Random Thoughts on The City, Wall St & Capitalism

I was deliberating whether to bother even commenting on the FSA's latest 'findings'. Often if you write about something the thing itself is given more credibility merely by the act of commenting on it. I concluded that in the end, there is no chance of giving the FSA any more credibility than it deserves, since it doesn't really have any in the first place. That sounds cruel I know, but I'm sentimental. I still long for the days of the old Securities & Investment Board. They were obviously amateurish, hated telling people off and had no glossy brochures or websites to try and convince you they were serious.

Not so the FSA.Last week the FSA have noticed that insider trading is 'rife' in the city of London. My what a revelation! but not exactly man bites dog is it.If you're an insider dealer, I suspect you can still sleep safelyat night. They are hardly the SEC and there are no Eliot Spitzer types in there. As with all regulators it's a difficult balancing act trying to regulate a market and yet not to overburden it with bureaucracy.Light touch, risk based regulation is the way the FSA wants to go , which seems sensible.This was probably the only useful thing to come out the ineffectual tenure of Howard Davies as the FSA's Chairman. Spookily another ex-Mckinsey alumnus.He thankfully moved on.The thing with insider trading is that although its apparently relatively common, it's very hard to prove. It needs a lot of investigation and man power. The convictions are rare and usually the fines are for very small sums. It may be better to take a more practical approach and abolish the offence altogether for something wider, and less onerous to prove. Maybe just bring it under the heading of market abuse. I don't know it just seems logical and a better use of resources. The second point is the standard defence of all white collar criminals, it's a 'victimless' offence. Yes there are all sorts of arguments that show the consequential 'victims' of the insider trading 'crime', but in one sense it's true.It's about perception rather than reality. The man on the street couldn't care less about who's screwing who in the stock market.He has to continue to get on with his dreary job, pay the mortgage, get the kids to school on time etc.Insider trading is the least of his concerns. In a sense his remoteness from the environment and nature of the 'crime' makes it unlikely whether he gives two hoots about the FSA's research and what they do.

Closer to the public's heart are things like effect on investors of the endowment mis-selling scandals, or the split capital debacle.Does anyone know if these two problems were ever resolved? No one can even be bothered finding out it's been dragging on so long. A bit of compensation here, a letter there.Perhaps the FSA should concentrate on the more mundane stuff and really show the investing public that it can protect the interests of the common man, before taking on the big stuff like insider trading.Compare the FSA's approach handling small investor claims of impropriety to its Amercian counter-part, the SEC, class actions, big payouts.US investors have been compensated for loss of faith and money, even if they haven't had their confidence restored.

Even though it's rife ,I don't think the stock market is going to be being derailed in the short term by insider trading, nor do I see any innovative solutions coming out of the regulator. Maybe that's why it lacks credibility.

RB

One of the headlines in today's Telegraph is that 'Plagiarism is rife at Oxford', according to the senior proctor who is also the chief disciplinary officer. It's brave of him to admit it, an anonymous student writes in another column that this is due to increased access to the internet.I'm presuming if plagiarism is rife at Oxford , the same is true of its evil twin, Cambridge. Presumably students there have internet access too. Plagiarism is as old as the hills and was there long before the internet. To be fair it's probably rife at most universities in the UK. If it's rife at the top of the educational hierarchy imagine what its like at the nasty second tier ersatz oxbridge-type universities that the English middle class are so fond of. My limited knowledge of what goes on in less exalted institutions suggests that cheating is certainly not discouraged as long as it's not blatant . Ho hum. What does all this have to do with capitalism or the City. Well three things.

Firstly under the market driven model of higher education, universities are just another provider of a consumable. That being the educational experience, the proof of which is the degree/diploma, whatever. They don't seem to have woken up to the idea that their products and brands are no differrent from cola or shampoo. Because they are selling 'ideas' ,the providers seem to confuse these with a higher purpose or ideal. Poor quality though UK degrees are sadly they are the only viable option in order to get the most menial of jobs now.Educational inflation is rife as well as plagiarism. Most people attending universities just want a job at the end,for in the age of the economic man there is no greater hope. If there are tools to make the acquiring of the product quicker and with more ease, does it not make sense to take those routes. If you could find a way to finance your mortgage at a cheaper provider today would you not take it.


Secondly at the posh end of the university market institutions like Oxbridge are there to supply tomorrows lawyers, accountants, venture capitalists etc. Plagiarism in once sense is the essence of these professions, it's an essential skill. For example consider the concept of stare decisis in English common law which students of law need to master, or when a drug has come to patent expiry how a generic provider comes on the scene, or even the recent case of patent infringement for Research In Motion provider of the ubiquitous BlackBerry. From personal experience I see Law and accountancy firms selling the same old structured product , going from bank to bank telling you that you are first one to have access to this 'unique' revenue enhancing scheme. Oh really. Pass the snake oil. Or ever involved an external advisor on structuring a delicate transaction only to find later some 'unscrupulous' (inevitably oxbridge educated) partner(s) at the firm are now 'flogging' your scheme to competitors , hardly changed except for the logo, as all their own idea. So you see in the vast majority of cases , a talent for plagiarism pays both in saving time and making money. God bless the market.


Thirdly consider also the usefulness of plagiarism in the world of work, when the time comes to take credit for a colleague's idea or the work of a junior. You need to be familiar with their work as if it was your own to pass it off successfully. Don't you. What about the great management fads from process re-engineering to Six Sigma. Last time I looked everyone was copying everyone else.This is called adopting 'best practice' in the business world, not plagiarism. This creates work and employment for a great many dull but hard working types. Work places tend to use the rhetoric of the new or the innovative but ideally want to stay stable by expecting the same core values of people. We need more plagiarists - fewer thinkers in the work place.Thinkers just cause trouble with their ideas and discontent in their colleagues. Could this process be streamlined? - yes - but why bother if even after screwing the customers everyone makes enough.

Finally, the high brow English universities tend to be skewed towards humanities. This is a very easy short cut to a degree.In the modern world arts degrees are basically a time wasting exercise, they are good to man nor beast. As most arts graduates know strictly speaking they should not be awarded degrees at all for subjects such as law or history or English literature. They should receive a certificate of attendance, if that.They are just exercises in recall and memory,rather like memorising a telephone directory and expecting to receive a degree for it. Except telephone numbers can be useful if you need them. Why not let these people pay for their 'degrees' and plagiarise. More revenue for the university and greater product sales. Pile'em high, sell 'em cheap. After all even after so-called tuition fees are taken into account. University education in the UK is basically very cheap to free compared with their other developed world counterparts. Namely the IV league. When is the last time you received something free or cheap and thought it was worthwhile or even valued it? If it's free I say buy one get another free( see below).Why does it matter if tomorrow's auditor or civil servant doesn't have an understanding of the three unities of Aristotle's Poetics. Or your boss doesn't quote Shakespeare to you as he's laying you off -


Well Bob I'm going to have to let you go, you're in a cross roads in your life, that reminds me of Measure for Measure, you know" Thou hast nor youth nor age, But, as it were, an after-dinner's sleep, Dreaming on both; for all thy blessed youth Becomes as aged, " Here's your redundancy cheque.

or the Doctor who brings the bad news, yes the tests show it's terminal , but look on the bright side you're going to die anyway,hah that reminds me of the old line from Epicurus, "It is possible to provide security against other ills, but as far as death is concerned, we men live in a city without walls". Take these twice a day. Here's my bill.

At this point dear reader you maybe thinking - what an awful piece. This kind of economic analysis is so reductive, the writer is a horrible philistine. But consider this. Although Professor Grafen has bravely denounced plagiarism, we must also examine his reasons. I'm only guessing, mind. I presume he disapproves of the fact that by plagiarising the average undergraduate at Oxford is only letting himself down. I suspect he finds it offensive and deceptive that any student should gain a degree without the requisite academic rigour and that it misrepresents the student's ability somehow, because it is in a sense unearned and worse still, shock horror, unmerited indeed unmeritocratic to obtain a qualification in this fashion. These are very noble and laudable objections.Ideals worthy of Chaucer's Clerk of Oxenford. Unfortunately prof, here's the problem. I'm sure dear reader you already know this, but if you are the holder of an BA degree from Oxbridge after a couple of years , the matriculation rules allow you to "convert" this to an MA for a nominal fee. This too is unearned, unmeritocratic and would fool the average man in the street and dumbos like me that holders of an MA would actually have sat for an exam or done some work.But guess what? no work required. I kid you not.It's for nothing, free, without strings.Hey who wouldn't want one. Guess what outside the narrow world of academia most people including recruiters don't realise it's a , dare I say it, a 'cheat' degree. Does Professor Grafen not consider this a problem?I know it's been going on at least 400 years, but a piss take is a piss take right? Does it have a place in the 21st Century? How do you justify it?

Oh dear prof. Cat's out of the bag now!!.You've opened a can of worms. See it's best not to bemoan modern ways unless you've already sorted out the problems of the ancien regime. So nobody cares and nobody is worse off due to plagiarism certainly for first and second degrees, These kids pay the tuition fees, and expect a product in return.Give it to them.

P.S
send me a degree in the post and I'll take the blog down.No questions, just an MA. Nothing fancy. Nah on second thoughts make it a DPhil, and top me up with a BCL. Go on , you know you want to.

RB

This is an ocassional up date of the stock tip that I made in November last year regarding Barclays.(See the archived piece on 24 Nov called:Barclays - Is the Barc[ap] worse than its bite? Why be long Barclays?). I tipped it at 604p. Today it's approx 668p. Time to dump it or close any derivative positions. I really don't like the bad debt provisions or BarclayCard for that matter. As with all financial tips, I will add the usual disclaimers. Don't listen to me, I'm not trained as a financial analyst, bad with numbers and my stock recommendations are usually based on flimsy logic. Welcome to capital markets.

RB

I don't go to Canary Wharf very often. It's a dirty place in a kind of antiseptic way. All futuristic city no soul. A kind of Bladerunner landscape with out the Philip K. Dick twist. Recently I went there to have lunch with a friend of mine. I got there early. If you're ever there early and have nothing to do, and don't fancy hanging round in a Starbucks, why not grab a hot drink and use the reception area of 25 Cabot Square, otherwise known as Morgan Stanley. It's central , it's free and the chairs are comfy, quite a nice place for a power snooze too. Even better though there is a nice selection of newspapers and magazines for perusal as you await your lunch appointment. The once mighty wall street powerhouse reduced by Mr Purcell (before you laugh-yes, ex-Mckinsey) into a bit of a joke is quite a good place to hang out. The staff restaurant and executive dining rooms were some of the earliest in Canary Wharf and at a push could rival Deutsche. Perhaps not Winchester House but not bad.

So where was I , yes if you want to see the extent of Mckinsey's influence on the outsourcing market I would urge you to read the current piece in Business Week Magazine ( March 6 2006) issue, called 'Spreading the Gospel'. In this rather eulogistic piece by Business Week you will be treated to a two page spread on how Mckinsey pioneered the outsourcing concept and then how their star alumni had the bright ideas of leaving the consultancy to set up outsource providers. It's all very neat, but you do begin to wonder who the winner is from the back office outsourcing model. Well let's see. It's not the average employee ( you get fired) , it's not the customer ( your service level normal stays the same , or gets worse in most cases), it's not the shareholders necessarily ( does the company that increases margin and profit pay out more in dividends or make more buybacks in the short to medium term. Perhaps we need to see some consultancy research on this? There you go boys, try doing a piece on that . That's something for the weekend).Guess who the real winners are in the short term?. Yes that's right - the ex-consultants who suggested the outsourcing now providing the outsourcing. It's perfect. You couldn't invent it. Be careful who your company listens to. It could cost you your job.

In real life double standards tend not to be a very attractive or a valuable personal characteristic. In the world of commerce they can be useful in running a business. In Management consultancy it seems to be the major product offering. Today's FT reports that a partner in the New York Office , in fact one of its " top corporate finance partners", has concluded in a research paper that the "provision of guidance on earnings with research that shows the quarterly ritual fails to reduce share price volatility but encourages short-termist management". REALLY, I did not know that. Oh wait it a minute, yes I did because it's obvious unless you're a fool.Here's a recent example, witness Wall Street's reaction to Google and it's share price when it refused to provide traditional earning guidance. You don't need a research paper to tell you which way the wind blows. If these are the types of valuable conclusions the egg heads at Mckinsey are 'finding' you ought to think twice about paying for their services.By all accounts they seem to be very academic people, but really not very practical or business savvy. They completely lack what the ancient Greeks used to call Metis http://www.shkaminski.com/Classes/Readings/metis.htm). It's a wonder they try and sell this as 'research' and an embarrassment that they actually put their name to it.I'm actually embarrassed reading it.


Now for the good bit, this is actually a very timely article given that the Enron trial is going on at the moment. Companies have always known that the quarterly earnings guidance dance causes stock price volatility, the best example of this was Enron. The current trial recently revealed that Ken Lay and Jeff Skilling are alleged to have raised quarterly earnings expectations from 32 cents to 34 cents in July 2000 in order to keep the analysts happy. Now here's coincidence number one, it's now universally agreed that Mckinsey was the chief architect in Enron's transformation from old world industrial pipe company into the new economy asset-lite energy investment bank cum dot com boom darling.Here's another fact Jeff Skilling is an ex- Mckinsey alumnus. I'm getting goose pimples, no really. Mckinsey prides itself on it's alumni contacts, in fact ex-alumni littered round the boardrooms of the Fortune 500 are a major source of it's revenue.Proud ex-Mckinsey-ites will tell you that the all important Mckinsey contact book is one of it's greatest assets. It's the ultimate contact book. So rather than waste his time researching this stuff from scratch, Tim Koller could have just called up Jeff Skilling and got the real deal from the horse's mouth. After all there is no point re-inventing the wheel.Work smarter not harder boys. You'll get there. Eventually.