My indulgences

Reading The Daily Mail is probably my least healthy indulgence. I know it's bad for me, but just can't help it. Like browsing at a cream bun buffet, the sugar rush of some of the stories (e.g. perjuring student immigrant goes to jail but can't be deported!) is near-irresistable, and feels shamefully good while you're doing it, but it soon turns into a sickly stickiness and you just know there's a sugar crash coming further down the line.

Contrast that to Comment is Free in the Guardian, and in particular the musings of one of my favourite columnists Polly (wanna cracker) which has the opposite problem; you read it because you feel it's good for you to do so, like a slice of Ryvita, but it leaves a scratchy dry feeling in the back of one's throat and feels deeply unsatisfying.

Chief CiF irritant today is Pete Sommer, an academic at the LSE who believes that the UN-backed Internet Governance Forum is going to be the go-to place for tackling cybercrime. I hate to break it to you, Pete, you're well-meaning but the unfortunate reality is that the government-backed Chinese hackers and hardcore Russian spam artists who are currently leading the cybercrime wave really don't give a monkey's left testicle for the IGF.

In particular, I liked his points about the London Conference on Cyberspace:

It could have aimed for something more immediately achievable – perhaps an agreement on identifying medical and humanitarian resources on the internet and protecting them. Or that the essential fabric of the internet, its cables, exchanges and technical protocols, should never be attacked.
when it's painfully obvious that if the Chinese military saw a tactical or strategic advantage in e.g. cutting the undersea fibre into Taiwan, they'd have minisubs and boltcutters down on the seabed in the blink of an eye; the UN be damned. I'm also curious what he expects the UN to do about the Iranian-backed Diginotar hack that compromised the SSL connections to major sites like Gmail for Iranian citizens. You'll note that the only effective action here in reality was taken by the major browser vendors, removing Diginotar's CA cert from the browser. I don't see the UN requesting that traffic engineer Ahmadinejad account for his government's actions here.


Why studying maths is important

A strong contender for the biggest arithmetic error of recent times has to be an unknown accountant at Hypo Real Estate who calculated HRE's debt at E216.5bn when it was "only" E161bn. Germany improves its debt-to-GDP ratio by a whole 2.6% (which is the really bad news, if you think about it).

Johann Schmidt, or whatever your name is, we salute you.


A mistake, Nicko?

Nicko Sarkozy says that letting Greece into the Eurozone was "a mistake", putting in a strong bid for the "No shit, Sherlock" award of 2011. But let us take this and follow it along. So in 2001 Greece wasn't ready to migrate to the Euro. Now, ten years later, Greece has turned into an economic basket case with massive civil unrest, a tanking economy and horrific debt. But given all this, Nicko still thinks that keeping Greece in the Eurozone is the right plan?

I don't know what Sarkozy is smoking, but I bet it has a street value over $500/gramme.


ECB - capital requirements are for wimps

Alexander Gloy of Lighthouse Investment Management has done some digging and unearthed answers to two questions which have been bothering me: who is holding the Greek debt, and what does the ECB balance sheet look like?. It seems that the ECB is holding E55bn of Greek debt (16% of the total), Greek and Cypriot entities hold E100bn or so, and the IMF a fairly small E17.9bn. By Alex's math, a 50% haircut on Greek debt would conservatively wipe out E7bn of ECB capital even given generous assumptions about its purchase price. This is going to be a problem, because the ECB balance sheet shows E5.3bn in capital at the end of 2010, and I'm guessing it hasn't made too much money since then.

Alex also notes a balance sheet total of E165bn for the ECB, making it 30x leveraged. So for anyone wondering how the ECB could afford to buy up all the recent sovereign debt issuances (we're looking at you, Italy) there's your answer - it couldn't, but did anyway.

Supposing you were an Oriental power looking to make a relatively cheap investment that results in substantial leverage over European governments; where might you start?

[Hat tip: Zero Hedge which is still on the interesting side of crazy].


And the run has begin

While I normally treat the reports of the Daily Mail with a pinch of salt, the flight of Euros from Greece was only a matter of time. Whether justified or not in their fear of losing large chunks of their savings as banks go under, Greek taxes go up or (worst of all) Greece redenominates Greek Euros to devalued drachmae, the Greeks with significant Euro savings are putting it somewhere safer. Much, much safer. Note that they're not even going to Germany.

10b Euro is still relatively small in the context of personal savings, but it's only going one way. When (and it's when, not if) Greece imposes capital controls and searches outgoing visitors / citizens for Euros, that's the moment that Europe goes "foom".

I'd be interested to know, by the way, what fraction of the savings going into Swiss banks are being exchanged for CHF. I wouldn't guess more than 10%, but if that's a lowball figure then I'd be a sight more worried.


Accountability - are you really sure?

Seems like that nice Mr. Barroso wants to make individual criminal responsibility for financial players recognised in European law. I think that this is a fantastic idea, but suspect that Barroso has not fully thought this through.

I'd start off with anyone involved in accepting Greece's national accounts for the purpose of approving their entry to the Euro. I'd add in the French, German, Italian and Spanish governments for repeated and aggravated crimes of kicking-the-can-down-the-road, blaming-the-messenger and failure-to-do-basic-arithmetic. Olli Rehn gets a special mention here. Within the UK I'd happily indict Adam Applegarth of Northern Rock and Andy Hornby of HBOS in addition to the infamous Fred the Shred; but let's not forget the senior staff members of the FSA who did such a sterling job in supervising these institutions.

Any more suggestions?


Defining diversity - tips for employers

It is reported to me that a number of major employers seem confused about what "diversity" is. So, in a spirit of helpfulness, here are my lists of what "diversity" comprises in successful firms - and then, a list for not-so-successful firms. (Wall Street and Canary Wharf banks, I'm looking at you.)

Diversity is:

  • preventing discrimination by members or associates of the firm with respect to gender, race, disability, national origin, sexual preference, marital status, veteran status, or any other characteristic that is inherent to a person;
  • active effort in recruiting to reach non-mainstream groups and provide them with the opportunity to do as well in the recruitment process as members of mainstream groups with the same level of ability; and/or
  • funding and staffing events in the local community designed to support the learning and employment training of children, students or adults who would not normally consider working at your firm;

For firms that have been usurped by the HR department's Diversity team, "diversity" is:

  • promotion of staff based on different gender, race, disability etc. over actual ability;
  • requiring all staff to participate in "diversity" events and programmes;
  • active solicitation of plaudits from external organisations promoting positive discrimination of their interest group;
  • tolerating staff self-aggrandisement based on gender, race, disability etc.;
  • active or passive punishment of staff who refuse to participate in diversity events and programmes; and/or
  • appointing diversity "champions" whose job is to propagate and perpetuate the diversity agenda rather than, say, bring income to the firm.

Also look out for employers which decide that groups can be represented by networks or lists with a ridiculously arbitrary label. So employees of Jamaican, Moroccan, Somali and Ibo heritage find themselves classified as "black"; Indian, Bangladeshi, Mongolian, Han Chinese and Filipino are "Asian"; Swedish, Faeroese, Manx, Catalan and Cypriot are "white". You can often have fun posing as a candidate with an Irish Indian-Moroccan father and English Austrian-Filipino mother and asking which "diversity network" you should join. If HR think that you are a troublemaker and protest that there are no such people as English Austrian-Filipinas, you can set them straight.


The Streetwise Prof nails it

Streetwise Professor's game-theoretic take on the Euro crisis is one of the best recent descriptions I've read of the real problems underlying the signs we're seeing of Eurozone disintegration.

For me, the money quote:

But the outstanding losses are not distributed equally across countries. This leads to disputes among EU members over how to provide the public support. Those facing bigger losses want to use EU-wide mechanisms that spread the losses to other countries facing smaller losses. The latter want those facing bigger losses to contribute the lion’s share of any public support.
It pays to see the situation not as a team of finance ministers trying to co-ordinate the best overall response to the crisis, but rather as individual national actors trying to optimise the overall response with respect to their countries' own interests - or indeed, in several cases, their personal political ends.

For instance, I view the Slovakian SaS political party's opposition to the EFSF bailout as a perfectly rational national response - Slovakia has no doubt done the math on its current and future exposure and knows it's better off now. Of course, if the Eurozone countries want a "yes" from Slovakia (and they do) they can change the maths by either promising future aid / funding / projects to offset the Slovak projected loss, or take a cheaper option and effectively bribe the key SaS decision makers at a personal level with EuroParl appointments and favours.


IT in banks - a theory

I'm coming to a tentative theory that in the ecosystem of bank-on-bank-on-hedgefund trading (consenting adults, very limited requirements on required disclosure) the majority of bank profits are not made by clever trading, hedging, sub-millisecond HFT trades and so on. Those are just the symptoms. Principally, profits are made over time by simply not screwing up as massively or as frequently as the competition; unplanned network or power outages, bad software pushes, fat fingers without a checking system, misplaced decimals, they all contribute to a steady drain on the bottom line.
If you can engineer a trading system which is designed to be robust, and as long as it's not managed by the all-too-prevalent idiots in banks' IT departments, you're at least half way towards being ahead of the competition. What you actually decide to trade isn't too germane as long as you trade a lot of it around the market price.


Fake Charity - School Food Trust

With thanks to The Devil who popularised the Fake Charity meme, a bit of Sunday afternoon charity accounts digging.

Occasioned by this BBC article on school lunches I had a look at the accounts for the School Food Trust which show that in 2010 they received £15m from the Department for Children, Schools and Families (or whatever they call themselves this week, currently "The Department for Education") and £5m from the Big Lottery Fund, comprising over 98% of their income. You'll note the grand total of £0 raised from voluntary donations. This makes them the epitome of fake charities.

Of the Board, Judy Hargadon trousered a minimum of £95k while her fellow directors managed sums in the £60k-75k range. There were also substantial pension contributions made. Nice work if you can get it. About £2.2m was spent on marketing. Looking at the Board members' interests, I wouldn't be surprised if some of the "grants" being made to regional councils by the "charity" didn't end up being used to purchase services or materials from the Board members' associated companies.

I suppose we can't complain about the Lottery fund pissing away money on whatever it wants, but next time someone tells you that you that "education cuts" are going to hit "the cheeeeldren", ask them how spending £10m on these bottom-feeding scum buckets in Aeron chairs helps education.


Engineers with too much free time

An early entry for this month's "Engineer with too much free time" award is Mr. Plum B's Lego assault rifle. The mind-aching attention to detail and engineering prowess, notably in the slot-in magazine firing mechanism, should cause a conniption fit of admiration from anyone who wears black socks with their sandals. Stand up and take a bow, Mr. B.

[Hat tip: The Register]