Switch Hitter

Watching Cricketer Kevin Pietersen the other day switching from a right-hander to a left-hander in the blink of an eye reminded me of the beleaguered boss of the Bank of England, Mervyn King.

Really? Well maybe not right then and there! But the unsuspecting bowler certainly got a shock when he was hit for six by the cross-hitting batsman.

No sooner had the ink dried on King's warnings of an imminent slowdown in the economy and the implication of Interest Rate cuts, than the switch hitting banker was warning us that rates may rise because of runaway inflation.

"So don't you all be asking for big pay rises this year" admonished School Master King. "They are bad and will lead to wage and price inflation. And if you let that happen you will be sorry."

Except for tanker drivers.

"No...No.. Don't look at the tanker drivers deal" says King. "They're different"

What, different to Nurses and Teachers? Nurses and Teachers don't deliver tanker loads of Opium to addicted drivers ever day do they?

We've been here before, and to the best of my memory, we didn't like it. It was grey and bleak and miserable and it was called the Seventies. Competitive pay bargaining with any deal being done under the rate of inflation being regarded as a defeat for the workers. An antagonistic, gladiatorial contest played out on our television screens nightly. No, please....not the Seventies again.

Maybe the seventies nightmare is our just deserts for the go-go Eighties, the bang-on Nineties and the debt-drenched Noughties.

But what to do? The fact is that it is low paid workers who can least afford the spiralling increase in food and fuel prices. It is this group, the backbone of the work force in small business that will feel the pain of the squeeze first. And it is this group that will expect to be looked after by their employer by at least keeping pace with inflation. These workers are rarely members of powerful unions like the tanker drivers, they have only the threat of withdrawing their labour as a weapon. And that, as any employee of a small business knows, is not an option.

Let's hope that Mervyn King can be as dexterous as Kevin Pietersen at maneuvering through this sticky wicket.

Say it ain't so!

Headline from the Weekend FT

"Banks make customers pay for lost profit"

Well, we saw that one coming! Banks have grown used to their super-sized profits and more importantly the executives have grown used to the super-sized bonuses, so they were never going to let their shocking investment decisions get in the way of their shockingly fat pay cheques.

We are hearing some interesting stuff on the street at present. Banks have started to mimic one of the other truly horrifically managed industries, the airlines. The airlines, almost without exception, have a customer service manifesto that reads like the Mafia code of Omerta. In almost all circumstances airline staff are coached to give away only the barest minimum of information. Nada. Name, rank, serial number. These people are taught to remain useless in the face of torrents of abuse from hard done by passengers.

Their constant repetition of the word sorry renders it useless (in fact, said enough times it starts to sound like "screw you")

Now it is becoming clear that on the street Banks (in spite of the deluge of credit crunch stories in the media) have adopted a standard message to clients of "with us, it is business as usual". The front line managers have been coached to admit nothing. The other guy might be squeezed, but we (the next bit is code for "they messed up but we didn't")have a solid capital base and continue to look for lending opportunities.

Only, it isn't quite like that. We are now hearing of many occasions where seemingly routine lending is getting all the way to the offer stage and then mysteriously falling over. "Nothing to do with the credit situation" borrowers are told....hmmm.

It's suspiciously like the airlines. You sit for five hours in a smelly, congested airport being told next to nothing and then all of a sudden they cancel the flight. Couldn't they have told you that five hours ago? You might have checked in to a hotel, enjoyed a refreshing shower, a cold beer at the bar and be settling into an excellent dinner. But no. You find yourself shouting at a bored looking Air Crud staff member (they always have that passive aggressive face on) who says "Sorry" every time you pause for breath.

And with the Banks. Leading you down the path thinking that you will be getting the loan, telling you that it is business as usual, only to be denied at the last moment. No hint on the way. No heads up or early warning that this isn't going to plan.

The trouble is that with a cancelled flight you might miss your dinner. With a cancelled loan you might lose your business.

Free Lunch (cancelled)

Well, it didn't take long. No sooner did we speculate about the end of free banking and hey presto, it's gone.

RBS broke ranks first with a rather confusing (read: deliberately misleading)series of comments introducing a new raft of small business fees starting with phrases like "this has nothing to do with the current credit crisis" and "this will only affect customers with legacy deals".

Legacy. What a great word. Until it was hijacked recently it meant anything handed down from the past, or a gift from a will. But in the modern way (read: American way)the word has been subtley disfigured. The deliberate use of the word "legacy" now implies that the old, inadequate or deficient proceedure no longer works in the current circumstance. Somehow, someway it is your fault.

A new computer system that doesn't work with old data performs poorly because of "legacy" issues (read: "your spanking new £150,000 system won't function properly because your last IT Twit built this using spit and chewing gum". "But...but.. it has worked OK for the last 10 years?" "duh....but you don't have the new DX50 super xenox gigachip with no-leak wings do you?...no you've got major legacy issues".)

Oh.

Always the not-so-subtle implication being that whatever came before is inadequate or flawed and that the inability of the present solution to function correctly is simply the fault of the previous buffoon.

And that brings us back to RBS. Now no longer prepared to offer their small business customers a small crumb of comfort in their banking relationship. Not good enough that the business man and woman is already under significant cost pressure in the market place. No, through no fault of their own (and significant fault from the bank in their indescribably cavalier investment strategies) long suffering small business is expected to take it on the chin yet again.

"I'd like to move my business account to you Mr. New Bank"

"And why have you decided to move from the Royal Bank of Scotland Mr. Businessman?"

"Legacy issues".

Banks need a holiday

This has been a difficult time to be a bank. Having had to fess up to losing bucket loads of cash they are now rebuilding their balance sheets by issuing more shares and thus diluting the poor saps who have continued to hold on to their piece of the pie. The sensible thing to do? Maybe, maybe not. The point is that they don't have many options. The investors who take up these new shares will of course be hoping that this will all go away quickly and that the banks will soon return to harvesting their "jabba the hut" sized profits.

Profits that, as any small business owner will tell you, are normally shaved from the client by way of fees, charges, excesses, overages, facilities, and assorted flim flammery.

But what now the banks have lost the first round in the fight against all these charges? How robust will the banks profits be going forward if they are forced to repatriate their clients with their cash. Well, it is a pretty safe bet the banks will react in a robust and mature manner, by taking their ball home.

Yes, although for all these years we have charged you thirty pounds to bounce a cheque, or charged you usurious interest for exceeding your overdraft facility, we are going to withdraw free banking options and not lend you any money. Nah nah nah nah nah.

Well, hello! If you were bouncing checks and going over your limit you weren't getting free banking anyway. So the only people to suffer are the goody goody customers. Go on. Punish them. That'll go down well.

Yes, the banks are definitely caught, to coin a phrase, between a rock and a hard place. This must be very trying times to be a bank, very stressful. A good time to take a holiday.

Flash Gordon

Every now and again there are truly "cringe-worthy" moments. Episodes that are so awful and embarrassing that they go beyond the mere horrific and find a deep, dark place of shuddering discomfort.

We just had one.

It was bad enough for poor beleaguered Gordon Brown to be paraded up and down a highly decorated hallway with the three presidential hopefuls. Each one of them looking confident and elegant and Brown along side, lumpish and graceless. It reminded me of the scene in the film "About a boy" when the young lad is warned that his attachment to the punk girlfriend looks "more like owner and pet".

No, the real moment of horror was saved for the surreal press conference in the Rose Garden. The two unpopular leaders, trapped in the civility and grandeur that holding positions of state require were forced into an exchange of platitudes.

George Bush, with presumably nothing better to say, offered to cook supper that night. Nothing special in this manifestation of the peculiar idiocy for which Bush is justly celebrated. And with that entree, Brown could have simply thanked him and offered to do the washing up.

But no. Brown opened his mouth and then in the full view of the world's press thanked Bush...."for his leadership."

I looked around to see if anyone else heard it. The Labrador continued to snooze blissfully.

Maybe, I wondered, was Brown being disrespectfully sarcastic? Maybe, by his choice of the word "leadership" he was implying that we all ( including the majority of the US public) can't wait to see the back of him?

Bush and Brown share a strikingly similar world view for two politicians that appear to be poles apart on the political spectrum, and where better to illustrate this than their approach to small business. Neither like small business as they are generally run by independently minded individuals operating in the "true" market place. Small business leaders want real action on real problems, the type of action that politicians are unable to provide. You know, decisions and stuff like that.

Large corporations love these types of politicians because large business doesn't really exist in a free market world. We have proof of this now. Big companies, especially big financial companies are considered too big to fail. Wouldn't it make life easier for all of us if that overdraft we had was actually underwritten by the Government!

And then there are taxes. Browns approach to this provides even more illustration. Remove the 10p tax band from the least well off and tax the Billionaire Non-Doms £30,000. Thirty grand off a billion is a few hours of interest payments. And let's not even go there on the subject of business taper relief.....

No, none of it makes much sense. But then Gordon Brown praising George Bush for his leadership is a bit of science fiction anyhow.

Confidence Trick

Confidence is an awkward emotion to describe. Having confidence in another person implies a kind of trust that, if tainted, makes us look a fool. We may have been "too trusting". It is as if our cynical self is always just a step behind our trusting self waiting to smugly point out our gullibility.

However, confidence is vital. I don't know about you but I wouldn't get on an airplane if I didn't have confidence in the capability of Airbus to produce a decent product and confidence in the Pilot and his ability to fly the thing.

I don't go to the Doctor very much, but I certainly would go to see him if I thought there was something wrong. I have confidence in his judgement and skill. I trust his judgement.

But what if the confidence that we have in an institution turns out to have been misplaced? What if the trust we have placed in a whole system ends up being wrong. How should we feel then? Let down? Betrayed? Just plain angry?

I think that this is the situation that we are all in right now. Some of the very pillars of our economic system appear to be shaky. The people we trusted to be intelligent and insightful with our money appear to have been wrong. Our confidence in these systems and these people is severely compromised. Our trust has been shown to have been injudicious.

From the top down, the Chancellor of the Exchequer, the Investment Bankers, the Regulators, the traders, the fund managers and bank managers have all held our collective confidence and it now appears to have been imprudently handled.

And yet there is no little voice gloating that we have been fooled, that we were "too trusting". No, these people and these institutions were above that threshold. In fact they have had our confidence unreservedly. In looking after themselves, so the wisdom went, they would look after us. Go on. Pay yourself a fortune as long as you make me a pile.

How wrong we were. It has been the ultimate Confidence Trick.

Wait and see pie.

As we fast approach the 2008 Beijing Olympics the whole subject of China and its place on the world stage come into sharp focus. I can't help feeling that the whole "China Story" is a little oversold.

There is no doubt that the Chinese Government has successfully exploited its massive population of under-paid workers to drive a nail into the coffin of Western manufacturers, but how long can this last? The seeds of the end of this cost advantage are already being sown. We hear almost daily of the new Chinese middle class. Last time I looked the middle class don't work for 50p a day.

And then there is the fact that China (careful you mustn't say this out loud) is a Communist Military Dictatorship. I thought we didn't like CMD's?

And then there is the thorny issue of Tibet. There have been well organised protests around the globe for the past fifteen years calling for an end to Chinese occupation of the mountain nation. I wonder if all those activists have spotted that the Olympics are going to be held in Beijing this summer....hmmm....maybe they'll not bother to organise some massive disruption in front of the world's media. No, they'll pass on this one. Not.

And then there is Rice. Hunger is one of the sure ways to guarantee a restless populace. The Chinese consume a lot of Rice. In fact with Rice shortages around the globe occurring, we can assume that the Chinese are going to be in the market paying whatever is necessary to keep their population fed. The price of Rice escalating further leading to a double whammy. Less Rice per person and more expensive to boot.

Over the years our manufacturing base has been eroded by cheaper goods from the East. We have tried to compensate by finding niches in the demand chain. Higher spec, quicker delivery, better payment options, whatever the market requires. It has made us a little cleverer, a little more fleet of foot. Maybe a little more able to respond to our customer's needs.

Of course, we are going to have our problems, possible recession, house price falls etc. but don't think the Chinese are immune from their own problems. Inflation, commodity price increases, wage increases, social unrest and more.

It is not clear how this is all going to play out this summer, but we are certainly living in interesting times.