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Tim Worstall

E-Clear

Ooooh, oooh, here\’s a nice little scandal I hadn\’t known about.

The £100 million owed to creditors by the collapsed credit card company E-Clear has disappeared, according to administrators.

Sources close to the investigation into the company, which was put into administration by court order this week, have confirmed to The Times that no trace of the missing money has been found after three days of examining E-Clear’s records.

One of the things the company did (in fact, perhaps the major thing it did) was process credit card payments for cheapo airlines. And as is normal in the field they kept part of the payments for a couple of months before passing them on.

The reason being that if an airline goes bust before you fly but after you\’ve used a credit card to pay for it then you get your money back: the credit card company is liable. This leads to chargebacks….and the possibility of chargebacks leads to witholding some of the money until the possibility of default on providing the flight has passed.

Now this leads to problems for airlines that look like they might go bust….the percentage of witholding for potential chargebacks rises the worse things look. Bit like a bank run really: it snowballs. As the risk of bankruptcy rises then the cashflow coming in declines as more is kept to potentially pay the credit card company and the more likely bankruptcy is and so on in a vicious downward spiral.

This is what happened to Globespan back in December: E-Clear had upped the witholding to £35 million and the airline went bust. So far so normal: a number of airlines have gone under in the same manner in the past.

However, the scandal now seems to be that E-Clear wasn\’t just witholding the money, in an escrow account, as it should have. The money just isn\’t there at all: it\’s been spent on something else.

If this is true (and this report is all I\’ve seen on it) then there are some juicy jail terms to come.

Something for Mr. E

It is Mr. E who tells up about the doings of Councillor Terry Kelly isn\’t it? Yes, I think so.

On one of CiF\’s regular columns about how Cuba isn\’t really badly off you know, it\’s just a different set of priorities, the distinguished Councillor has made a number of comments. All of which have been expunged by the moderators.

I recall the general tenor of them from before they were so removed. Fidel\’s a great man, Cuba\’s the business, you\’re all ghastly baby eating fascists for not liking it and so on.

Not really all that different from the drivellings of Richard Gott and other fellow travellers, although obviously with Our Terry\’s unique lack of intelligibility, spelling or grammar.

Which makes me wonder why they have been wiped out? It couldn\’t be that such support from such a quarter was simply too embarrassing could it?

Oh dear oh dear Polly

It is to snigger.

Hurrah! says Polly, Obama\’s going to do something about the banks!

And then goes on to list a whole series of things which will change: absolutely not one single one of them has Obama even hinted at changing.

There\’s also a few lovely misunderstandings:

But check their taxes and something else emerges: in 2006 Cadbury paid £205m in tax – though only a token £1m was paid in Britain, while 14% of its turnover is here. Why was that allowed to happen?

Because it\’s the law perhaps? If you pay tax somewhere else (for example, you manufacture somewhere else, make profits somewhere else and thus pay tax somewhere else) then you don\’t pay tax again on the same profits here. This really isn\’t rocket science.

Cadbury won a court ruling saying it could relocate its tax affairs to Dublin provided the transaction was at least \”not wholly artificial\”.Gordon Brown boasted that Britain was open for business, and now most of Britain is sold. As the tax expert Richard Murphy points out, the Anglo-Saxon model has left few Anglo-Saxon businesses: France and Germany do things differently.

And as R. Murphy never quite manages to point out, France and Germany do not do such things differently. For the rules on corporate relocation are not made by nation states. Here, they\’re made by the EU. Tax residency for a company is where the brass plate is. Companies have the same right to move their tax residency as people do or this is one of the fundamental building blocks of the Single Market. Free movement of people, goods and capital and yes, \”legal persons\” such as companies have the same freedom of movement as \”natural persons\” like you and me.

Richard Murphy points out that the London Stock ­Exchange churns vast numbers of shares daily to the dealers\’ short-term benefit, while Warren Buffett makes higher profits sitting on his shares long term.

And Richard Murphy, when he designs his new and wondrous system of using bonds as investment vehicles, finds that he has to design a secondary market in them as well even if he does bury it in one throwaway sentence.

I\’ve actually warned Polly before (directly as it were) that she really shouldn\’t be relying upon Ritchie as a source of analysis of the capital markets. For sadly, he knows very little about them and near nothing about the economics of them.

In praise of Liberal Conspiracy

Now don\’t let this go to anyone\’s head….I\’m still of the opinion that most over there are ill- or mal- informed twits but priase should be given where praise is due.

I have a feeling that this:

British companies have been banned from exporting defective bomb detectors to Iraq and Afghanistan over fears they have failed to prevent hundreds of deaths.

Was at least part inspired by this:

Back at the beginning of November we brought you this bizarre and staggering story of the part played by a British company in the sale of ‘bomb detectors’ to Iraqi security forces that turned out, in fact, to be nothing more than extortionately expensive dowsing rods:

(Whether we actually congratulate Unity or LibCon here is up to you).

Well done chaps (and chappesses). Secret Masonic handshakes, free backrubs and lashings of ginger beer all round.

Now, about this economics thing you seem to have such troubles with…..

When the Swiss say death tax

They really mean death tax:

Twenty-three Britons have died at Dignitas, a suicide clinic in Zurich, in the past year alone, while several hundred more are believed to be on its waiting list.

Under the plans groups such as Dignitas face large fines for assisting anyone who has not lived in Zurich for at least a year.

Voters will go the polls later this year to decide on the new \’death tax\’. If more than 50 per cent of the electorate vote in favour, the proposal could become law.

At present, Dignitas charges about £5,000 to organise a suicide. The fine could be six times this and local politicians said they believed it would be incorporated into the fee charged to the person ending their life.

Daniel Suter, Zurich President of the Swiss Federal Democratic Union Party (EDU) which is proposing the vote, said: “Normally people come to Zurich two or three days before they want to die.

“By saying that people must live in Zurich for at least a year, we believe this will cut down the number of suicides dramatically. There needs to be an end to death tourism.

\”Really the question that the voters are being asked is: \’Do we want this kind of tourism in our canton?’ “We anticipate the fine will be passed on to the person committing suicide by the suicide organisation.

Wonder if we\’ll see online appeals: \”I need £30,000 so that I can die\” sort of stuff? Further macabre questions could be asked: will it be deductible from the inheritance tax bill?

Well I dunno

Some of the West\’s biggest, and richest, nations – the United States, Germany, France, Spain, Canada, Belgian and Holland – are rushing through adoption applications in order to airlift children out the death and destruction in Haiti.

However, Save The Children, World Vision and the British Red Cross have called for an immediate moratorium on new adoptions until sustained efforts have been made to trace and reunite children with their families.

\”Taking children out of the country would permanently separate thousands of children from their families – a separation that would compound the acute trauma they are already suffering,\” said Jasmine Whitbread, Save The Children\’s chief executive.

On the one hand, we know that hundred(s) of thousands have died so there are a lot of orphans. We also know that Haiti, pre- or post-quake is a pretty shitty place to grow up. Getting out is the single thing that will do the most for anyone\’s, let alone an orphan\’s life chances.

On the other, yes, there\’s the possibility that those adopted might not be orphans, to the distress of those losing them and to the children themselves.

However, I have a feeling that the rush to adopt would rather fall in volume if this delay were to go into place. Yes, I know, raising a child is a long term job, not something that people ought to find themselves influenced upon by short term (even medium term) issues like the quake.

I have a feeling though that here we\’re seeing the perfect becoming the enemy of the good. The solution might be to use a base and pragmatic calculation. Will the lives of those adopted be better out of Haiti than no? Yes, I think is the clear answer there. Is there a chance that non-orphans will be adopted to the distress and anguish of the parents? Given the entire lack of a functioning government, almost certainly. But the balance of good done against potential evil seems to favour ploughing straight ahead.

Extremely worrying

Obama\’s plans for changing the way Wall Street works. I\’m still pondering myself but think that there\’s good value in there. However, here\’s our favourite retired accountant:

Those of us who have been calling for massive reform for a long time are entitled to say better late than never……There’s no doubt Wall Street did not expect this. Nor London either, to where the contagion will rapidly spread, I suspect, to our benefit on this occasion.

Makes me wonder if my initial impression is correct, finding agreement there.

Or here\’s the Wall Street Journal:

Phony populism aside, yesterday Mr. Obama introduced his first serious idea into the debate on reforming the financial system. In calling for an end to proprietary trading at firms with a federal safety net, the President showed that he now understands an important principle: Risk-taking in the capital markets is incompatible with a taxpayer guarantee.

Under the President\’s still-sketchy plan, firms that hold government-insured deposits or are eligible to receive cheap loans in an emergency from the Federal Reserve would not be able to trade for their own accounts. The firms could facilitate customer orders as brokers have always done and continue to underwrite new issues of stocks and bonds, but they could not make bets with their own capital or own or invest in hedge funds.

Yesterday\’s announcement is a critical departure from the reform plan Mr. Obama introduced last year—largely incorporated in the House and Senate bills written by Barney Frank and Chris Dodd. Those plans all sought to expand the universe of too-big-to-fail companies eligible for taxpayer rescue. Mr. Obama has at last joined the most important policy discussion: How to eliminate the moral hazard now embedded in the U.S. financial system.

Now that does make sense. Which leaves me with the problem of finding myself greeting the proposals on the same side as Ritchie. Very confusing.

D\’ye think he actually understands what is being proposed?

Entirely off topic and entirely contrary to the policy of this blog in that it is uplifting

From the Tin Drummer who was having a bad time of it.

It seems odd, and overtly narcisstic, to announce one\’s own continued existence: I still am.

It wasn\’t an easy 2009, and I had to seek help to carry on. I don\’t pretend to be free of the tendency to darkness and soil, but I stopped taking medication some time ago and have found someone who wants to knit themselves to me in perpetuity, and more, to carry my issue.

From the Tin Drummer who is now having a very much better time of it.

No, I don\’t know the Tin Drummer, don\’t even know the name behind the pseudonym. But that the Sun has peeked out around the clouds of another\’s, some stranger\’s, life yes, ain\’t that good news, man, ain\’t that news.

Sounds high

So they\’re flogging off the carcass of that plane that went into the Hudson.

It is difficult to speculate how much the A320 could pull at auction. It has a legendary status but the lack of engines means that not only can it not fly again, but it also removes a possible source of valuable metal and spare parts.

However, the US magazine Metal Bulletin Monthly recently reported that a similarly junked Airbus A310, which sold for $2.6 million (£1.6 million), made its new owners $4 million when it was broken up for scrap.

Sounds like a high value there. They\’re around 40 tonnes weight unladen (so Wikipedia tells me which sounds low but so be it) and there\’s nothing all that special about the alloys. Aluminium with a bit of magnesium and perhaps a tad of copper in it really. Maybe $80,000 to $100,000 for the scrap value of the fuselage and wings.

Must be the value of the electronics scrap in there I suppose.

Oh, and Metal Bulletin? London based, not US.

Cretins

Motorists and air passengers face higher “green taxes” under Conservative plans to fund tax breaks for married couples

OK, so they\’ve at least got part of it right. That if you raise green taxes you should reduce other taxes elsewhere.

But the green taxes they\’re talking about, fuel duty and Air Passenger Duty, already more than cover the green costs of those activities. Thus those taxes should not be raised.

At least, not if you\’re going to call then green taxes they shouldn\’t. There\’s nothing to stop you saying we\’ll tax drivers more in order to pay for married couples: but hanging the tag \”green\” on it is simply obfuscation. Or in less polite terms, lying.

A complex area, yes

The figures obtained by the Conservatives showed that 185,446 people were discharged from hospital in England in 2008/9 with a diagnosis of malnourishment, compared with 175,003 who were admitted malnourished.

It is true that some illnesses and treatments reduce appetite.

Me personally (on the grounds of little more than innate prejudice I\’ll agree) I would blame the changes in nursing. Someone, somewhere, has to wash patients, turn them, feed them and monitor them. If those who in previous versions of the system are now professionals who plan courses of treatment, write prescriptions and in general have moved up the totem pole, who is doing that washing, feeding, turning and monitoring?

If it is no one then what would we expect to be the result? And what is the result? Quite. Are we thus being fair in concluding that no one is?

RSI caused by Viagra and vibrators

Hmm. Not sure whether this is most likely to cause problems to lawyers persuing workers compensation claims or whether it\’s simply a desperate attempt to get newspaper inches by proposing an outrageous theory:

WRIST pain is often blamed on excessive computer use or working with heavy machinery.

But a controversial new report has suggested a much saucier explanation – too much SEX.

Repetitive movements during lovemaking puts extra weight on the wrists, says a top medic.

People are getting porkier, putting more strain on wrists, Viagra means more episodes of wrist straining and sex toys themselves cause problems.

Nuclear reprocessing

Only a handful of countries have the expertise and technology for nuclear reprocessing, in which spent nuclear fuel rods from power stations are chopped up and boiled in acid to extract uranium and plutonium for reuse in a reactor. The by-product is a concentrated form of vitrified nuclear waste that is as nasty as it sounds.

Err, no. Vitrified waste sounds vastly more nasty than it actually is.

\”Vitrified\” means \”made into glass\” (yes, glass really is made of metal oxides). Glass is the most stable substance we know of pretty much. The solution to nuclear waste is exactly to vitrify it and stick it at the bottom of an old mine for a couple of thousand years.

Job done.

Too much higher education

If prices are falling then we\’ve a sign that there\’s over-production relative to demand.

The pay premium earned by postgraduates and those who take masters degrees is in decline as the market becomes flooded, research suggests today.

The study, commissioned by the British Library and the Higher Education Policy Institute (Hepi), found that the benefit of taking another qualification after graduating was decreasing.

Graduates taking a postgraduate course in 2003 earned, on average, 18 per cent more than peers who had obtained a first class degree and 31 per cent more than those who achieved a 2:1.

But by 2008 this had fallen to 15 per cent and 27 per cent respectively.

As prices are falling then we\’ve over-production relative to demand.

Thus we\’ve got too much higher education and should have less of it.

Eminently sensible idea

Foreign footballers and international businessmen are to be offered a £15,000 personalised visa renewal service to avoid them having to queue, as part of an increase in immigration fees announced yesterday.

Officials from the UK Border Agency will offer to visit highly skilled migrants at their office or home to sort out their immigration documents.

During the visit they will take the new “biometric” photograph and fingerprints and then provide an on-the-spot decision on whether the visa will be renewed.

The Home Office admitted that the £15,000 price is in excess of the £1,982 cost of providing the “mobile biometric enrolment and case-working” service.

Those who can and are willing to pay for immediate service should of course be charged for such. Straight old price discrimination, a good thing.

All we need to do now is add another level on top of this. For £100,000 we\’ll guarantee that you get the visa, not just a quick decision but the right decision.

If there are those willing to pay for the right to live and work here we should charge them to do so.

Felicity Lawrence\’s ignorant twaddle

Ho hum, it\’s not just the stringing together of the buzzwords, it\’s not just the ignorance, it\’s the simple failure of logic.

We may be deluded enough to think that successful manufacturing is still about making things, and that growth is about making more of them more profitably, but in fact for the last decade \”growth\” has meant freeing up more and more cash to be handed out to shareholders and top executives in the form of share buy-backs, dividends and bonuses. It has been achieved by taking on debt, closing factories, even profitable ones, selling off assets, and eliminating direct employment. In the upside-down world of impatient finance capitalism, manufacturers\’ \”growth\” has actually required the destruction of companies\’ productive capacity.

That last clause.

So, taking as our examples Kraft and Cadbury (for they are who is being talked about). Has their output (measured either by value or tonnage) been decreasing?

If it has been decreasing then perhaps we might indeed conclude that their productive capacity has been destroyed (whether this is a good thing or a bad thing is another matter. If they\’re making less because fewer people want to buy it then it would be a good thing.).

If however their output has been increasing then it would be impossible for us to conclude that their productive capacity had been destroyed. For the amount of production of course depends upon the capacity to produce.

Now I\’m pretty sure that both Kraft and Cadbury have been growing. Thus all the layoffs, the factory closures, the handing money back to shareholders, these have been happening while productive capacity has been growing.

That is, they are becoming more efficient at using resources to make their end product: they are becoming more productive.

And as Paul Krugman says, productivity may not be everything but in the long run it\’s pretty much everything. So this is a good thing.

But back to Dear Felicity. How can anyone write like this without testing the most basic part of the logical chain? \”Destruction of companies\’ productive capacity\” depends upon those companies actually having less productive capacity than formerly. And they don\’t, they have more.

Unlikely events can be quite common

Four card players were astonished to pick up identical straight run hands in a bizarre fluke calculated as a 61 billion-to-one chance.

So what are the odds of that happening then?

Actually, about one in two or thereabouts.

It\’s one of these little things I like about probabilities. Sure, the likelihood of any individual being hit by lightning is pretty low, but there\’s lots of people out there so there are some each year.

Even if the efficient markets hypothesis is, in its strictest form, correct (you absolutely cannot beat the market except by chance) there are enough people attempting to do so that Warren Buffet\’s success is just about explainable by chance (no, I don\’t believe so and do not believe the strictest form of the EMH).

And our card hands? Sure, any specific deal has this one in 61 billion chance (although I would be wary of that calculation myself, for it\’s conditional. By the time you\’ve dealth the 51 st card then the 52 nd is obviously known, when dealing the 51st you\’ve a 50/50 chance of completing the runs etc. Don\’t know whether they did the calculation that way or not.) but how many hands are dealt in a year?

Despite the unlikely outcome he calculates that an identical deal should happen somewhere in the world about once every year.

The calculation is based on an estimate of 10 million people playing cards around the world every day, with each game requiring 10 deals.

That means 36,500,000,000 deals take place each year.

A 60 billion chance has a one in two probability of happening in 30 billion events.