Some ideas.

04 Feb 2009

First posted on the original Lobby Group blog by contributor Bobrocket-

Here are a few of my ideas, what do you think.

Change corporate governance rules on executive renumeration so the the shareholders have to vote with only majority of votes cast deciding the issue (ie. don't include the non-voting shares in favour of the board)

Change corporate accountancy rules to dis-allow off balance sheet accounting (I don't actually know what off balance sheet means but it sounds dodgy to me :)

Change corporation tax to be exactly the same as income tax including personal allowance, progressive rate increases etc. (no reduction for small businesses, tax paid in current year, no asset depreciation)

Simplify UK income tax system, all income from whatever source is taxable but raise personal allowances.

Published and open standards of legally required qualification/licensing for professionals to allow free trade of skilled practioners (doctors, dentists, lawyers, scientists, academics etc. ).

Put an end to the practice of using unemployment as a tool to control inflation.

If you don't like any of these, I've got some more.

	comments . . .
04 Feb 2009 rahere	We're about to get clogged here. This ios why we need sub-threading, but anyway, here goes.
04 Feb 2009 rahere	1. Executive pay Obama's right - the market's false and needs a cap. When the representatives of the power players doing the voting are fat cats themselves, it becomes a you-scratch-my-back-I'll-scratch-yours game of trying to decide how much they can pay, not how little. Without any serious downwards pressure, we get the effective cartel abuse we have seen. Only once has Rahere seen a senior executive add in tangible terms more than his pay to the value of the house, and that proportionately to their salary was still not equivalent to the contribution made by the shopfloor. It's all very well adding 2 million to the bottom line, but when you cost 1 million in income and bonuses that's a margin of 100%. Compare that with the troops adding 100000 each for a salary of 20000, a margin of 500%, and you get a sense of value.
04 Feb 2009 rahere	2. Off Balance Sheet The accounts of a company are a form of history, they describe in tangible terms the events since the last time they reported. However, instead of being a bio-novella of human relationships, they report what the managers did with the funds in their care, what they're worth now, and how they got there. That's the profit-and-loss, balance-sheet and cash-flow respectively. As such, therefore, they must take into account all material transactions entered into during the year, subject to some standards as to how to recognise them. However, some agreements are contingent, and a line must be drawn between the real cashflows associated with them and the possible cashflows which may occur in the future - not counting one's chickens, in a word. Rahere ran a synthetic options book of £3bn, covering an exposure of around £200mn, but none of that could be recognised until each option crystallised and had a true assessible valuation, it could be worth something or it could be worth nothing, that is the nature of an option. The costs were recognised as they occurred: the potential profit was deferred as it might disappear in the wind in the way other valuations have of late. That is the nature of an off-balance-sheet account. I will resume later.
05 Feb 2009 rahere	2. Off Balance sheet - continued Having established a rough boundary circumscribing the definition of materiality in accounts, let me just develop a little some of the accounting questions underlying it. The first one is of valuation. In the 1970s, an attempt was made to price everything at current values, and that made a right buggers muddle of accounting - there weren't hours enough in the day to achieve it. We now use a modified version of that, pricing the balance sheet to market where relevant and objective, using historic rates at the moment of crystallisation where not. Now, the model shown above is rather simplistic: the market covers things like options using various models to match exposures to the market, gradually covering or exposing the position as the market moves. This then results in exposed positions as the model's imperfect, and the study of error propagation is something which frankly isn't covered anywhere. This is compounded by certain circumstances where the compound effect of these activities opens positions which aren't matched in reality. Take the case of someone hedging Euros against Yuan. The hedger treats that as Euros to Dollar and Dollar to Yuan. But if the two diverge in different directions, the value of the hedge to the customer may not change much, whereas the loss on one leg is capped and the other shows a big profit which goes straight into the bank's pocket. The same can work in reverse, if the hedger doesn't track every compound effect of the way he manages his portfolio, and it is this which has come home to roost: the models track first-order effects, but lack the probability tree mapping to trace higher-order consequences. It might therefore be more objective, not to disclose the unassessible, but simply to ban it outright. There's a precendent: the London Borough of Hammersmith ruined itself nigh on 20 years ago, hedging against the public purse, which isn't allowed in the public sector. Since then, the State cannot hedge or cover forwards, and the same argument might have to be made in the markets. Risk is risk, the world is as it is, and the insurance markets spreading the risk - which is what the derivatives market should be in theory - have failed in their mission by failing to respect that basic rule of probity. I examined the accounts of one of the players recently in some depth and concluded that they were blatantly lying to their shareholders and the public, stating cover policies which just weren't being applied in practice. In this nstance, not so much once bitten, twice shy, as what exactly is there that we should trust in now?
05 Feb 2009 Wharfgirl	I'm not sure why you want small companies to be taxed at the same rates as large ones. It is hard enough to run a pforitable small business already and small businesses are supposed to be the engine of the economy and the place where new initiatives come from. There ain't that much wrong with business taxation IMHO. More to the point I think a) is it possible to separate investment and retail banking from one another? If it were, then investment banks could be allowed to go down when they fail because retail deposits would not be involved. b) restore the original value of the personal allowance. Ie you were supposed to be able live on it before you paid any tax. That would mean raising it to £10,000, again IMHO. And it would involve comparable SLASHING of public spending - apart from health, education and justice. Further than this, my concerns have less to do with the British system than with revaluing the Chinese currency. The Chinese can't expect to go on exporting to Western countries, putting western workers out of jobs but loaning them the money to carry on buying Chinese goods. It's not sustainable. Currency values need to recognise the increased wealth of the average Chinese. Our goods need to become more competitive with theirs. They need to be buying from us, coming over in their thousands to peer at Buckingham Palace or whatever it is tourists do. They need to be spending not saving. That, and not further lending, is the way they can save the system.
05 Feb 2009 Rahere	Corporation tax: yes, simplify, but the advantages to small businesses are there to level the playing field against the big boys who have economies of scale the small player is excluded from. Depreciation's actually a taxman's scam. By insisting the cost of capital investment should be deferred in the accounts to match the income generated by that equipment, they increase the profit - and hence their income - at the expense of the business. The business is taking all the risk getting itself started, and the taxman's taking none of it, in fact he's adding to the load and is the single worst cause of business failure. I think back to the roots of Zavvi. In the late 1970s, an enterprising wargames specialist on Hanway Street, just behind the Virgin Record Store at Tottenham Court Road, signed a deal with a certain Mr Rubik to distribute his Cube. I actually own one of the first batch, having had a mis-spent youth. The said entrepreneur, disregarding Rahere's sage advice to watch the effect of tax and rates on his cashflow, then stared opening shops in prime locations, overstretched himself, and was destroyed by the taxman (to be fair, the last straw was the rates whch all arrived at once, but the real damage was done by the taxman). He sold out to Branson, and the Virgin shop went to become the Virgin Megastore, before being bought out by the management.
05 Feb 2009 rahere	Wharfgirl Of course it is possible to split the streams, that's what Rahere's been preaching for months now, they're run as separate streams because their activities are functionally different, excepting that businesses use current and deposit accounts as well. The biggest risk now is that it may be too late to do in practice: the signs are that next week may be bloody, that wall I've been taklking about looks as if it's about to hit right on schedule. Get your foodstuffs in and stock up on cash. Quite right about the Yuan, but there should be some payback too. On personal allowances, you'll never achieve that in recession, sadly. It's an aspiration for the recovery period, though. Can I add another pump-primer, though. The concept of Intellectual Property was initially intended to protect start-up enterprises from the avaricity of the Guilds. It has now become the hunting ground of big business to kill rivals, and that's wrong. Just as a Patent runs out quite quickly, so should the availability of the patent system to existing businesses - Rahere would suggest that patents shoudl only be available to companies in the first ten years of their existence, and should not be available to companies subsidised by, associate to or subsidiaries of any older company, regardless of whether it's been reformed or not.
05 Feb 2009 Spin Doctor	Wharfgirl in 1933 the Glass-Steagall act was introduced to keep investment banking and commercial banking separate. Since the early 19080's this was slowly whittled away and in 1999 the US completely revoked the act. On the Yuan - I agree that there has to be some element of revaluation. This has contributed in large part to the mess. Fixed rat mechanisms like this always have the potential to overwhelm the economic system. Surprising how little we actually hear about this even though China has been following this "beggar thy neighbour" policy for so long now. rahere - to me the real problem with off balance sheet items in banks has been the whole structured credit market. The amount of securities that were shoved into SIV's is just staggering. The rationale behind the products was always questionable, but no one cared as long as the going was good and asset prices climbed. This is where regulation really needs to be tightened up. The CDS market also really needs to be tightened up - more transparency through an exchange traded mechanism and also effective rules on "naked CDS's". I am actually hopeful that something may actually happen in this space. I dont think we would lose that much if they were to be banned completely. Ratings agencies - the relationship here is completely ludicrous. The ratings agencies effectively get paid by the banks to rate their bond issues. Huge conflict of interest, this needs to be fundamentally addressed. I would have thought they should fall under the regulatory umbrella - it is astounding that this situation has been allowed to persist for so long.
05 Feb 2009 rahere	Spin doctor I might agree if I had any faith left in regulation. I've just been dealing with a problem with an Ombudsman who preaches like Ka, "Trust me, I'm independant". However, their letters were anything but, pigeonholing my case incorrectly and prevaricating, so I then looked and discovered the Chairman of the Ombudsman body states on its blog that he represents the very company I'm complaining about. He should state he respresents the public. Moreover, he's in charge of liaison within that selfsame company with the Ombudsman function he's in charge of. He's judge, jury and executioner in his own court, much like Hampton is in the financing of this mess. I'm now going to go through each and every single regulatory and ombudsman body to assess exactly how much insider dealing has been going on, because to me this looks very much like the entire regulatory structure from top to bottom is a set-up job designed to stitch the entire population up solid.
05 Feb 2009 BobRocket	Whoa, slow down peeps. Rahere is right, it is going to get very confusing on here and very quickly. My fault, I should have only posted one suggestion at a time. We do need some structure. How about we only post the suggested items on here, a kind of contributed list, only one item per posting and keep it basic. My first suggestion should have read. Change corporate governance rules on executive renumeration. Rahere could start a thread on livejournal with this one line as a title and we could then discuss this one idea there, reporting back here later if we have any kind of consensus.
05 Feb 2009 Spin Doctor	works for me. it is getting a bit unwieldy in this format.
05 Feb 2009 CoralBloom	Once the blog is closed down then we can organise a more useable structure for all to use. Most of us seem to have created a blog space - that may be useful for the group sepecialists to debate?
05 Feb 2009 John Bray	Rahere, "Get your foodstuffs in and stock up on cash." Done that - what next?
05 Feb 2009 Jericoa	I agree, it is already getting messy on here. A thing serves its purpose then you move on. We can continue to use this space (thanks for this John) as a general 'pick up' / coordination and postings area maybe. It is clear it would be useful to have subdivisions with clearer lines of communication or we will go over the same ground and get nowhere / become a mirror of RP's blog, the very thing I think we are trying to get away and move on from. I am not in a position to suggest suitable locations or set anything up but in terms of a broad structure (there goes the engineer again) i would suggest the following debating spaces. a philosophical space a political space a financial space a communications and organisation space for lobbying activity in the real world. a co-ordination space between the groups I would envisage that we would all observe those spaces but some people wopuld be far more active in some than others. There should be a chairperson for each of those spaces also to keep things ordered but without authority. As with my engineering team I only ever have one requirement of them. Noboddy brings their egos to design meetings. It should be a space that is free from self. I wish I could do more. I will continue to be as active as I can within my dailey family and work responsibilities. Hope to see you all in a new space of some description soon. Simon aka Jericoa
08 Feb 2009 OldNick666	Executive pay. This is quite difficult to solve and really needs some new thought. The problem is that a very large proportion of the shares are held by big pension funds. Pension fund managers, executives and remuneration committees are drawn from the same group of people. Shareholders do not there have the correct control. Idea 1. By statute take voting rights away from shares held by pensions funds. The could be slipped into the finance bill either as a direct ban or through loss of tax status. Idea 2. By appointing remuneration committees largely from a selected group of smaller shareholders or private shareholders. I do not think that picking a number out of the air Obama style is the proper form of control. I believe in both freedom and regulation by statute. Regulatory bodies seem to have failed us.
12 Feb 2009 Goldtop	Interesting ideas from everyone. An entry on this issues on a mission statement might have to be a little more succinct though...Could our concerns in this area be summed up by the following- Re-organisation and genuine regulation of the banking system and public sector financial institutions. ?