The Credit Crisis – What you get when you have Capitalism without Owners?

I’ll finally finish off my reports from the recent TUC Pension Trustee Conference with the key note speaker, David Pitt-Watson. Respected fund manager, author of the best selling “The New Capitalists” and life long member of the Labour movement.

David reminded everyone of the economic might of pension funds – no one may rule the world, but pensions own it. UK pension schemes won 20% of UK shares, while a further 20-25% is owned by foreign pension companies. Pension funds also own big chunks of insurance companies who also hold massive holdings of shares worldwide. Some 10 million Brits are a member of a pension scheme. Petroleum giant BP recently tried to calculate how many people benefit from the payment of their dividends into collective funds. They gave up after counting 280 million people worldwide.

The two major problems in the economy are the credit crisis and rising commodity prices. The problem is as severe as the 1970s but so far the system has managed to hold together better e.g. no mass unemployment.

David noted that “turbo charged capitalism” has made huge amounts of money for a small number of speculators such as investors in hedge funds. He notes that most of this money was made using pension fund investments.

How did the credit crisis come about? In the old days to get a mortgage you needed a 30% deposit for a 70% loan over 25 years. Until post crisis, unregulated mortgage brokers were buying up credit loans and selling to pension funds. They valued it not as how much was owed, but how much you could trade it for. Eventually these dud mortgages came home to roost and the crisis ensued.

However, there is a problem here. We own the banks, we appoint managers and accountants. We knew that credit reference agencies who gave positive assessments of these loans were being paid by the people who packaged the mortgages. How did we allow this to happen?

How much is the huge increase in the price of oil the result of speculation using our money to drive up the price?

How big is the crisis? It is very big. You have had banks with £50 billion of mortgages supported by only £1 billion of equity.

How to address the problem? Better regulation? Yes, you need to worry about short selling but remember the most regulated market in the world is in the US.

A better standing point is accountability. Pensions own the world and trustees should represent members. We want profitable companies to pay for pensions but we don’t want to destroy the planet along the way. Trustees should be defenders of beneficiaries.

David pointed out what pension funds working collectively together have done in the past. Such as allowing the production of cheap drugs in developing countries against the wishes of drug companies. Stopping the production of pig iron in Brazil for the car industry which depended upon indentured labour and the destruction of rainforest for charcoal.

David finished by stressing the need for us to act as owners in a sensible pragmatic and principled way to make the economy run properly.

I felt that David was actually pulling his punches somewhat, to let the message sink in. To use Northern Rock as an example. Yes, the Bank of England has hardly covered itself in glory over its lack of regulation over Northern Rock; however who appointed the risk management committee members of that bank? We did, whether we realised it or not. If as the owners of Northern Rock we failed to appoint the right people to manage on our behalf or failed to employ the right advisers to monitor them then who is to blame?

In my post yesterday I made my anger clear regarding directors (the owners of companies or appointed by them) who are not held responsible even for killing workers.

Taking your ownership responsibilities seriously is key. While at the moment it is actually difficult for pension trustees to act as owners it is not impossible. The biggest hurdle I think is actually improving the self-confidence of my fellow trustees/member representatives to actually act more as owners. It is after all their money and they should challenge, probe and test their managers and advisers constantly. Demand accountability and full transparency. Ask the simple, direct questions that owners should ask of the people they employ to manage their money.

Remember the old adage, if you don’t understand it, don’t buy it.

After all, to further misquote Hartley Shawcross “We are the masters now”.

Firm “fined” £2 over death of worker

This month's SHP reports on the conviction of a company for breaches of safety law which led to an explosion, the death of one worker and seriously injured three others. The Company Aintree based North West Aerosols was fined £2 in Liverpool Crown Court on June 8 2008 (not 1808).

The reason for the "low" fine was that after the accident the company directors put the business into voluntary administration. Despite the fact that the Prosecution reported that the explosion was "both “foreseeable and preventable" and that the Judge said it was “an accident waiting to happen” no action was taken against the former directors responsible for the company. The HSE did investigate and found that there was not enough evidence under existing laws to take action against anyone.

Families Against Corporate Killers (FACK) held a vigil outside the court. FACK campaign for company directors to be given positive legal duties over health & safety and to be held accountable for this.

A director of a company may be sent to prison for fiddling the accounts but not for inadequate health and safety polices which result in people being killed. This is not justice.

Check out the BBC report and video of the explosion (and the fire-ball)

I almost forgot - the firm also had to “pay” another £1 in costs!

Why are Company Personal Pension schemes allowed to have such rubbish governance?

During last week’s TUC Pension Trustee conference, Robert Laslett, Chief Economist, Department for Work and Pensions was responding to questions after the Minister, James Purnell had to leave. I asked him the question “Why is it that company Personal Pensions schemes don’t have decent governance arrangements in the same way as other workplace schemes? If member nominated representatives in Trust pensions are recognised as being so important in making sure that pension funds are run properly than why not the same for other schemes?”

Robert batted back with the factually correct answer that Company Personal Pension schemes are individual contract based schemes belonging to the pension contributors.

Let me now try and “ungeek” this question and explain why I think this is a really important issue and one that will become even more important in the future.

Traditionally, company pension schemes in this country have been set up on a “trustee” basis. In well run schemes trustees are elected from workers and management to supervise the scheme and make sure it is safe, well invested and properly funded. In recent years trustees have been given more powers and responsibilities. This is not only because of rogues such as Robert Maxwell and the collapse of some pension funds when employers have gone bust. But, due to the size of pension funds and their impact of their investments in the economy as a whole, it is vitally important that that their investment decisions and strategies are properly thought out, managed and implemented. For example the Local Government Pension scheme alone is worth over £130 billion nationally, mostly invested in British companies. Check out the Myners Report.

There is also the principle that pension funds are owned by workers, it is their deferred pay. Since they are owners of this capital they need to exercise their responsibilities of ownership. They will want their representatives on the trustee board to make sure that their money is invested in companies that not only give good financial returns but are also properly run. People do not want their money invested in companies that employ child labour, ban trade unions and destroy the environment. Equally they want to make sure that the companies that they invest in do not reward greedy executives for failure, buy or merge with other companies that do not create value and are generally run in the true interests of the owners (pension members) not the senior management or their City advisors.

In recent years for a whole range of reasons (to my regret – but this is a different matter) traditional trust schemes have been in relative decline and most companies today offer so called Contract based Group Personal Pension schemes or stakeholders. Members of such schemes generally invest via payroll in the pension funds of large insurance companies and usually the company also pays into the holding. There are no trustees or member representatives to check on the administration of the scheme and more importantly, to look after what happens to this money once it reaches the insurance companies.

How do workers know that their money is being invested safely, properly and responsibly? There are now hundreds of billions of pounds invested in companies all over the world by these insurance companies. The market is getting bigger every year.

So, if it is a recognised “good thing” (the “unsung heroes” of financial services) that you have member trustees looking after trust based pension investments then why should we not have member representatives looking after contract based pension investments? Why is one “good” and the other “bad”?

The good(ish) news is that afterwards I attended a workshop run by the Pension Regulator. They regulate such schemes (“approved workplace pensions”) and have published a good practice guide on “Management committees” for administration and governance issues for work based contract pension schemes. These committees would involve employers and employees. So far this is voluntary and does not really address ownership issues. But I suppose this is a useful start. We need to change pension law to address this. This is in the interests of pensioners and the economy.

Have a look at Tom P post on “Investor Suffrage” which I think is a possible way forward. I’ll hopefully also post soon on David Pitt-Watson’s thought provoking speech at the conference which is also relevant.

Hopefully, I have explained the things properly and you release that this is a huge issue. If not, then it is my fault for not explaining it adequately. If you do understand then you are well on your way to becoming a Pension Geek!

Happy 60th Birthday NHS

Many, many happy returns also to our NHS on its 60th Birthday.

The National Health Service (NHS)with "free health care for all" officially began on Saturday 5 July 1948.

The UNISON banner is from St Georges Hospital branch, Wandsworth with the picture of South Wales miners son, Aneurin "Nye" Bevan.

Nye was the Labour Party Minister of health with responsibility for the formation of the NHS.

The Last British Revolution – Happy Birthday America

Thanks to Harry’s Place for reminding us all “across the pond” that July 4th should be celebrated in these parts as well!

“Today is the day when the British freed themselves from a despotic monarchy and declared independence.

Unfortunately, they were unable to liberate their homeland of the British Isles, but those Britons willing to stand up to a tyrannical king went on to become “Americans” and created a world superpower, invented the corndog, and gave the world Bob Dylan”.

Tonight, by co-incidence, the Mrs. and I enjoyed a feast of Burgers (venison – low fat), Fries ( Tesco finest oven baked chips) and Baked Beans (Heinz - of course) washed down by loads of cold Beer (okay, okay - actually glasses of Jacobs Creek).

Happy Birthday to all our Revolutionary American Cousins!

The picture above is considered to be the first flag of the United States, the “Grand Union” or “Continental Colours” (properly spelt of course) flag that was in use 1775-1777.

White Riot: The Violent Story of Combat 18

I have just finished this book by Searchlight editor, Nick Lowles. It is now a little out of date but I would recommend the book to those who like to believe that the fascists are only “nationalists” or even “patriots” when their political parties (BNP, NF) are clearly led by life long National Socialists (Nazi).

Combat 18 use to provide the body guards for BNP leaders such as Griffin before they fell out with him. It finally disintegrated after years of violence when they split over money and ended up fighting and even killing each other.

I was astonished to read in this months Searchlight (page 7) that two of the notorious fascists mentioned in the book, “crazed long time Nazi and Satanist David Myatt” converted to an extreme form of Islam, while former BNP member and the nail bomber who killed 3 people in London, David Copeland, “had sought a extreme form of Islam” while in prison.

The article mentioned another former BNP member, Stephen Jones, who is also serving life for murder who has converted to an extreme Islam sect which threatened to have the moderate prison Imam killed.

Interestingly to speculate why they turn to Islamic extremism?

Happy Days! Galloway/SWP Councillors join Labour

I'll post on this further - Hi to Oli, Lutfa and Rania - now that the "ego" and the toy town revolutionaries have rejoined their forgotten brigades, Welcome to the Labour Party!

"Three more councillors switch to Labour in fresh blow to Galloway…
All three remaining ‘Respect Unity Coalition’ councillors on Tower Hamlets Borough Council, who split from George Galloway’s party last year, have today joined the Labour Party.

Councillor OLI RAHMAN, the first councillor to be elected under George Galloway’s ‘Respect’ banner in 2004, Councillor LUTFA BEGUM and Councillor RANIA KHAN will all join the group which runs Tower Hamlets.

Councillor Rahman (St Dunstan’s and Stepney Green) said today:

“I know in my heart that the Respect Party has no future and that the best way I can help achieve lasting improvements for my community is to work as part of the mainstream Labour Party.

“The real choice at the next General Election will be right-wing Conservative representation which would be the worst possible result, or a Labour MP like Jim Fitzpatrick who will continue to stand up and deliver what is needed by the local community.

“It is time to put our differences aside and work together and that’s what I will do.”

Councillor Begum (Limehouse), who works as a Community Practice Nurse said:

“Respect is totally split and incapable of delivering anything positive for the people of Tower Hamlets. I stood for council to help make things better for my local community - particularly to improve health care and to fight for a better deal for women.

“I know that our Prime Minister, Gordon Brown, is working hard to deliver on the issues that concern people in Tower Hamlets. It is clear today that the only party doing that can change things for the better for ordinary people is Gordon Brown’s Labour Party.

“I have been encouraged by the vast majority of local residents in my community to join the Labour Party.”

Councillor Khan (Bromley by Bow) said:

“I became involved to help make a real difference. The best way to achieve that change is by being part of the Labour Party which is rebuilding in Tower Hamlets and going from strength-to-strength.

Labour’s JIM FITZPATRICK, MP for Poplar and Limehouse said today:

“I welcome this boost which reflects hard by Labour’s team both locally at Tower Hamlets Council and nationally at Westminster to be on the side of ordinary people delivering real improvements to their lives.”

Taking the Long View – Effective Pension Trusteeship in Uncertain Times.

Back again to last Friday and to the annual TUC pension’s trustee conference at Congress house. The first speaker was James Purnell, Secretary of State for Work and Pensions (and bad photographer).

James called Pension trustees the “unsung heroes” of financial services. This is something useful which I will store away for the future. He thought that there was a vital role for member nominated representatives to play in helping rebuild confidence in pensions.

Confidence is key to the future success (or otherwise) of Pension Personal Accounts. In the 1980’s and 1990s we had Maxwell, collapse of pension schemes, contribution holidays and the mis-selling of private pension plans. The government now has the “Architecture in Place” to help rebuild confidence. The Pension protection fund (PPF) protects some 11 million pensioners. Together with a strong regulator and compensation for those schemes that failed before the PPF.

James celebrated the 100th anniversary of the Old Age pension. He told the audience though that there use to be a “Character Test” for access to pensions in 1908. He joked that maybe this should be re-introduced for MPs before they could get their pensions! Only 25% of the population reached the age of 70 in 1908, most died in their 40’s. Only 500, 000 people were entitled to a state pension in 1909, now over 11 million. Including probably the first woman who will live in the UK to be 120, who he thought was probably 65 now and would live off her pension for the next 55 years. I think he put this fact in to make people think.

He finished off by pointing out how significant Personal Accounts will be – he estimated there will be up to 9 million extra savers and within a few years £10 billion of extra savings.

Could we be finally, starting the long and tortuous journey to the abolition of poverty for all in old age?

Harry Enfield - Tory Boy

This has been suggested in the comments following the last post. From me - No comment.

How to be a Tory MP

(From conservativehome - hat tip to Col. Roi)

"Last week ConservativeHome published a guide to the decidedly Thatcherite views of the candidates who have been adopted as Conservative candidates for the next General Election. 126 adopted candidates took part in the survey that also asked for advice for all those contemplating following in their footsteps. Below we group the advice they offered - chosen to be representative of the whole:

DON'T LEAVE FIRST BASE WITHOUT YOUR FAMILY'S SUPPORT "The road to being a candidate and MP gobbles up time and money. If your spouse isn't 100% committed you are putting your marriage at risk. Support from partner/ husband/ wife is a first base call." "Be prepared to work very hard without thanks or reward, often without the full support of your association, to miss out on promotion at work and to risk strife at home! That said, it can be very fulfilling and of course if / when you win, it will all seem worth the stress."

DON'T PUT ALL OF YOUR EGGS IN THE 'I WANNA BECOME AN MP' BASKET "Most of the people who started on this search with me have given up or STILL haven't been adopted. For most people the road to becoming an MP isn't just hard and long but unsuccessful." "Get a job and life, and when you have done something real and valuable, then consider standing for office." "Be patient; get on with life outside politics and make a success of it because a political career is highly unreliable; have fun."

IT'S NOT WHAT YOU KNOW, IT'S WHO YOU KNOW "Seriously - do some homework - and be seen in the right places - by elections, various events that the area CCHQ staff are at...and the like...don't bother doing 10,15, 20 years working your way up through the ranks gaining experience." "Lick up to everyone in CCHQ who matters to get on the A list - get the fix in your favour and make sure you're good on the night too." "Hold your nose while youre on your way up. Say nice things to the CCO staff who will lose your CV or put it on the top of the pile. It's nauseating but these people have so much power.Too much power." "I was told by a CCHQ employee that if I applied for the seat they would ensure I got an interview. We'll manage the sift for you. It was a person I'd bought champagne at the last Party Conference. It was the best £35 I ever spent in my time in the party."

PREPARE TO LOSE A LOT OF MONEY "Over the last ten years I've spent at least £100,000 getting to this point and I feel lucky. I will be an MP in the first Conservative government of the 21st century but many others have spent tens of thousands and have got nowhere."
A ConservativeHome survey - published last year - found that the average cost of becoming a Conservative MP was £41,500. 49% of adopted candidates expect their candidacies to cost more than this when they add up direct costs and lost income opportunities. The same survey found that 55% thought that their incomes would drop if they become MPs.

PERSEVERE: THIS IS A MARATHON, NOT A SPRINT "Get a thick skin. Work hard and be prepared for a long, hard and lonely haul." "Develop elephant hide." "Do not give up, keep on keeping on." "It is a marathon not a sprint and you must pace yourself accordingly."

SPEND MONEY ON EXPERT HELP "Don't do this on your own. Hire a coach. Talk to candidates already selected about who to hire." "I got no where until I started getting professional help. Getting selected is partly an art but there's also science to what you say, what you wear, how you prepare. A few thousands spent now on good advice from the likes of Mark Fulbrook will get you selected faster and so save you many thousands more down the road."

DON'T LOSE SIGHT OF WHY YOU GOT INTO ALL OF THIS"Know why you're doing it and be prepared to compromise your career and say goodbye to evenings and weekends."

YOU'RE ON YOUR OWN... "Don't expect the work that needs to be done in most marginal seats to be done by others - expect to have to alter your whole life." "Expect help from nobody but yourself." "Be prepared for very little support from the party, count any support as a blessing." "If you lose you seat then expect to be very, very lonely. No one thanks you." "Be prepared for a fractious and ungrateful local Association. If you get a decent one, you're lucky."

...UNLESS YOU FORM A CIRCLE OF TRUST "The best thing I have is my group of three. Three friends who are part of the party and know the score. They tell me what is going on, they tell me when I am being sensible or paranoid. They tell me if I'm being fair to my family or unfeeling. I rehearsed my selection speeches in front of them."

AND FINALLY... "Never use notes when speaking. You should know what you have to say. If you can't do this then realistically you are probably not going to make it as an MP." "Get the CV filled up with hands-on campaigning wherever's handy for you. For example, don't write a press release about saving a post office: Go and work in one, even in a different constituency, and go to the public meetings. Then you'll be able to show the selection committee, or open primary that, while you acknowledge the party is doing wonders nationally, you will get stuck in locally. It really isn't all about top notch public speaking skills and a conveniently healthy bank balance. It's convincing the selection panel that voters will connect with you, and be prepared to trust you.

That you'll get your hands dirty, however needy and unrealistic constituents may be, that you'll do what you say you will etc. For that reason alone, be realistic about the seats you go for, especially where it's unlikely you'll win. Putting in effort locally is one thing: Travelling miles before you can get started is another. Also, if you have no energy, no personality, no sense of humour, a history of giving up in the face of disappointment or a tendancy to get very angry at every unfairness with which you are visited, look for other ways of having a fulfilling life. A recollection that being a MP is about public service would also help."

(June 30, 2008 at 08:43 in Costs of being a candidate)