Financial Times Watch (11 January 2023)

State Corporate Crime Watch

Today's FT Watch will begin with the watch which focuses on the criminogenic environment that is fostered by the relationship between the state, capital and the law. Today’s section is all about the regulators, thus I call it regulator watch

First up we have an article where members of parliament (MPs) from the United Kingdom are berating the government for not collecting £42bn in owed tax, due to staff cuts made to the revenue collection service based on the assumption that digitisation would cover the gap in personnel, it has not (p.2). I wonder how many of those uncollected tax pounds are from multi-national corporations or the 1% that run said companies.

Next up, staying in the UK, the Bank of England (BOE) berates banks for not doing enough to improve risk management processes, shown to be deficient over the last year’s economic turmoil (p.2). Of course this kind of oversight by the financial community is common, and its of course hypocritical of the BOE to call this out when in reality its (and the other central Banks too,) policy of cheap money then its quick withdrawal allowed it to happen in the first place.

But despite all the evidence that the regulators are not up to the job of regulating highly mobile capital, not all are convinced. One opinion piece in today’s FT, p. 24, gives some clues to the UK government's thinking on the topic. Norman Blackwell, a member of the House Lords industry and regulators committee and ex-banker, critiques UK regulators, not for badly needed post crisis rules, but the growing bureaucracy that has emerged around them.

He notes that a growing inexperienced civil service has emerged that follows the rules too strictly and does not know how to be flexible. One example is of the appointing of directors. Business’ always do due diligence on new directors, but now they have to wait for a less experienced civil servant to also do it; causing delays and more expense. The focus on individuals for prosecution is also problematic as managers don’t want to take decisions now. Creating more bureaucracy as they seek joint responsibility

I agree that focusing on individuals means we often miss the bigger picture, i.e. capitalism is the problem that creates fraud and corruption, but it is more complex situation. For example laws protecting managers and their superiors from the decisions they make is a serious issue that creates many harms in society (link).

He also complains about the expense of having to put in place structures to protect people’s saving in banks from the financial arms arms of the same banks. To which I would note the grass hypocrisy and short-memory of a man whose peers, bankers and regulators, actions in the run-up to 2008 crisis precipitated these new structures.

Nevertheless, he posits that there needs to be more rebalancing to capital. He notes the regulators new secondary aim to promote financial competitiveness in the UK as a start, but more needs to be done to let city of London be more competitive. And with this final statement he gets near to the truth again. He wants financial markets unleashed again, just like they were in the “competitive” 2000s.

US War Watch

Now we quickly switch to the US China War Watch. Today’s take is on the military side of things, making a change from the semi-conductor chip war waged by the US over the last year. And worryingly for a world that appears to be going back to the great power conflicts of the early 20^th century, the US and Japan have announced a new defence pact, this time in space. Another sign that the Japanese constitution’s non-aggression articles are slowly being undermined by a Japanese political class in lock-step with US foreign policy.

Recession Watch

Moving on to today’s final section, Recession Watch. In this section we will be looking at the FT’s coverage of the economic turmoil unleashed by the worlds central banks looking to tame high inflation and a tight labour market with high interest rates.

First up it’s the World Bank’s (WB) turn to play Nostradamus, as the international institution declares that the global economy is on the brink of recession (p. 4). They state that interest rates going from 5%, currently, to 6% would reduce growth to 0.6% in 2023, a technical recession.

A host of articles in the paper today effecting jobs reinforce the WB view. First, lawyers in the US are not making so much at the moment as they have cut billable hours due to the fall in deal making, another preoccupation in the pages of the FT. Cryptocurrency exchange Coinbase cuts a fifth of its staff, but as crypto is mess that ain’t a surprise. What is, is that they are still operating. While, following recent saving by banks and the tech sector, big Wall St player Goldman Sachs fires more staff and Amazon is making cuts, this time in the UK.

And to finish we have one unhappy chap: UK investment manager Terry Smith whose fund, primarily tech and consumer stables based , declined 14% in 2022. He blames the central banks whose interest rate rises put a stop to all the cheap credit that allowed him to register returns of 478% of his clients since 2010. He also warns that if they go too far with the increases they will create a recession. A popular consensus in the FT these days: For example Claire Jones’ column from January 7 (p.18) notes this and posits a reason why: “[t]he danger is that the US labour market continues to run hot and Fed does not ease up”. Numerous other articles over the last few weeks have also noted the Fed and the ECB’s focus on disciplining labour with the rate rises. Sure the risk of recession is hurting, just look at the examples above, but disciplining labour has its benefits for other sectors. For one Big US banks are loving it as they announce record profits in 2022, stealing the savings peeps made during the pandemic. But once they take all that they may be in for some problems.

Nevertheless, there may be some good news for the banks at the expense of another group who are as problematic to capitalist growth as those pesky workers, Global South nations.

Martin Wolf p23 highlights the problem in his column today. He is worried about the growing debt crisis in emerging and developing market countries. In many ways it looks similar to what happened in the 1970s & 1980s. That period is marked by a lost decade of growth in Latin America. A crisis induced by borrowing cheap capital from US banks that then forced Latin American nations into default when the Fed pulled the carpet out from them with interest rates hikes from 1979

To stand his claim, Wolf notes WB stats on food insecurity, it has almost doubled since 2019 in low income nation, before pointing out that when we add in all the other issues from Covid it is not hard to forecast another lost decade for the Global South.

He signs off with the suggestion that instead of fighting with China, the West should focus on helping the Global South (GS) before those issues spread to the developed countries.

A recommendation I fully agree with, but I think that the Western policy planners and Central Banks are probably leaning the other way at the moment. Too focused on protecting the all powerful financial sectors that rule the global economy. And you can bet that the banks and financial capital in general are rubbing their hands with glee. Primarily, because while the interest rate rise policy may be causing some problems, but if it can discipline Western labour and GS demands for more equal development $ it will be good for them. That of course is not guaranteed, the continuing labour strife in the UK contesting to that.

Anyway that is enough from me today, I will be back soon with some more analysis on global developments.