Half a free market is better than none.

In case you were ever thinking about starting up an airline in the UK, presumably the first thing you'd do is get hold of the accounts for other UK airlines and look at the profit and loss account. Then you divide the profits you could make by the amount of money you'd have to invest in aeroplanes, and that gives you your return on capital. If that's more than, say, ten per cent, then you are on to a winner, yes?

Nope. There are two kinds of airlines in the UK - those who were granted take-off and landing slots for free when they were privatised in the 1980s (i.e. British Airways); and those who had to buy landing slots for their market value 'second hand' (most of the others). The accounts for the former will neither show the value of the landing slots (which is enormous, they are worth more than the aeroplanes) nor the associated amortisation*; the accounts for the latter will show the cost of the landing slots; the associated liability (or share capital) and the amortisation.

So before you can go into business, you need to buy some slots (and now might be a very good time to buy, the air travel industry being at rock bottom). How do you work out the value of the slots? Well, you work out your cash profit per flight and then deduct from that the required return on the money invested in aeroplanes; what is left over is a balancing figure - you then take a random figure as an "earnings multiple" and that's what you offer. Another airline with slots to spare does the same calculation, and provided your estimate is higher than theirs, they'll sell you it.

If you overestimate the value, then you are doomed, of course - you are committed to the corresponding loan and interest repayments for ever more, but the value of the slots can plummet (let's imagine that Eyeful o'yokel never stops erupting, for example). Or their value might rocket if the NIMBYs get their way and airports are never allowed to expand.

Anyways, getting back to the point in hand, Nick Drew looked at the Lib-Con Energy policy, and under "Good", he listed replacing Air Passenger Duty with per-flight duty. I commented thusly:

Per flight taxes are better than per passenger, but the best way of doing it is auctioning off the landing/take-off slots. The value of these is merely a balancing figure between revenues and costs; so however much the airlines voluntarily pay for the balancing figure does not change anything - it's a non-distortionary tax, because you cannot pass on a balancing figure.

In other words, instead of having to hand over a vast amount to another airline, every year or two, you would do your own calculations and turn up at the next auction and bid for the number of slots you think you need; and if yours is the winning bid, you buy an aeroplane or two to match (airlines who lose enough bids will no doubt have one or two spare), paint it in your colours and away you go. If you overbid for a slot for a year or two, you will go out of business, but at least the amount of money you have lost is much less than if you had overbid for buying up slots in perpetuity from another airline.

Nick D didn't seem to get the point, and replied:

I'd be cautious about price-setting distortions (market power) under your auction system, MW - auctions have been tried in many areas of the energy industry and have thrown up all manner of problems.

I specifically was not talking about auctions in the energy industry, which is all much trickier (because raw material costs fluctuate so wildly). Ah well. Here endeth today's.

* Applying normal accounting standards, BA only accounts for landing slots which is has acquired from third parties, which are stated as having cost £212 million in its 2009 accounts, the cost is amortised at £8m a year. Back in late 2008, BMI which owns 11% of Heathrow landing slots, valued them at £770 million (the value has fallen since), BA owns 41% of Heathrow landing slots (plus heck knows how many at Gatwick etc) so their total value a year or two ago must have been about £5 billion, about as much as all its aeroplanes put together.

An alternative explanation for the shape of spiral arm galaxies (part 2)

And lo, the second and final part in my mini-series on why the planets revolving a sun follow Newton's rules/General Relativity (the larger the orbit, the slower the planet) but stars revolving a galaxy do not. Beyond a certain radius, their speeds remain constant, so they can maintain the spiral arm shape.

This is a slightly different explanation to Part 1, the conclusion of which might well be completely wrong (theses are just thought experiments, because I like thinking about stuff), but if it's correct, then the two explanations complement each other.

In words: taking gravity as a given, the orbit of a planet around the sun (or of a star round a galaxy) does not determine its final speed; it is its initial arrival speed which determines its orbit. If its arrival speed is not right for its initial orbit, it will either spiral in to the centre or fly straight on and end up in another solar system (or galaxy).

So you have to skip back to how solar systems or galaxies were formed in the first place, and there's your answer, no Dark Matter required. (The fact that nobody really knows what gravity really 'is' or how gravity actually 'works' is irrelevant if we are only thinking about its effects. I don't know how computers or the Internet work, but I can still use them.)

There was basically loads of stuff whizzing round, it formed the only patterns it could possibly have formed. If you just look at finished solar systems or galaxies, you ignore all the stuff that passed a system or galaxy with which its direction and speed were not compatible and so ended up in another system or galaxy, or floating through space on its own; for a bit of a stuff to end up particular system or galaxy is the exception not the rule.

A solar system or a galaxy is the result of a series of happy coincidences. It's like evolution. To invoke Dark Matter is like invoking Intelligent Design.

With pictures:

1. A simple solar system.

Planets are formed from dust and rocks which were spewed out by dying stars and whizz through space until they are caught by the gravity of a sun. They don't arrive fully formed, but to be caught, their constituent rocks have to be travelling at the right speed and distance from the sun.

 For a given distance from the sun, if Rock B is travelling too slow, it will fall into the sun, if too fast, it will change path slightly but then whizz off into space again. Its speed has to be 'just right' for it to end up in a fairly stable orbit. It then merges with other rocks travelling on a similar orbit at a similar speed form a planet. Cruithne is travelling round the Sun on a similar orbit to Earth at a similar speed, but is more or less opposite Earth so the two won't collide and merge any time soon.

Rocks and planets have no memory, when a planet reaches the place illustrated with a small white circle, travelling perpendicular to the sun (pink), all they 'know' is that they want to continue travelling in the direction of the solid arrow. It doesn't matter whether they just arrived fully formed along the solid arrow or were already in that orbit at that speed.



2. The right speed is different, depending on what their (initial) trajectory is

Imagine rock A and rock C, which happen to pass into the sun's gravity (the dotted circle), travelling at the same speed, and let's imagine that this is the optimum speed for rock A. Rock A feels a strong gravitational force as it passes quite close to the sun. So I have coloured the sun orange to denote 'strong' gravity'.

Rock C, travelling at the same speed, only feels weak gravity from the sun (coloured yellow to denote 'weak' gravity), so for that particular orbit, it was travelling too fast, so is deflected slightly but flies off into space again.



3. The optimum speed is slower, the further from the sun the rock was initially travelling.

Stands to reason. If Mercury (or the rocks which formed it) had been travelling slower, they would have spiralled in the sun. If the gas in Neptune had been travelling faster, it would have passed straight on.



4. Mass is much more evenly distributed in a galaxy than in a solar system

Newton/GR is easy with a solar system, as the sun makes up over 99% of the overall mass. You can more or less ignore the pull between the Earth and Mars when studying their orbits.

But how are galaxies formed? It's a bit more complicated than solar systems. Consensus seems to be that you start with a large gas cloud, which contracts under gravity to form the first few stars, with strong gravity, then other nearby or passing gas clouds, which might or might not have already formed stars, are caught up in it.

Picture 4 is analogous to picture 2. Whether or not stars arrive fully formed does not matter, they have no memory. When they have reached the point marked with a star and are travelling perpendicular to the centre of the galaxy they might as well have just arrived from outside (where they only experience medium gravity, coloured yellow) and in the absence of gravity 'want' to continue to travel in a straight line. So let's imagine two stars A and C which are travelling at the same speed, just different distances from the centre.

There are stars to the left and right of A's line of travel. The ones to its right cancel out the pull of gravity from some of the stars to its left. It only feels the net pull of the stars in the region coloured orange (strong gravity), yellow (medium gravity) or green (weak gravity), which adds up to a certain total gravity. Let's assume that it is travelling at the optimum speed for that distance from the centre, so falls into a stable orbit.

Now look at it from the point of view of star C, which arrives at the same speed, parallel and at the edge of the galaxy. There are no stars to its right, it only feels a pull to the left. The regions which pull it are given the same colours (strong = orange etc), and as you can clearly see, it would be reasonable to assume that it actually feels a stronger pull to the left than star A. I adapted this idea from a Dark Matter Sceptic on YouTube called Jeremy Kenny, who is probably as well qualified as I am, in other words, not at all.

So if star C is travelling at the same speed as star A, it is 'too slow' to stay in that orbit and will spiral in to the centre.



5. The 'optimum speeds' for stars in a galaxy is the other way round to planets in a solar system

Picture 5 is analogous to picture 3, which told us why inner planets have to travel faster than outer ones.

Picture 5 shows why with stars, it is the other way round - apart from the inner stars orbiting the very centre (massively heavy, loads of Black Holes and stars etc) which follow normal rules, for outer stars (more than 5,000 light years out, or whatever the cut off point is) the optimum speed to stay in orbit is the same (or faster) the further out you are.

For star A, closer to the centre, most of the galaxy's gravity cancels out, it only feels gravity from stars in the areas coloured yellow (medium gravity) or green (weak gravity). To stay in that orbit, it must be travelling slowly. Fewer stars cancel out for star B, it is pulled more strongly to the left, so it is has to be travelling as fast as or faster than star A to remain in a stable orbit; and so on for star C right at the edge.



Hope that settles matters!
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A lot of people go for the 'dark matter' explanation, for which there is only indirect evidence and absolutely no direct evidence. I am a 'dark matter sceptic' if you will, which is why the True Believers in Dark Matter (a phrase coined by Prof. Stacy McGaugh, who used to be one until he discovered MOND, his lectures are highly recommended) would deride me as a 'Gravity Denier' if they knew I existed. (Please note, Dark Matter is not to be confused with Dark Energy, something else entirely, which might be negative mass for all we know)

Crowd Formation

If you attend an event without any fixed seating, for example an open air rock festivals, but the same general rule applies to anything really, you'll observe that the first few people go and stand near the stage to get the best view/best sound.

As more and more people arrive, there comes a time at which the inconvenience of being jammed solid into a crowd with no possibility of being able to nip to the loo, get a beer etc and return to your friends makes it a more sensible option to stand further back; then the middle of the area fills up and it's a more sensible option to go even further back where you can spread out your blanket and have a nice sit down during the boring bits and so on.

You can sometimes misjudge this, maybe you arrive and think that you can spread out your blanket nearer the front, but as the more packed part of the crowd extends backwards, you'll find more and more people trampling on your blanket, blocking your view etc, so you then have to make a decision whether to roll up the blanket and shove a bit further forwards, or to make a tactical retreat further back.

So in the end, everybody makes their personal trade off between 'being at the centre of the action' and 'having a bit of spacef' and we end up with a fair, i.e. optimal, utilisation of the physical space. There are no privileges involved; everybody pays the same for his ticket (those who turn up extra early to be in the front row have effectively paid 'extra' because they have to 'spend' several hours of their time just standing there before the concert starts) and everybody gets much the same value.

Here's my simplified sketch of the relative densities: Regular readers will no doubt have guessed what I am driving at here:

i. I'd consider this to be the free market base case scenario, and in the absence of planning restrictions, this is also how cities grow; smaller buildings on larger plots in the centre, which have been there since the city was a hamlet, are knocked down and replaced with skyscrapers, and the houses with big gardens are found further out.

ii. Now, if a ticket to this concert costs £50 and we consider the stage to be 'the centre' then we could say that the people crammed in at the front are paying for half a sq yard each, so the rent is £100/sq yard; the people in the middle occupy one or two sq yards each, so the rent is £25 - £50/sq yard and the people at the crowd sitting on blankets are occupying two or three sq yards each, so the rent is £17 - £25/sq yard.

iii. But because everybody makes his or her own trade-off and has his or her own marginal preferences, everybody ends up getting the same value, and there is no concept of 'freehold', you can only claim the space you can physically occupy; if you're sharing a blanket with friends, they can save your space for the ten or fifteen minutes it takes you to nip to the loo or to the bar, but if you stay away for too long, somebody else will encroach on your space.

iv. Exactly the same logic applies with towns and cities. Rents at 'the centre', whatever that happens to be - the literal town centre, or anything else which draws people to an area, primarily higher wages, a train station, a good state school, a nice view - will be highest and they will fall away the further a location is from that centre.

UPDATE: Sobers in the comments gives another good example of a "centre": a "nice area" which means an area where "nice people" live, even if this is just a formerly run down area which has become gentrified.

v. Now, isn't it fair to say that the people in the front rows of the concert are placing a burden on those further behind? Surely yes, because everybody else behind them would probably rather be a bit further forward. And isn't it also fair to say that those directly behind them are placing a burden on those at the front because they are squashing them forward? And they are also placing a burden on those behind them, because if they weren't standing up, then the people further back wouldn't need to stand up to see the stage, and so on?

vi. Even those spread out on blankets at the back are placing a [smaller] burden on those in the middle, because if the people on blankets at the back weren't there, the people in the middle wouldn't have had to roll up their blankets and stand up. And so on.

vii. Now, imagine we are looking at a town or city; there is no concert and no stage. All it is a lot of people, and a large part of the rents that people are paying is because they want to be near other people (higher population density = higher wages, more train stations, more good schools, probably more impressive parks and museums etc).

viii. So there is no identifiable band or concert promoter ('land lord') who can makes the area desirable (however temporarily) who can legitimately charge for the entry ticket (or 'rent'), it is the population itself (who are thus simultaneously 'land lords' and 'tenants'). Allowing land lords or land owners (in the traditional sense) to collect land rent (or sell their land for more than £negligible) is like allowing people to turn up early at the concert, put down some blankets near the stage and then for these early arrivers to charge other people money for the privilege of standing on them, i.e. drive a wedge between the total amount that people will pay to stay in the front row and the value which the band or concert promoter receives.

ix. If everybody paid rent to the rest of the population (the 'land lords') for the land from which they wish to exclude others, i.e. occupy or 'own' (instead of paying income tax), then surely this would lead to the optimum use of land (the same as at our rock festival).

x. Finally, it seems stupid to tax incomes because the people who add the most value, run the most successful businesses etc are also the ones which make the town a more attractive place to live - the incremental extra income that they can earn by living there rather than anywhere else is already being paid in rent - and these are the ones who should be encouraged to move to the town. So why do we have a tax system which discourages people from working and encourages people to merely try and own as much land as possible and collect the rents which others are generating from those people themselves? The only point of working seems to be to try and get enough money together to buy enough land to be able to pack in working and become a landlord instead.

What is it with women and music?

Her Indoors spent about two hours clicking around her and my iTunes to compile a playlist to burn to a non-stop CD at her/our birthday/garden party, and this is what she/we ended up with...

Knowing me knowing you - ABBA
Take a chance on me - ABBA
Mamma mia - ABBA
Honey honey - ABBA
All that she wants - Ace of Base
Set Fire To The Rain - Adele
Valerie (AW) - Amy Winehouse
Summer of love - B-52's
Love shack - B-52's
Help - Beatles
Staying alive - Bee Gees
Piece of my heart (BK) - Beverley Knight
Irreplaceable - Beyoncé
Don't lie - Black Eyed Peas
Pump it - Black Eyed Peas
Mas que nada - Black Eyed Peas
I Gotta Feeling (BEP) - Black Eyed Peas
Meet Me Halfway - Black Eyed Peas
Just Can't Get Enough (BEP) - Black Eyed Peas
One love/people get ready - Bob Marley
Born to run - Bruce Springsteen
Kung fu fighting - Carl Douglas
Barbra Streisand - Duck Sauce
Anything could happen - Ellie Goulding
Dog Days Are Over - Florence & The Machine
We Are Young ft Janelle Monáe - Fun
I knew you were waiting - George Michael
Heart's A Mess - Gotye
Thanks For Your Time - Gotye
Learnalilgivinanlovin - Gotye
I Feel Better - Gotye
State Of The Art - Gotye
Bronte - Gotye
Somebody That I Used To Know ft. Kimbra - Gotye
Somebody That I Used To Know - Gotye Feat. Kimbra
Stereo Hearts - Gym Class Heroes
Broken strings ft Nelly Furtado - James Morrison
Brokenhearted - Karmin
Firework - Katy Perry
Last Friday Night (T.G.I.F.) - Katy Perry
All Summer Long - Kid Rock
Born to die - Lana Del Ray
Ho Hey - Lumineers
Sweet home Alabama - Lynyrd Skynyrd
Hoedown Throwdown - Miley Cyrus
I Will Wait - Mumford & Sons
The Cave - Mumford & Sons
Little Lion man - Mumford & Sons
Mad - Ne-Yo
My baby just cares for me - Nina Simone
Stop crying your heart out - Oasis
Don't look back in anger - Oasis
Dance With Me Tonight - Olly Murs
What Makes You Beautiful - One Direction
Live While We're Young - One Direction
Heartbreak Down - P!nk
Raise your glass - P!nk
Just give me a reason ft Nate Ruess - P!nk
Pencil full of lead - Paolo Nutini
She said - Plan B
Gangnam Style - PSY
We will rock you - Queen
Place your hands - Reef
Keep on lovin' you - REO Speedwagon
We Found Love - Rihanna
Cheers (Drink To That) - Rihanna
Black Heart - StooShe
Black Heart - StooShe
Flood. The - Take That
Greatest Day - Take That
I Knew You Were Trouble - Taylor Swift
I knew you were trouble - Taylor Swift
I'm your man - Wham!
Club Tropicana - Wham!
Freedom (W) - Wham!
Young guns (go for it!) - Wham!
Wake me up before you go go - Wham!
This is love ft Eva Simmons - Will.i.am
We No Speak Americano - Yolanda B Cool & DCup

Oh yes you can.

Adam Collyer left a comment on Markets Work. The Other Thing Doesn't:

All agreed, except for the passing mention of "ever increasing quantities of credit, based on fractional reserves to inflate economies and buy votes". You can't have banks really without fractional reserve banking - you certainly can't have loan finance.

Consider if you insist on 100 percent reserves. So you put £100 in the bank. They can't lend it out because they need to hold 100 percent of it in reserve. And that's it. No loans - banks become just a safe place to store money - like a fortified version of your mattress.

1. Although nobody in his right mind suggests banning FRB entirely (i.e. insisting on a 100% ratio), it would not be the end of the world. When you go to the bank with your £100, you can either:

a) Invest it as share capital (or buy existing shares to the value of £100), or
b) Invest it as a debenture or bond (or buy existing bonds to the value of £100), or
c) Invest in an interest bearing current or deposit account, or
d) Pay it over as a pure deposit or current account for safe-keeping for a small monthly or annual charge.

With a) to c), it is implicit that your money is lent on at interest and you expect a share of the profits (the more risk you accept, the higher your return). With d) there is neither risk nor return.

2. FRB is like most things - it's good up to a point and 'too much' is a bad thing. So whether we measure the old-fashioned reserve ratio (ratio of liquid assets to total deposits) or the more modern Basle ratio (ratio of share capital-plus-retained profits to total assets) is neither here nor there. A ratio of anything above fifteen per cent appears to be, in practice, more or less rock solid. Anything below ten per cent usually leads to disaster.

3. Even without FRB, businesses can still borrow from the public directly without the bank as an intermediary (although admittedly it is much easier for very large companies to borrow in this way than it is for small, medium or quite-large ones).

4. To really get a credit bubble going, you also need an asset price bubble (usually land and buildings), because then the debits and credits more-or-less create themselves (nearly every penny that the banks lend to Mr Purchaser as a mortgage gets deposited back with the banks by Mr Vendor). Sorting out land price bubbles once and for all is dead easy of course - by shifting taxes from income and output to land values - provided we can first wean the general public off the idea that rising house prices = increased wealth.

Mortgage Market Review - Another Little Gem from the Financial Catastrophe Authority

Following on from a comment on another MW post, I thought you might like a little bit of enlightenment on how the FCA decided to intervene in the mortgage market post the 2008 banking crisis.  The FCA sets out why, what and how, here.

First, some background.

My personal experience of providing mortgage advice (and I mean 'advice', not sales) goes back to the early 1980's. The bulk of my work was sorting out mortgages for people whose criteria did not fit mainstream lenders criteria; self employed, low pay/high bonus employees, small business owners and the like.  My business also did some work on what was 'credit repair mortgages', which by definition are outside standard criteria. (Northern Rock for example).  Again used responsibly these products were very useful and successful.

When I first started lenders did not pay commissions (procuration fees, in the jargon), The way you got paid was by selling an associated life product - an endowment or mortgage protection life insurance - for the commission.  Or you could charge a direct arrangement fee, which we did mostly. (I never liked relying on indemnity commissions because they could be clawed back if the policy was cancelled in the first two to four years).

It is important to note that this was the way most real mortgage advisers worked.  That does not include most of those working out of estate agents, or the more questionable mortgage intermediaries.

The gradual introduction of procuration fees made this line viable and we built up a good business. By the early 2000's we were the biggest producer of self certification mortgages for an excellent lender - UCB Homeloans.

UCB Homeloans was by that time a part of the Nationwide group.  It had been established - I think - sometime in the very early 80's and knew the self cert market backwards.  It had a lower impairment rate than the Halifax.  It had excellent underwriting criteria and relatively low maximum LTV ratios; certainly lower than its competitors.  It relied on good pre-underwriting by its producers, like us. It charged a mortgage rate that was competitive but higher than the main market, because it was taking on higher risk lending.

By about 2004 +/- one year UCB's rates and criteria had become uncompetitive in the market.  Many new self cert lenders had been set up, mostly relying entirely on securitisation from the easy money in the bond market.

I valued the relationship with UCB,  But it was also becomingly screamingly obvious that we were in a classic time of massive monetary and credit expansion.  I telephoned the MD of UCB and we discussed the situation.  I said that I thought that UCB knew what they were doing and that the rest of market (mainly the new entrants) didn't and that they were under-pricing the risk.  He said, yes.

From that straw in the wind we worked ourselves out of the mortgage business as fast as possible.

Please note that all the forgoing relates solely to finding mortgage finance for owner occupiers, not buy to let.

Turing to buy to let, yes we have done a few, or rather we have small number of reasonably sensible BtL clients for whom we have found mortgage finance.  I do not need to tell you that all of these, all of them, have used the increasing equity in their existing portfolios to obtain funds for further purchases.

Whilst I was going through all this, you will all have observed in your own lives the massive expansion of mortgage lending from about 1994 to 2007, with particularly turbocharged expansion between 2000 and 2007, with a whole slew of new lenders. You will have also noticed the relaxation of criteria (lending based upon 'affordability' permitting ludicrously generous earnings multiples) and the very advantageous products - trackers at base plus 0.5% for the whole loan term.  (I snapped up as many of those as I could for our clients - serves the lenders right).

From this little history and analysis it should be perfectly clear that the reason and driver for the lending madness pre 2008 was government / central bank / regulatory failure.  All the mortgage market did was respond to the unwarranted expansion of money and credit by those three weird sisters. A classic example of the Austrian Business Cycle Theory boom phase. But, of course, that analysis would lead to the swift exit stage left of those same three sisters.

Then 2008 - bang.

Enter the MMR.  And note that this only dealt with lending to owner occupiers.  The MMR is right up there amongst the biggest load of self serving old tut that I have ever read.

If you study the material at the link you will note that the prescribed criteria for mortgage lending to OO's is now extremely challenging - and that none of that criteria apply to Buy to Let.

Since the MMR came into force the lending to BtL has expanded.  They can access credit and can still leverage their portfolios based on the inflated equity of their existing 'investments'.  This in effect gives them access to 'free' deposits.  At the same time the deposit requirements for OO's have been increased.

Furthermore the affordability assessments that lenders are required to use are system driven and distorted.  IMHO the very use of  'affordability' is seriously flawed as it permits, nay encourages. loan to earnings ratios of upwards of five times.  (In all my self cert business pre-underwritten by me I cannot think of any cases that exceeded about 3.5 times of the earnings I could establish).

The lenders also require squeaky clean credit history.  Many many people have the odd blip - a credit card payment recieved a day late, a previous address with a bad history, a water company failing to sort out a change of address etc etc and now, just one of those will get you declined, when previously a lender could 'take a view'.

There is much more to the whole farrago (e.g. the boxes we have to tick on the mortgage KFI's  which states that 'having assessed the market I recommend that you take out this mortgage' - I have never ever recommended that anybody take out any mortgage at all, ever).  But I think you'll probably get the picture by now.  The MMR is another failed regulatory intervention based on a deliberately self serving and flawed analysis of the situation pre 2008, which has also further distorted the housing market towards buy to let.

Death really is too good for the useless functionaries.

The supply and demand curve for "money" (2)

Continuing my post of last week, where I looked at the supply and demand curve down to about the interest rate which people are or would be prepared to borrow to spend on bricks and mortar, which is about 8%.


If we just look at this supply and demand curve, we observe that the net return to savers is pretty flat whoever the borrower is.

But there is something else dictating interest rates. There is a subtle difference between 'saving' and 'investing'. Basically, households 'save' and businesses 'invest'. (It is quite possible that household savings go into business investment, which is double plus good, but that is a overlap and not the main event).

The distinction is this: let's say a farmer normally harvest 52 units (weeks' worth) of food, exactly enough to see himself through the whole year. In a hypothetical good year he harvests an extra 20 units.

i. He can 'save' those 20 extra units by selling it to hungry people on credit, so when the harvest is not so good, he can call in the loan of food. He can also demand the payment of interest on that loan (he gets back more food than he lent out), so in future, he could, if he wished, consume an extra 2 or 3 units a year for the rest of his life, but that is only at the expense of the original borrowers, who have to make do with consuming 2 or 3 units less than otherwise.

ii. Or he can 'invest' that food by exchanging it for better implements, or by exchanging it with somebody who will improve his walls and drainage. In future, the farmer can now produce 2 or 3 extra units of food each year, but without anybody else having to consume less.

That is what drives the minimum interest rate which 'savers' will accept. If the farmer knew he could increase his future potential harvest by an extra 4 units a year by 'investing' 20 units this year, then a buyer on credit would have to offer to pay at least 4 units a year in interest before the farmer will consider 'saving' rather than 'investing', and so on.

(The problem is that savers cannot just invest in productive assets, because those are all monopolised by limited companies, so before savers can get a share of the profit from the underlying productive investment, they have to pay a ransom payment to an existing shareholder, which pushes up returns to existing shareholders at the expense of future shareholders and the economy in general, separate topic).

As we observed last week, the interest rate which people are willing to pay depends largely on how much they need to borrow, how quickly they need to spend the money, and how soon they hope to pay it back.

That all makes sense so far and the arrangement is to our overall benefit. Where it goes crazy is once interest rates drop below that rate of approx. 8%:

Broadly speaking, the descent into insanity goes in the following three stages, but the general rule is still that the further into the future the borrower's hoped for extra consumption will be, the lower the interest rate he is willing to pay:

1. If you can borrow money for less than 8%, then the lower interest rate just goes into higher land prices (rather than bricks and mortar), i.e. if you can rent a house for £6,400 (net of landlord's costs) and borrow at less than 8% to buy the building, you are happy to do so. But if you can borrow at (say) 5%, it is worthwhile paying/borrowing £128,000 (it still only costs you £6,400 a year), and that extra £48,000 just goes into the land monopoly black hole.

2. If people expect nominal land prices to continue to rise at a long term rate of 5% or more a year, then if you can borrow at less than 5%, it makes sense (on an individual level) to buy land for the sake of it (money into the LMBH), whether you need it or not, because you can realise a gain (more money into the LMBH) in future which will pay off the interest for you.

3. Because bankers seem to get paid according to the volume of loans they can make, rather than the bank's actual profit margin, bankers try to "grab market share" by lending out at very low rates (Bradford & Bingley, Northern Rock etc), the bank itself (the bankers' employers) make losses on such loans of course. It is no coincidence that the cumulative losses of all UK banks over the credit bubble decade were approx. equal to the total bankers' bonuses paid in those years.

None of these three stages are of any remote benefit to society in general or the productive economy as a whole, and are in fact incredibly damaging. They do not help people spread consumption over their lifetimes by borrowing/saving; they do not lead to any investment in productive capacity.

Bricks and mortar are of course productive capital if they are in the right place, but the land is not, and even it were, pushing up the price does not increase the amount available - and a society which believes that house price rises are A Good Thing tends to be a NIMBY society, so we end up with less productive capital (housing, factories and so on).

Why UK and other governments think it is a good idea to constantly nudge the economy towards these final three stages, and why so many people go along with this nonsense is a mystery to me.

Affordable housing in the British countryside

There's a great article on the BBC website.

This is easily fixed, of course, we need to liberalise planning laws (the carrot) and impose Land Value Tax on all land (the stick)*.

Surprisingly, the NIMBY point of view is expressed quite clearly (rather than being disguised as 'enviromental concerns'):

I sat and had tea with a group of locals who are dead against the proposed "affordable" development. For them there should be no "right" to live anywhere. They reminded me that their own, mega-expensive, houses were bought at the full market price, and that any development which reduces the value of their property is simply not fair.

Matthew Taylor MP (Lib Dem, Truro & St Austell), you rock!

* Dearieme, if you don't like the sound of this, you would still have the option of clubbing together with your neighbours, buying up the field at the bottom of your gardens and entering into a restrictive covenant never to build on it, so it becomes worthless and at least there's no LVT to pay on the field. You'd be mad to do so, as you'd suffer a huge capital loss on the deal, but hey, that's exactly what you are asking the farmer to do.

Something else to worry about...

From the BBC:

A charity is calling for a nationwide campaign to protect the UK's mental health after a survey suggested people were growing ever more anxious. The poll of 2,000 adults for the Mental Health Foundation found 77% found the world more frightening than in 1999.

The charity described a "culture of fear" in which the media and politicians fuelled a sense of unease... While the economic climate was seen as part of the reason for the increased levels of fear, the charity said it believed there were other factors at play.

The report said "worst-case-scenario language" sometimes used by politicians, pressure groups, businesses and public bodies around issues such as knife-crime, MRSA, bird-flu and terrorism can have a detrimental effect on people's wellbeing.

Hats off to them for pointing out that politicians are deliberately stoking a climate of fear, a prerequisite of any authoritarian state, but just how flawed was their survey? It's always today's problems that you worry about most; you probably can't remember what you were worrying about ten years ago, and ten years ago you probably couldn't remember what you were worrying about ten years before that (OK, end of the Cold War, that was a biggie). So if they did such a survey every ten years, it would show that we get more and more worried as time goes on (which seems unlikely - by analogy, if Brand X washing powder is constantly advertised as having a 'New improved formula', how crap must it have been decades ago?).
---------------------------------------------
If anything, it's the glib use of the word charity that sets alarm bells ringing. If you download the accounts from the MHF's about us page, they only 'fess up to government grants of £372,000 out of total income of £4,274,000 (page 26), so you have to skip back to the notes to find out what their real purpose is. Ah, here we go, top of page 11...

Effective campaigning

As a founding member of the 'We Need to Talk' coalition of mental health charities we have campaigned hard for improved access to psychological therapies. Our combined efforts bore fruit on World Mental Health day in October 2007, when the Government announced a £170m investment in its Improving Access to Psychological Therapies programme. We were also a partner in the first annual Psychological Therapies in the NHS conference in December 2007...

Let's pick up the trail with We Need To Talk, "a collaboration between five mental health organisations: Mental Health Foundation, Mind, Rethink, The Sainsbury Centre for Mental Health, Young Minds....

Mind received £2,888,000 (page 19) from the Big Lottery Fund, the Department of Health, the Financial Services Authority and the Welsh Assembly (bottom of page 21), sprinkled among the Trusts and Foundations are other government bodies such as Comic Relief, the Lloyds TSB Foundation, and the Northern Rock Foundation (pages 20 and 21), and under Companies and organisations we find the Guardian Newspaper, the Mirror Group, the Royal Bank Of Scotland, and the University of Plymouth (page 21).

Rethink received £32,244,000 (95% of their income) from 'service level agreements' (page 10), which is yet another euphemism for 'money from the government', of course.

Sainbury's seem to be almost part of the government, as I have mentioned before (point 2 here)

Young Minds received £1,283,000 (75% of their income) from 'Grants for projects and services' and 'Contracts for services' (page 19), the bulk of which was from the usual suspects - the Department for Children, Schools and Families, the Department of Health, the Camelot Foundation, the Big Lottery Fund, Rethink (!) and the Lloyds TSB Foundation (page 22).

Just sayin', is all.

My 2013 Xmas playlist (sorted alphabetically by song)

In MP3 format, they'll easily all fit on one CD.

1. All I want for Christmas - Samantha Mumba (2000)
2. All I Want For Christmas Is My Two Front Teeth - Spike Jones (1948)
3. All I Want For Christmas Is You - Mariah Carey (1994)
4. Auld lang syne - Chas And Dave (1982)
5. Blue Christmas - Elvis Presley (1964)
6. Christmas Alphabet - Dickie Valentine (1955)
7. Christmas Blues - Bob Dylan (2009)
8. Christmas bop - T Rex (1975)
9. Christmas Cards - Petula Clark (1954)
10. Christmas Day - Dido (2000)
11. Christmas In New Orleans - Louis Armstrong (1955)
12. Christmas Island - Bob Dylan (2009)
13. Christmas Song - Bob Dylan (2009)
14. Christmas Time - Backstreet Boys (1996)
15. Christmas Time - Darkness (2003)
16. Christmas Tree ft Space Cowboy - Lady Gaga (2008)
17. Christmas wrapping - Waitresses (1982)
18. Christy Christmas - Brenda Lee (1956)
19. Do doo ron ron - Crystals (1963)
20. Do they know it's Christmas? - Band Aid (1984)
21. Do You Hear What I Hear? - Bob Dylan (2009)
22. Driving home for Christmas - Chris Rea (1987)
23. Early Christmas Morning - Cyndi Lauper (1996)
24. Eight Days Of Christmas - Destiny's Child (2001)
25. Fairy On The Christmas Tree - Gracie Fields (1955)
26. Fairytale in New York - Pogues and Kirsty McColl (1987)
27. First Noel, The - Bob Dylan (2009)
28. Flashing Santa, The - M J Hibbett (2012)
29. Frosty The Snowman - Jan & Dean (1962)
30. Frosty the snowman - Gene Autry (1947)
31. Ghostbusters - Ray Parker Jr (1984)
32. Give us a kiss - M J Hibbett (2001)
33. Happy New Year - ABBA (1980)
34. Happy Xmas (war is over) - John Lennon (1971)
35. Hark The Herald Angels Sing - Bob Dylan (2009)
36. Have Yourself A Merry Little Christmas - Bob Dylan (2009)
37. Have Yourself A Merry Little Christmas - Frank Sinatra (1957)
38. Here comes Santa Claus - Bing Crosby (1950)
39. Here comes Santa Claus - Bob Dylan (2009)
40. Here comes Santa Claus - Bobby Helms (1959)
41. Hey Jude - Beatles (1968)
42. Hooray! Hooray! It's a holi-holiday - Boney M (1979)
43. I believe in Father Christmas - Greg Lake (1975)
44. I Got You What You Want For Christmas - M J Hibbett (2009)
45. I Saw Mommy Kissing Santa Claus - Bobby Sherman (1952)
46. I wish it could be Christmas every day - Girls Aloud (2005)
47. I wish it could be Christmas every day - Wizzard (1973)
48. I'll Be Home For Christmas - Bob Dylan (2009)
49. I'll Be Home For Christmas - Elvis Presley (1957)
50. I'm Gonna Be Warm This Winter - Connie Francis (1961)
51. I'm Gonna Lasso Santa Claus - Brenda Lee (1956)
52. It's Beginning To Look A Lot Like Christmas - Perry Como (1951)
53. It's Christmas - Jimmy Wakely (1960)
54. It's Christmas Time - Status Quo (2006)
55. It's The Most Wonderful Time Of The Year - Andy Williams (1963)
56. Jingle bell rock - Bobby Sherman (1950)
57. Jingle bellls - Crazy Frog (2005)
58. Jingle bellls - Frank Sinatra (1957)
59. Last Christmas - Crazy Frog (2005)
60. Last Christmas - Wham! (1984)
61. Let it snow, let it snow, let it snow - Dean Martin (1960)
62. Let it snow, let it snow, let it snow - Frank Sinatra (1950)
63. Let it snow, let it snow, let it snow - Lena Horne (1966)
64. Little drummer boy ft David Bowie - Bing Crosby (1977)
65. Lonely Pup (In A Christmas Shop) - Adam Faith (1960)
66. Lonely this Christmas - Mud (1974)
67. Mama's Twistin' With Santa Claus - Mark Anthony (1962)
68. Mary's boy child - Boney M (1978)
69. Mary's boy child - Cliff Richard (2003)
70. Merry Christmas Baby - Chuck Berry (1958)
71. Merry Christmas Baby - Elvis Presley (1971)
72. Merry Christmas everyone - Shakin' Stevens (1985)
73. Merry Xmas everybody - Slade (1973)
74. Millennium prayer - Cliff Richard (1999)
75. Mistletoe and wine - Cliff Richard (1988)
76. Mistress for Christmas - AC/DC (1990)
77. Moshi Twistmas - Moshi Monsters (2012)
78. Mrs Santa Claus - Nat King Cole (1953)
79. Mull of Kintyre - Wings (1977)
80. Must Be Santa - Bob Dylan (2009)
81. Must Be Santa - Tommy Steele (1960)
82. My Only Wish (This Year) - Britney Spears (2000)
83. Never had a dream come true - S Club 7 (2000)
84. Night Before Christmas - Gene Autry & Rosemary Clooney (1945)
85. O' Come All Ye Faithful (Adeste Fideles) - Bob Dylan (2009)
86. O' Little Town Of Bethlehem - Bob Dylan (2009)
87. Once Upon a Christmas Song - Geraldine McQueen (2008)
88. Papa Noel - Brenda Lee (1958)
89. Proper Crimbo - Bo'Selecta (2003)
90. Rock And Roll Christmas - Cameos (1957)
91. Rockin' around the Christmas tree - Brenda Lee (1958)
92. Rockin' around the Christmas tree - Jets (1963)
93. Rockin' around the Christmas tree - Mel Smith & Kim Wilde (1987)
94. Rootin' Tootin' Santa Claus - Tennessee Ernie Ford (1951)
95. Rudolph The Red Nosed Reindeer - Gene Autry (1949)
96. Run Rudolph run - Keith Richards (1978)
97. Run Rudolph run - Outlaws (1961)
98. Santa baby - Eartha Kitt (1954)
99. Santa baby - Pussycat Dolls (2005)
100. Santa Bring My Baby Back To Me - Elvis Presley (1957)
101. Santa Claus Got Stuck In My Chimney - Ella Fitzgerald (1950)
102. Santa Claus is back in town - Billy Idol (2006)
103. Santa Claus is back in town - Elvis Presley (1957)
104. Santa Claus is coming to town - Bruce Springsteen (1978)
105. Santa Claus is coming to town - Frank Sinatra (1950)
106. Santa Claus Meets The Purple People Eater - Sheb Wooley (1958)
107. Santa Won't Be Blue This Christmas - Jimmy Charles (1962)
108. Santa's Got A Coupe De Ville - Four Imperials (1962)
109. Saviour's Day - Cliff Richard (2003)
110. Silver bells - Bob Dylan (2009)
111. Silver bells - Perry Como (1968)
112. Silver bells - Supremes (1965)
113. Sleigh Bell Rock - Three Aces & A Joker (1960)
114. Sleigh ride - Andy Williams (1959)
115. Sleigh ride - Ella Fitzgerald (1960)
116. Somewhere Only We Know - Lily Allen (2013)
117. Spaceman came travelling - Chris de Burgh (1975)
118. Stay another day - East 17 (1994)
119. Step Into Christmas - Elton John (1981)
120. Stop the cavalry - Jona Lewie (1980)
121. Thank Goodness For Christmas - M J Hibbett (2011)
122. There Is No Christmas Like A Home Christmas - Perry Como (1968)
123. They Shined Up Rudolph's Nose - Johnny Horton (1959)
124. Warm This Winter - Gabriella Cilmi (2008)
125. What if - Kate Winslet (2001)
126. When A Child Is Born - Cliff Richard (2002)
127. White Christmas - Bing Crosby (1947)
128. White Christmas - Louis Armstrong (1950)
129. Winter wonderland - Bob Dylan (2009)
130. Winter wonderland - Perry Como (1950)
131. Winter wonderland - Rosemary Clooney (1953)
132. Wombling Merry Christmas - Wombles (1974)
133. Wonderful Christmastime - Paul McCartney (1979)
134. Yellin' at the Xmas tree - Billy Idol (2005)
135. 29th Day Of December - M J Hibbett (2010)
136. 2000 Miles - Pretenders (1984)

"Christian preachers face arrest in Birmingham"

From today's Telegraph*:

The preachers, both ministers in Birmingham, were handing out leaflets on Alum Rock Road in February when they started talking to four Asian youths. A police community support officer (PCSO) interrupted the conversation and began questioning the ministers about their beliefs.... "He said we were in a Muslim area and were not allowed to spread our Christian message. He said we were committing a hate crime by telling the youths to leave Islam and said that he was going to take us to the police station." ... The ministers claim he also advised them not to return to the area. As he walked away, the PCSO said: "You have been warned. If you come back here and get beaten up, well you have been warned".

And you wonder why people vote BNP?

* Via Christina Speight
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The only bit of humour I can wring from this is the fact that the URL of the article says "Muslin" and not "Muslim".
--------------------------
As an aside, I (and the Remittance Man) am sick and tired of the bansturbators putting out statistics saying that X increases the chance of Y happening by Z per cent, where X is usually something enjoyable like drinking, smoking, or, Heaven forbid, smoking cannabis; Y is something nasty like cancer or mental illness and Z is a made up figure.

The missing figure is always "What is the chance of Y happening if I don't do X?" It is usually very, very small. For example, if you are an English woman married to an English husband, the likelihood that he will murder you in the next year is, let's say, one-in-a-million (do twenty English women get murdered by their husbands each year? Even fewer than that?).

However, the papers regularly report stories about Asian - and especially Muslim - women being murdered by their husbands, despite Asians are in fact a small minority in this country. Thus, if I could be bothered to track down the statistics, I could probably claim "Pakistani men are ten times more likely to murder their wives than English men". Would I get into trouble for saying so? Probably.

Does not compute

From The Daily Mail:

After five years in training, Mrs Cobell had just been crowned the slowest person to cross the Channel under her own steam. In a remarkable marathon of grit and determination, she had struggled valiantly through changing tides that swept her first one way, then the other. It turned the 21-mile crossing into a gruelling, 65-mile slog... soon after leaving Dover a strong tide dragged her south instead of east. Then it took her north... south again... northeast... south-west... and, eventually, subsided to allow her to carry on eastwards.

The article is accompanied by a chart plotting her 65-mile swim, and the captions suggest that she actually swam 65 miles:


Nonsense.

Imagine you are trying to cross a particular long and wide escalator from the left handrail to the right handrail (representing the English and French coasts). Does it make much difference to you whether the escalator is moving up, is moving down, or is stationary (representing the tides, which move up and down the English Channel), if all you care about is getting from the left to the right?

Nope.

Furthermore, if she really had swum 65 miles in 28 hours, then that would be an absolutely heroic 2.3 miles per hour average speed. For comparison, an ironman triathlon event starts off with a brisk 2.4 mile swim, for which they are allowed a maximum of 2.2 hours, so even at this stupendous level of fitness they are 'only' expected to be able to swim at 1.1 miles per hour (and Mrs Cobell managed at least 0.75 miles an hour on average, probably a bit more, so she must be pretty damned good).

But never mind all that... Jackie Cobell, you rock!

Dallas: My top ten inconsistencies from Episode One

Splendid first episode.

I've chosen my top ten inconsistencies, I'm sure there are dozens more:

1. Surely everybody knows that methane is CH4, i.e. emits as much CO2 when you burn it as oil does, so it's hardly some super duper save the world type 'alternative energy'.

2. Why would you need to drill for the stuff, Wiki and other sources say that it's buried under the sediment on the ocean floor, isn't that sort of mud and loose rock

3. Is it really possible that you can trigger an earthquake by doing a bit of drilling or scraping up sediment? You can just about trigger an earthquake by detonating a nuclear bomb underground, but not from a bit of test drilling. I'm not sure I believe that story about fracking causing an earthquake near Blackpool.

4. Even if you can trigger an earthquake by drilling, surely that'd only happen in an earthquake zone along a fault line. Surely there's plenty of ocean floor which is safely well away from fault lines where it would be perfectly safe.

5. Did John Ross seriously think he could get away with drilling for oil in a far flung corner of his uncle's ranch?

6. Isn't Bobby the biggest hypocrite of all, refusing his nephew permission to drill for oil on a far flung corner of his ranch, seeing as he made his millions in the oil business?

7. When Bobby announced he was going to sell Southfork, why didn't John Ross congratulate him for his wise decision and then buy up the ranch behind Bobby's back. Admittedly, JR had hatched exactly this blindingly obvious plan, but how thick is John Ross?

8. When Elena told Christopher about the email (which John Ross sent her, purporting to be Christopher and dumping her just before she and Christopher were to get married) why didn't he deny it a bit more strenuously?

9. And seeing as he was about to snog her, five minutes before his wedding to the fat boring American chick, wouldn't it be traditional for his actual fiancée to walk in and see them and then run away crying? I mean, if you're going to do hackneyed and predictable plot twists, why not that one? I feel a bit cheated to be honest.

10. If Bobby is so caring and considerate, would he not tell his wife that he was dying of cancer? And what happened to little Pam? Did she die in the original series or something? Get shot in the shower, maybe?

11. How come JR snapped out of his clinical depression so fast? Or was he faking it the whole time, if so why? How did he fool the nursing staff into thinking he was seriously mentally ill? Did he actually take his "med's" or chuck them down the toilet?

If they keep this up, I'm going to have to start cross-referencing all these little contradictions to try and keep track. FFS, they've had twenty years to come up with a plausible script and this is what we get?

"Under fire councillor faces sack"

I made clear to anyone who read the paper during my election that I would work to ensure smaller government. To achieve smaller government, government itself must stop doing things. In my literature I said I believed in low taxes - to achieve that, government must stop doing things for people. I was asked several times throughout the campaign the usual question: "What will you do for me!" ... to which I replied, "I will work to ensure that you can do as much for yourself as possible ...*"

Gavin Webb, Lib Dem though you might be**, you rock!

* From the comments below the article.

** Isn't he in the wrong party?

H/t Harry Hutton

The Roman Warm Period

It is widely accepted by historians that there was a Roman Warm Period of a few centuries, straddling either side of AD 1. When it started to cool down, there were famines, unrest and wars for scarce (food) resources and the western Roman Empire in western Europe collapsed. The eastern Roman Empire aka. Byzantine Empire, being further east and south and a bit warmer struggled on for a few more centuries, but hey.

Then came the Dark Ages, when it was cooler and history is murkier, people were too busy fighting with each other or simply struggling to survive to leave much recorded history. Then was the Mediæval Warm Period, a time of exploration and expansion, formation of larger states (Vikings got as far as Greenland). The wheels fell off again in about AD 1300 when things cooled down (very quickly) and we had the Little Ice Age. Rinse and repeat, famines, unrest, wars etc, esp. in the 1600s.

The Little Ice Age ended in the mid-to-late 1800s, since when we have had the Modern Warm Period. There have been few weather-related famines, and certainly no global ones, for the past fifty years or more, apart from the fairly local ones caused by wars and/or incompetent or downright malevolent governments (which in turn lead to wars...). It's having plentiful food that we really care about. You can survive the cold if you are well-fed; warmth is no good to you if you are starving.

That's what history teaches us. No links because I assume that this is all widely accepted. Sorry for the Euro-centric view, but that's the history I learned. Chinese and Asian history, which is as well recorded as European history, seems to show a similar timeline of rises and falls of civilisations.

The Alarmists reveal themselves to be the true Climate Deniers and swear blind that temperatures remained unchanged for thousands of years until shooting up over past fifty or a hundred years (the Hockey Stick graph), with past temperatures being adjusted down and current temperatures adjusted up.

What is the point of this brief canter through history? The point is that the Alarmists now have the cheek, temerity and gall to use clear evidence of the Roman Warm Period as evidence that... there is sudden and unprecedented climate change:

From Reuters:

ZANFLEURON PATH, Switzerland, Sept 11 (Reuters) - A rocky Alpine path between two glaciers in Switzerland is emerging for what the local ski resort says is the first time in at least 2,000 years after the hottest European summer on record.

The ski resort of Glacier 3000 in western Switzerland said this year's ice melt was around three times the 10-year average, meaning bare rock can now be seen between the Scex Rouge and the Zanfleuron glaciers at an altitude of 2,800 metres and the pass will be completely exposed by the end of this month.

In other words, it's about as warm now as it was 'at least' 2,000 years ago. Which is not really Earth-shattering news, if you are prepared to learn from history. Whether the approx. 1,000 year warm/cool cycle since AD 1 is a coincidence or there is an underlying natural pattern, nobody knows. Records don't go much further back than that, although there is some ice-core evidence of a Minoan Warm Period about 1,000 years before the Roman Warm Period.

Greenhouse Effect, what Greenhouse Effect?

It's homework time at Science Academy. Teacher has explained to the class about solar radiation, albedo, Stefan-Boltzmann constant, all that stuff.

Teacher sets a homework: how do you reconcile incoming solar radiation (1,370 W/m2 overhead at the Equator) with the observed average temperature of the hard surface and ocean surface of the planet Earth (288 K or 15C)?

Pupil A

Pupil A makes all manner of short cuts and simplifications and knocks out this calculation on the 'bus on the way into school:

"Solar radiation averaged over surface of Earth in a 24-hour period = 342 W/m2; less light reflected (1 minus albedo 0.3 x 342 W/m2) = 240 W/m2, divide that by the S-B constant; take the fourth root of that = 255 K."

Bugger, thinks Pupil A, I'm out by 33 degrees. Not to worry, too late to re-work it, scribble something about Greenhouse Gases to make up the difference. Job done, hand it in a few seconds before the deadline.

Pupil B

Pupil B takes it a bit more seriously, and splits things up into day and night; cloud cover, land and ocean with their different altitudes and albedos; takes the mid-point of all the variables you can find on the inter-web; finds out about latent heat of evaporation; Googles some weather forecasting sites as a reality check; looks up how quickly air, rock and water cool down at night; and then calculates the weighted average:

a. On the sunlit side, average incoming solar radiation is 684 W/m2.

b. Clouds have an albedo of 0.6; they absorb 684 W/m2 x 40%; divide by S-B constant (5.67 x 10^-8); take the fourth root = 263K.

c. Clouds are at a typical altitude of 4 km above sea-level (average of low-lying fog, proper clouds and con-trails). If their actual temperature is 263 K (-10 C), then their potential temperature is about 289 K; i.e. to be in a neutral equilibrium, the air at sea-level beneath them must be about 4km x 6.5 K/km lapse rate warmer = 289 K.

d. Incoming solar radiation which hits the ocean surface = 684 W/m2; albedo 0.1; so deduct 10% reflected = 616 W/m2; about one-quarter of that doesn't go in to warming, it is 'lost' as Latent Heat of Condensation to reappear elsewhere and higher up (150g water evaporates every hour for each m2 of ocean surface, seems reasonable); [calculate as before] = 299 K.

e. Hard surface is easy, 684 W/m2 less 30% reflected [calculate as before] = 302 K.

f. Pupil B then weights this one-half cloud cover, one-third cloud-free ocean and one-sixth cloud-free land to calculate a weighted average day-time maximum for the whole surface of 294 K.

g. That's just the daytime maximum temperature. It's four in the morning by now, so Pupil B decides that the night time low is about ten or fifteen degrees lower than that based on a joyous experience of partying until dawn and a bitter experience of missing the last 'bus home (and pops head out of window just to check); and calls it 282 K for the night-time low.

h. Pupil B then takes the simple average of 294 K and 282 K = 288 K; heaves a sigh of relief; uploads the file to the school portal; turns off the computer and collapses into bed.

The results?

Pupil A gets an A* grade and a photo in the local newspaper.

Pupil B and Pupil B's parents are called into the Head of Physics' office. Pupil B is painfully aware that all the variables used were mid-points and that there was some reverse-engineering to get the required answer (but if you are asked to reconcile something you can work in either direction, can't you?); sticking your head out of the window is no substitute for proper measurements; and that a proper calculation would have run to several hundred pages; but hey, it was only a first term homework. Maybe a retake or something?

It's far worse. Head of Physics asks the parents why the Hell they are pumping their child full of this Climate Science Denier Bullshit; suggests that Pupil B "might prefer attending a local school which offers vocational qualifications" and shoves the signed-off transfer papers over the desk.

Fun Online Polls: The Clash, R-Patz & K-Stew

How time flies when you are having fun! I've just noticed that this is the 8,000th post on this here 'blog. My thanks to BobE, The Stigler and Lola for contributing to this magnificent total.
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The results in last week's Fun Online Poll were as follows:

Which is your favourite Clash albums?

London Calling - 38%
The Clash (UK version) - 21%
Give 'em Enough Rope - 6%
Sandinista! - 4%
Cut The Crap - 2%
The Clash (US version) - 0%
Cost of Living EP - 0%
Combat Rock - 0%
None of the above - 29%

It was a low turnout for a fairly specialist topic, but thank you everybody who took part. If you are into The Clash, it's difficult to choose just one, but this were a Dessert Island Discs* type scenario where you can only take one Clash album with you, I'd choose "London Calling" as well.

* That's not a typo. Their drummer was called Topping Headon.
------------------------------------------------
To those who prefer the UK version to the US version, in the words of Prisoner Fooble:


Here's the track listing for the UK version:
Janie Jones
Remote Control
I'm So Bored With The U.S.A.
White Riot (the crap mono version)
Hate And War
What's My Name
Deny
London's Burning
Career Opportunities
Cheat
Protex Blue
Police And Thieves
48 Hours
Garageland

Here's the track listing for the US version:
Clash City Rockers
I'm So Bored With The U.S.A.
Remote Control
Complete Control
White Riot (the great stereo version with the guitar solo)
White Man In Hammersmith Palais
London's Burning
I Fought The Law
Janie Jones
Career Opportunities
What's My Name
Hate And War
Police And Thieves
Jail Guitar Doors
Garageland
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And lo, to this week's Fun Online Poll.

Click at random on the widget in the side bar.

"Round the world in a £300 motor"

Nice to see one of my friends in The Sun.

Tessie, Loong, Lewis & Dwight, you rock!

Glad you're back safe and sound and we'll see you on Saturday.

UK Asset Resolution, Northern Rock Asset Management, Bradford & Bingley

Most coverage of UKAR's recent results is terribly superficial and seems to miss the point, for example from the BBC:

Northern Rock Asset Management (NRAM), the so-called "bad bank" that manages Northern Rock's mortgage book, repaid £2bn of the government's loan in 2011.

But the bank still owes £19.7bn, said UK Asset Resolution (UKAR), the firm responsible for running down the bad loans of NRAM and Bradford & Bingley... UKAR as a whole - including both NRAM and Bradford & Bingley - saw profits rise to £1.1bn in 2011, up from £444.1m a year earlier.

Well done to the people at UKAR, but neither the profit nor the government loan repayment are particularly relevant in themselves, when you are looking at banks, always start off by looking at the balance sheet (taken from their 2011 results, pdf):What is striking is the speed at which they are winding down the balance sheet!

They have persuaded borrowers holding £7.5 billion's worth of mortgages to either repay or re-mortgage elsewhere (a few might have been repossessed); they have managed to offload (or realise) £5 billion of "wholesale assets" (which is presumably mortgage backed securities issued by other banks); and they have unwound net £1.7 billion of "derivative financial instruments" (whatever they are).

They used all this surplus cash and the profits of the year to repay £13.4 billion of "wholesale funding" and £2.1 billion of government funding. If it were up to me, I'd repay the government funding first, which would only take three or four years at this rate, and then hand over what's left to the "wholesale funders", but hey.

The profits of £1.4 billion or so are not actually that spectacular:Gross interest income of £2.7 billion on average total assets of over £100 billion means that the average interest rate they charge/earn is about 2.7% which is incredibly low; and the net interest margin of £1.7 billion on average assets of over £100 billion is less than two per cent (which is the historical norm), but only because their average borrowing/funding costs are laughably low at 1%.

Then you knock off £0.3 billion admin/running costs (very good value indeed) and other pluses and minuses to arrive at their pre-tax profit of £1.4 billion.

So the people at UKAR can be quietly pleased with what they have achieved - winding down the balance sheet, which is their main purpose - but maybe they could try and push up their interest rates a bit? Either borrowers will pay up (hooray) or they will re-mortgage cheaper elsewhere (hooray - because this means the balance sheet will shrink all the faster).

If only they'd thought of this sooner!

A couple of the papers mentioned an NAO report, which praised the UK government for having saved money by buying back outstanding debt in Bradford & Bingley and Northern Rock, which is a variation on the general theme of debt-for-equity-swaps. The NAO report summarises as follows:

4.1 Over the course of 2010 Northern Rock (Asset Management) and Bradford & Bingley [after they had been taken over by the UK government] bought back £2.4 billion of their outstanding subordinated debt for £821 million in cash.

4.2 The debt was trading at substantially below its nominal value (i.e. the amount originally advanced by the investors), principally because:

a. It is not known if and when the principal and accumulated interest will eventually be paid. This makes it difficult for investors to value the debt and makes the bonds particularly unattractive to investors who seek a short-term investment.

b. Although the debt continues to accumulate suspended interest into a sum to be paid once the providers had returned all the taxpayer support, the terms of the debt do not allow interest on the interest (it is non-compound). Consequently the value of the debt and its interest falls with inflation and the money value of time.

c. There is still uncertainty regarding possible future government intervention and the potential for the Government to remove its loans, guarantees and assurances.

d. More generally, market risk remains high for the mortgage sector, and in particular there continue to be concerns about the quality of the mortgages in the mortgage providers’ books.

All good stuff, but it's a pity they didn't just do this years ago when the banks first became insolvent (in the sense that their liabilities, including bonds, exceeded the value of their assets).

Think about it:

1. By and large, the market price of the bonds would be the original principal amount minus all the potential losses of the bank (assuming share capital already wiped out).

2. So if somebody comes along and buys all the bonds and takes over the bank, that person doesn't actually lose a penny if he continues to run the bank, because the losses were all borne by the previous owners.

3. That new owner can cheerfully write down the balance sheet value of the bonds to the amount he paid for them, or convert some of the bonds into equity, it doesn't really matter. If you own all the shares and all the bonds in the bank, the total value of your holdings is much the same however you account for them.

4. As it happens, the total losses suffered by even the worst-run UK banks (B&B and NR), mainly on irrecoverable mortgages, were nowhere near as much as the amount of bonds in issue; therefore the bonds/bondholders could absorb the whole loss and the bonds always had some value (a third of their original issue price, in the above case).

5. Conversely, depositors' money was never really at risk (the UK government has always guaranteed deposits up to a certain level, it was just over £30,000 per person at the time), provided of course the government was prepared to take a firm stance and rank depositors ahead of bond holders in order of priority on a liquidation (and it is the government which writes the insolvency laws...)

6. Therefore... the government (or indeed anybody with sufficient billions to play with and the nerve to see it through) could have sorted out NR and B&B without losing a penny, or needing to actually invest any money directly into those banks, possibly even making a profit if they timed things right.

People used to tell me that I was mad to believe that you could sort out banks using debt-for-equity swaps. I think history is proving me right.