Monday, 30 May 2011

When will UK Uncut flash mob The Guardian?

The tone of my last two blog entries provoked some comment, both on- and off-line, along the lines that my arguments might be more effective if they were more evidence-based and less emotionally charged. Maybe so.

However, I'm a sensitive soul and sometimes find it difficult to be relaxed when I read non-factual material dressed up as news. Unlike some others, it’s the output of the broadsheet newspapers that I find most difficult to accept, as I assume – maybe incorrectly – that the impact of tabloid nonsense is well understood (though not appropriately insulated from the policymaking process).

What gets me is not just the broadsheet newspapers’ air of superiority, though this is certainly the case, nor that such a large proportion of their material is untrue, which is also the case, but that the organisations printing this stuff don't believe what they write.

Indeed, there seems to be an inverted rule at play, where the more scandalised a newspaper is over a particular moral outrage, the more likely it is the same newspaper actually commits the same offence.

And again we expect this kind of stuff from the red-tops and other tabloids. For instance, Jonathan Rothermere, chairman of Daily Mail publisher Associated Newspapers is a 'non dom', helping him limit how much tax he pays in the UK, though this does not stop the newspaper from running politically convenient sneers at others benefiting from the same break. Or The Sun mounting a campaign against politicians for being soft on crime while for decades employing a convicted killer as one of its leading reporters.

But the broadsheets apply exactly the same double standards. And so we must be thankful for Private Eye, that curiously relevant and irreverent fortnightly magazine. For without it, and specifically its Street of Shame pages, newspapers would be able to carry on printing their nonsense without anyone knowing just how large the gap is between their words and deeds.

This week's Street of Shame has a particular focus on The Guardian, and for good reason. The Guardian is undoubtedly the winner in the hypocrisy takes. Private Eye's trio of Guardian stories this week leads with a tale of debt and private equity, revealing that despite The Guardian's apparent outrage at the behaviour of private equity firms and the immorality of investment bankers and excessive debt, Guardian owner GMG has been up to all the same tricks. And some.

The story starts in 2008 when GMG decided to sell just under half its shares in Trader Media (publisher of Auto Trader) to private equity firm Apax Partners. As part of the deal, Trader Media was loaded up with £835 million of debt in what's known as a 'leveraged buyout'. As The Guardian financial editor Nils Pratley pointed out just a couple of weeks ago, in the "wonderful world of the leveraged buyout", companies loaded up with debt can cut the amount of corporation tax they need to pay

You should be able to guess what's coming next. As part of the 2008 deal to sell the Trader Media stake to Apax, the Guardian did some extensive financial engineering. Ownership of Guardian assets was transferred out of the charitable Scott Trust and instead shifted into a new private company, Scott Trust Ltd. This helped the newspaper's owners to avoid paying tax on the profits of the sale of the stake, allowing it to report profits of £306 million but for that year pay absolutely no corporation tax. (Indeed, that year they received a tax payout from the government.)

It gets worse.

In recent months GMG and Apax had looked at selling Trader Media completely, but it appears they could not get the price (two billion pounds) they wanted. So instead they decided to borrow a further £200 million against Trader Media expressly to pay themselves a special dividend.

Mr. Pratley wrote last year: "If the coalition really wanted to reverse the trend towards short-term thinking it would change the rules on the tax-deductibility of interest since the current rules encourage companies to load up with debt to reduce their tax bills … and seek instant gratification and popularity in the form of special dividends."

Guardian Economics Editor Larry Elliott, who has written a whole book about the failures of corporate debt and bankers, chipped in recently with: "The cult of private equity suggested that any business could produce bumper returns if loaded with a ton of upfront debt while management sweated its assets." This is the same Larry Elliott, director of the Scott Trust, which oversaw the Trader Media leveraged buyout deal.

So, on the one hand Guardian owner GMG has loaded up a firm with debt to pay itself a dividend and limit its corporate tax, and on the other Guardian writers queue up to condemn private equity firms for, er, loading up firms with debt to pay themselves a dividend and limit their corporate tax.
In Sunday's Observer-Guardian 'investigation' into the failures of private equity and debt, a TUC spokesperson was quoted as saying: "It sounds a depressing, familiar scenario, where a company is bought by private equity firms and essentially loaded with debt. What too often follows is year after year of value extraction."

Given the recent waves of redundancies at the Guardian, massive executive pay and plans to increase the “partnership” between the newspaper’s corporate and editorial arms, one wonders who these increasingly hysteric stories about private equity, debt and tax avoidance should really be directed at.

Newspaper, heal thyself!

Wednesday, 18 May 2011

Drowning in stupid

One definition of stupid is having very strong views about a subject that you do not understand. Like a mob attacking the house of a paediatrician, or Microsoft launching a social networking site.

In my life, the primary exponent of stupid is the British newspaper. Like that other factory for idiocy, Big Brother, these brightly-coloured comics of made-up-stuff are funny to watch for a bit but after a while become really quite annoying. With politicians you can tell when they are lying by when they move their mouths, with newspapers you can tell they are bullshitting when they print an edition.

Some of the newspapers make it pretty clear that they are talking shit. Like a tree frog in the Amazon, they carry warning colours to alert you of the danger. If you see red at the top, you know not to take seriously anything written inside. But not all are so clear; the real danger comes from those newspapers that give the appearance of not being stupid, while still churning out crap like a sewerage farm on overdrive.

The easiest way to test this is to look at what the newspapers have to say about an area you know about. My area of professional expertise is debt and restructuring; I have plenty of material to wade through.

Take this article from the Telegraph, “Alliance Boots will have to refinance debt in a very different world”. Given that it’s written by City Editor Richard Fletcher we should be able to trust what it says. However, as it turns out I’ve listened to more convincing dogs than the claims in Mr. Fletcher’s article.

The main thrust of the piece is that Boots will struggle to refinance its debts as they come due for repayment in a few years’ time. Mr. Fletcher warns that “unless debt markets improve dramatically” the company is likely to be left 1 billion euros short when it seeks to refinance its debt. However, this is imaginary; no-one in the debt markets would agree with this. Yes, they would recognise that Boots has a lot of debt, but they would start by pointing to the large number of other companies who have been able to refinance debts, particularly in recent months, that have been in a much worse state. Even Gala Coral, which was forced to restructure (ie not repay) much of its debt just last year, just borrowed a load more cash from banks and bondholders.

Over in the Guardian, economics editor Larry Elliott declares that Greece is certain to be the next Lehman Brothers, and this will have the same impact on the wider world, if not more. But it says much about Mr. Elliott that he can’t (won't?) tell the difference between a massive investment bank collapsing overnight at the height of the credit panic and the slow-paced, well-signalled (but bloody difficult) reordering of a country’s debt. Mr. Elliott claims the comparison is valid because of “the structure of modern financial markets, with their chains of derivative trades and their pyramids of debt”. But that’s not good enough. On these terms, pretty much everything in the financial world for all time could be “the next Lehman Brothers”. It’s the equivalent of saying “stuff”.

And given that the headline, sub-headline and opening two paras are so catastrophically loose, it’s hard to take the rest of Mr. Elliott’s article particularly seriously. And maybe it is not a coincidence that the only journalist at the Guardian who understood debt and restructuring left the newspaper a few months ago and has not been replaced.

Sometimes I wonder if this is some kind of project to see how much stupid can be injected into the body politic. Certainly it is insidious, this creeping nonsense. And influential. Who do you think attention-seeking politicians listen to? Newspapers with readerships of millions, or experts with less sensationalist views? (This may explain why when they arrive in government, politicians change their tune so much.)

So, what to do? How do you avoid stupid? How do you find where the jewels are in amongst the crap? Or do we have to accept that the British newspapers are generally rubbish and turn to other sources for information? I don't know the answers to these questions but as someone who works in information I can share some of the solutions that I have come up with. First up: assume newspapers are written by idiots who are repeating verbatim the last thing they heard.

Thursday, 5 May 2011

The Shit Sandwich

The most successful Prime Ministers of recent times, Margaret Thatcher and Tony Blair, were often able to convince voters of the necessity of making difficult choices. For Mrs. Thatcher, TINA – there is no alternative – was her ally, while Tony Blair preferred instead an open recognition of how it was sometimes important to take unpopular decisions.

Since taking power a year ago, Britain’s coalition government has tried to take a similar position. The country’s structural deficit, rising debt and recent financial crisis meant the Conservative-led government came to power full of doom-mongering about the UK’s solvency. Building up the drama, the government staged an ‘emergency budget’ shortly after taking office, and allowed talk of an ‘austerity budget’ to enter the media debate. The junior partners in the coalition, the Liberal Democrats, publicly allowed themselves to be convinced of the need for drastic cuts, rowing back on positions they had campaigned on just weeks before.

In the fourth series of The Wire, Baltimore’s Mayor Carcetti, faces a similar situation. An unexpected shortfall in his education budget forces him to reverse his reformist spending pledges. Reflecting the language of Baltimore, the mayor finds he has a shit sandwich to deal with.

There are two distinctive features of the shit sandwich. The first is that it must be eaten. Like a hospital pass in rugby, the shit sandwich is a terrible thing to receive, but impossible to pass on. Someone’s going to have to take a bite. The second feature is that no matter how much bread there is, it’s still a shit sandwich.

Faced with such an unappetising menu on coming to power, and hardly over-endowed with intelligence (this is a team that regarded a former News of the World editor as an intellectual powerhouse), it is hardly surprising the new government allowed itself to overstate the unpleasantness of its situation. Moreover, not put off by their own exceedingly comfortable backgrounds and circumstances, they thinly claimed that they were “doing this for us”. Thanks guys! Unsurprising was the lack of gratitude from the populace, though many of them were more used to being stuffed by the big fat state lying back on a sea of easy money.

Given how gullible many people are financially (have you ever spoken with a retail bank’s personal advisor? It’s like being patronised by Jedward.), it is hardly surprising that a significant proportion of the public rejected out of hand the concept it was necessary to cut state spending when there was less money.

Predictably, those with most to lose and the best organisation, the trade unions who are concentrated in the public sector, led the campaign. They were followed by their political allies in the Labour Party, seeking a popular cause after being thrown out of office and relegated to third place in the May poll.

Disappointingly, these groups decided that the best course of action was simply to deny the existence of the shit sandwich. Or, if they led the Labour Party, claim they know it exists but declare that those who believe it doesn’t exist are heroes. No, it made no sense to anyone else. 

Moreover, if you write for the Guardian, or are the shadow chancellor, you now must believe that if such a dish were to exist it can be magicked away via the means of Keynes, where increased state spending will clear away any unpleasantness through faster economic growth and higher government revenue. That such increased state spending would be entirely dependent on borrowing yet more from bondholders, who have – via their proxies in the rating agencies – made it clear there is a puke point after which they will not lend, is so inconvenient as to be portrayed as irrelevant.

But while one side of the debate is in denial, the other side is in crisis. Unlike 1997, when Labour came into power with a rigid professionalism, this new government crash-landed into power and have looked ill at ease ever since. Though accused of ruthlessly executing an extremist ideology by their leftist critics, it has always seemed more likely that incompetence and incoherence would be more likely to trip them up. A sign of their uselessness came at the start of the year, when they failed to sell off a few commercial pine forests after having no answer to a press release circulated by a weeks-old leftwing campaign group. The AV referendum, meanwhile, has been a thorough disaster for the current crop of Liberal Democrats, who risk being remembered by history as simply a stupid bunch of fuckwits, outmanoeuvred by a babyfaced PR man with a small brain and a large wallet.

But what of the shit sandwich? Though the government may be less trustworthy than Paul Gascoigne conducting brain surgery with a can of Stella just beyond reach, and as likely to do the right thing as Lee from Blue judging a fraud trial for a bit of a laugh, it does not follow that there is no looming solvency issue for the British state. As the latins would say, that’s something of a non sequitur. Looking ahead, it remains to be seen if the incompetents in government will stick to their task, and keep munching, or fall apart as their rank incompetence defeats them all. If so, would an election then propel the deniers-in-chief back to power? Whatever – I seem to have lost my appetite.