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The view from Xit2

One of the great benefits of having a wild-fire rage through forests is that it cleans out the dead wood and undergrowth. There is a lot of destruction that goes on, botanically speaking, in the fire.

But the proportion of the smart and the capable among the survivors, both flora and fauna, is increased. And the most fecund and capable, the most adapted to create something from the ruins are the ones that take over after firestorm has passed. So the whole system steps up a notch and has a chance of creating something new.

Nature uses events like these to edit the gene pool and promote alternatives – to dethrone some organisms and give others who may be more capable a shot at success. To change the regime, so to speak. I think this analogy to our current economic, er, embarrassment works on several levels

A rising market masks a huge amount of incompetence – call that the dead wood and undergrowth – and one could easily argue that we’ve accumulated lots of both in the past five years. Have you heard the one about the property developer who builds a house of cards in the rising real estate market? Or the lender that funds this ridiculous expansion? The only art is in knowing when to sell this contraption to someone gullible enough to buy it and take all the losses before the losses materialise.

How will these short-term players be called to account without the wildfire? We all knew that the property market was in a bubble, that bank Boards were not capable enough to cope with the new financial techniques, and that credit was too easily available. But we did nothing about it. In many cases, there was nothing we could do about it.

There has been talk recently of making sure that bankers have “banking credentials” before being allowed to serve on boards. This is sterile thinking. We don’t need brain-dead rule-following automatons to run the financial system. We lacked the moral fibre to act. We need smart leaders with character, in other words, who take action when necessary. The only way to combat the weakness of not having them is, in the current analogy, to have a wildfire.

Those folks dreaming up new regulations – with visions of shackling hedge funds and other disruptive innovators – should reflect long and hard on how smart they really are. A little bit of humility and realism will go a long way. We have learned many harsh lessons about centralisation and regulations – let’s not forget those and overshoot incompetently on the regulation front.

If we do, we’ll get stagnation, bureaucracy, arrogance, poor service, a drag on innovation, promotion of the politically astute but functionally incompetent – these and many more evils that over-regulation creates. A sort of regulatory mercantilism implemented by government.

Our political system has come to recognise the benefits of creative destruction when managing the leadership of the country. We have elections to renew talent, or periodically, just to “throw the bums out.”

Just as the periodically destructive fires of elections are needed to give new leadership and thinking a chance (or, to be more realistic, to burn the crust of incompetence and peculation from Parliament and replace it on average with slightly less incompetence and peculation) so boom and bust are required in the economy to keep business creating real rather than illusory value. It’s painful, but that’s why it works.


A&L launches four-year fix

Alliance & Leicester is launching a four-year fixed product with a rate of 4.39%, 1% fee, 65% LTV, and maximum loan of £1m.

We can be high street heroes

Headline-grabbing government initiatives to revive high streets will achieve little whereas lenders can play an important role, says Julien Holmes, managing director of Crown Mortgage Management

Marketwatch 27/04/2007

Swaps increased pretty sharply last week, more than reversing the falls of the previous week. Have we seen the bottom? Who knows.

Guide cover

Guide: how to… communicate with your pension members

Effective communication of your pension scheme is a large part of getting auto-enrolment right. Delivering the same message to all employees is not necessarily the way to go. To assist you with the communication of your pension scheme, we have provided some key areas to think about, such as:

  • What to consider when segmenting your workforce
  • How to communicate to pension scheme members at the right time in their member lifecycle
  • What topics you should be discussing with your pension members
  • The new pension freedoms and the importance of communicating them


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