

They are free to opt to refuse to declare dividends for B-shares even "if distributable profits are available for distribution."

And the dividend for that year, denied to the B-shares, "will be lost either entirely or as to the part not declared, as applicable, and the Company will have no obligation..."

Who has the power to dare such an affront? A sub-committee of the Board.

"The Board of Directors or a Committee thereof may in its discretion decide that a dividend on the B Shares in respect of a year will not be declared at all or will be declared only in part even when distributable profits are available for distribution."

Board or sub-committee, shareholders cannot oppose.

In extremis, the sub-committee dub-clause could mean that even government representatives on a board may not have the right to address the question before a decision is taken (neatly negating the fact that it is practically mandatory for a holding in excess of 10% to carry with it a seat on the board).

When dividends are paid, they can be paid in... B-shares. Sigh.

"The Participation Rate will be subject to anti-dilution adjustments."

Anti-dilution adjustments exist. Reassuring in terms of capital recovery?

"On a return of capital or distribution of assets on a winding-up holders of B Shares will rank in the application of the assets of the Company available to shareholders pari passu with the holders of any other classes of ordinary shares of the Company."

We are suffering a serious departure from the alternative, a preference share model, at this point.

"Holders of the B Shares will not have pre-emption rights in respect of ordinary shares."

And voting rights for ordinary shares held by the Government now or at a later point may suffer the extinction of their voting rights in the odd legal circumstance of HMG actually becoming the outright owner of the company.

Please forgive the regurgitation of an RBS statement that we've all studied, but it so overwhelmingly lucid upon crucial points.

I understand the impulse to remove uncertainty concerning the fate of private shareholders if a large conversion exercise were conducted, otherwise swamping the remainder in a dilution nightmare, but, if "structured synthetic assets" are not definitively excluded from insurance cover, holding back from outright nationalisation does not carry the advantage of weaving around any poison pill arrangements which could be imagined to be possible...

Not senior debt. No security of income. Serious tradability issues. Most definitely not preference shares. Almost pointlessly distinct from ordinary shares.

B-shares can be described as mutant toilet paper.

And, yet, not the element of the arrangement likely to grieve since there are more serious potentialities again yet to be definitively excluded...
Fred Goodwin to receive £650,000 for life 03:35am on 26 Feb 2009 As per usual, I'll engage constructively.

(1) Enacting a claim should require shareholder approval annually - given the government voting position in these companies that would effectively guarantee:

(a) that we can indeed amortise these losses in the event of, I don't know, a recession happening? To ensure
amortisation of the costs in the event of a recession lasting "5 to 6, up to 10" years according to Bill Gates, and certainly lasting past 2010, according to Ben Bernanke.

(b) and can keep "strategy under constant review".

(2) When a claim is made, it is subject to assessment and investigation in the fashion of an insurance assessor. The
government seem very correctly to wish to assess the situation prior to any agreement, but it would also be wise to follow normal industry practice and allow for claims to be investigated (at the level of the individual loan or asset) and allow for
claims to be rejected (on the usual panoply of grounds: force majeur, being discovered to have attempted to insure a third-party asset, under-valuation, over-valuation, etc.).

(3) Dramatically improve taxpayer repayment even if it has to be scheduled over a decade if an agreement is to be viable.

Jamie Dimon, CEO of JP Morgan Chase: "Our goal, my goal, is to make this a profitable
investment for the American people, as soon as possible."

Where are the one-pound salary Managing Directors in the UK such as some CEOS in restructured American banks and at successful companies like Apple?

(4) Does "due diligence" include requiring utilisation of the various HMG mortage repayment cover scheme for homeowners in difficulties for every mortgage generating a claim? There should be a general alteration whereby a mortgagee can make direct application to the government for consideration to be included under the various repayment cover schemes being offered by the government, without reliance upon the sunny civic spirit of the mortgage issuer.

(5) 5%. Seriously. Remind them. The fuss over the Rock split and bondholders? The Rock had been pursuing a wind-down policy. That is to say, prior to being given the funds to expand into new business, it had the same pool of mortgagees as it will have since the split. Therefore, bondholders are at no additional disadvantage compared to months ago. Though I would refuse to arbitrarily re-write terms. So, splits that aren't cack-handed and provocative can work. If the Treasury can do anything, it is subtlety and assiduous attention to investors' due rights.

(6) Having "all relevant information" prior to offering insurance is a wonderful thing. I would make that the serious and heavy responsibilty of the insured, not the Treasury. This displacement, back in favour of insurance industry norms, should
be done by a simple expedient. Respond to any incident of an apparent "lack of relevant information at the time" of taking
out insurance as forming sufficient grounds for refusal in the event of facing a claim or tranche of claims clearly centred upon a lack of precisely that. Provide explicitly and legally for that.

(7) Regulatory forbearance should cover whatever dilution factor that could be said to apply to the security of the balance
sheet. While the Government would retain its pre-ink drying pre-eminence. No creepy calculations that "Gordo is now
disposable - he has given all that he can give".

If this is about regulatory requirements (and do any of us think that it is?), would not regulatory forbearance or a more
granular re-assignment of prudential category for a sub-division of the bank be more sensible as part of a more blended, granular strategy? You know, strategies that do not make the government disposable.
Fred Goodwin to receive £650,000 for life 03:24am on 26 Feb 2009 Section 5.1 of the statement released by the Treasury in January treats Eligible Assets thus:

"Assets may be denominated in any currency."

How is the Bulgarian property market these days?

Other qualifying assets proposed for inclusion: "structured credit assets, including certain asset-backed securities".

"certain asset-backed securities" held "as at 31st December 2008".

In the name of Warren Buffett, who was buying asset-backed securities in December? Should we insure 95% of what was lost on the value of a derivative product purchased on New Year's Eve? Did an office party prank go wrong? Is the office prank still going on?

Is that turning Lloyds - dearly beloved of its shareholders - into a "bad bank" for banks and counter-parties with whom the taxpayer and the Treasury have no reciprocal arrangment, vis-a-vis preference shares, quantifiable lending agreements, and optionally cash (ask your grandmother)?

And isn't a lot of the lending normally done by the banks covered by the £50 billion Asset Purchase scheme being managed by
the Bank of England?

So they also propose to insure "any closely related hedges, in each case, held by the participating institution or an affiliate as at 31st December 2008"?

We're insuring hedges. So we're insuring insurance. Hedge-Re.

Or we're insuring if the "related asset" goes down in value, and if it doesn't, we're insuring the decrease in value of the
offsetting hedge?

Or we're refusing to insure that part of the asset value that is covered by a hedge?

Not to worry. We're insuring the "major part" of the loss.

Where we are not insuring a synthetic entity being fired out the door of derivative dealers manfully working right through a frozen market into 2009, we should be able to assume that every claim made under this policy will be checked against the existence of mortgage insurance policies, as well as of income protection policies (covering periods of illness or unemployment) etc. for the
underlying asset.

This is because of the Treasury's careful stipulation that all relevant information must be disclosed inclusive of "related
hedges".

Shouldn't we?

Does that include a credit default swap taken out against the bank itself or a micro-hedge against "12 Primrose Lane -
Economic Timebomb or Nicely Decorated, 3-Bedroom, Semi-Detached House"? What's the spread between living in view of a
Hebridean anthrax test-site and a town with a sports centre and a power station?

Or does market omniscience not do boring things like actual valuation factors and the careful striation of the intrinsic and
the extrinsic? Does the cover not actually extend to "certain asset-backed securities"?

This sounds very scientific.

£150 billion of quantitative easing. Reportedly.

£50 billion asset purchase by the BoE. Matter of record.

£50 billion in claims from RBS. Admittedly, a patent-pending Pestometer estimate.

£50 billion in claims from Lloyds Banking Group. Admittedly, also an estimate.

Let me summon my professional advisers. 50 + 50 + 50 = ...

Thanks goodness for all that scientific stress-testing. Wouldn't want to end up with hopelessly simplistic figures.

Is that for the election manifesto? 5% cover. 50, 50, 50, 150. More memorable for the ordinary, hard-working families.
Fred Goodwin to receive £650,000 for life 01:54am on 26 Feb 2009 Thank you, Robert, once again for holding up public policy for testing and discussion while it is still relevant to discuss it.

And not ex-post facto at corpse-kicking committees.

"Yep, I think it's dead." "And when did it occur to you that it was dead?" "Well, it was purple-blue for months, but I didn't think anything of it at the time. I'd been told it was going to be our lead striker on the football team and that the swarming flies were a training technique. I had no reason to think that rigor mortis was abnormal for a world-beating athlete. Not being a medical expert, I agreed and picked him for our team."

"I repeat, when did it occur to you that it was dead?" "The second-half performance upset some club shareholders and supporters, who didn't quite understand the dynamics of the game. And I share that sentiment. Frankly, if the media had never broadcast me with a rifle standing on a grassy knoll overlooking the training ground at the start of the season, would there really have been an issue in the same way?"

[Murmurs of agreement]

Over eight hours of questioning, members of the Committee between them bought three vacuum cleaners, an Encyclopaedia, two magazine subscriptions, and an extensible floor-mop extension (for reaching awkward dirt with ease).
An Orwellian episode 7:00pm on 22 Jan 2009 Up to the announcement of a weekend conference and the Monday datum, I have a lot of respect for how the P.M. handled the decisions made in the Government in respect of the crisis.

And I really think that the Government has failed to put its case across in the manner befitting its accomplishments - "do nothing" jibes were not a fair response to an Opposition experimenting with a difficult crisis, as we all were, and will earn a harvest of vitriol now.

And those jibes were not a good use of a very narrow window in time to explain the processes and countervailing forces underway. And justify the steps taken to shape those forces. Harsher truth was possible in the kinder glow of victory which shone then.

Spin-doctoring is not public communication. Communication is complex thought argued well.

I'd just like to preface my remarks with all those disclaimers and balancing remarks, before I let fly.

Another question, Paul, what on earth did he think he was talking about even then?

This is from the Trustee Knowledge Guide 2009, published this month in association with the Pensions Regulator:

"For example, the average annual return for UK equities has been around 8.9pc over the last 20 years, but this does not tell the whole story. For the 10 years up to September 30, 1998, the average annual return was 14.3pc per annum, while for the later 10 years the average annual return was 3.7pc per annum. The last decade would have come as a bit of a shock to any investor expecting an annual return of 8pc to 9pc."

Great journalism digging that up that quote, Paul. Wow, what a hostage to fortune.

It might have been the cigars and brandy talking. Or a scamp in the script-room really setting the old fossil up... You know, they could do with better advisors in some departments (Not all, of course. Go PUT FAVOURITE DEPT. HERE). Who watches these people's backs? Seriously. Hire someone who isn't a facile-minded snot. Just as an experiment...

Still, history is a big expanse. Time goes on. And they continue to have the opportunity to really surpass themselves in dedication and self-sacrifice.

It will be fully communicated to posterity what they do now. And if they calmly accept the public duty before them, they should be prepared to accept our gratitude.

We have always the accepted the flaws and errors of our Samsons and our Alfreds.

And we will not forget the flawed men who took their last public energies to the public good.

People shouldn't forget who Roosevelt hired to clean up Wall Street: J.P. Kennedy. Poacher-turned-gamekeeper. Kennedy's difference, of course, was that he got wise early and dropped out of the share-pumping scam. A man with his eye on the potential of the future and a regard for public opinion.

The gutter and the stars... It's a matter of viewpoint. And the choices before us.

I like to act early and hit hard, but that's just me.

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