Posts Tagged ‘pseudo-academic bollocks’

Banking: it’ll make you go blind, you know

June 19, 2009

In my quest to bring the Paintbrush reading public their favourite type of non-Lily Allen related post (srsly, guys, she really isn’t here), I’ve been considering Banking reform.

The beeb is reporting that Mervyn King and Alistair Darling are clashing over what needs to be done. The Governor’s view is that there needs to be more done to allow intervention in banks that are “seen to be behaving riskily”; The Chancellor, on the other hand, favours leaving the tripartite system as is.

So far so predictable. I have some sympathy for King’s view, in honesty: but the important question is, how do you tell when banks are behaving riskily?

So here’s my two penn’orth for banking reform: Nationalize banking audit.

At present, banks (like other large businesses and financial institutions) must have their accounts audited, and spend large sums of money on getting the large auditors like PwC, Accenture and KPMG to come in, sift through everyone’s desk, and sign off on the accounts.

However, there have clearly been problems. There’s not a suggestion that any of the banks or mortgage lenders that have run into difficulties in the last two years came close to failing an audit; surely that’s a damning indictment of the present audit system?

There’s clearly a peverse incentive operating here. If a bank is paying an auditor hundreds of thousands of pounds to perform a service, there’s little incentive for the auditor to give their client bad news.

They are, after all, keen to get the contract again next year. In fact, the sort of personal relationships that can build up at a management level between banks and auditors that work with one another for a long period of time could work to make this worse.

That’s why, I think, the state should get involved. I think that a new consensus emerging from the financial crisis is that the public interest stake in the stability of the banking sector should be acknowledged more, and that there is a legitimate role for the state.

So, once the state relinquishes the stakes it has bought in the banks which required bailing out, we need to look at how that role is to be maintained.

Having a nationalized Office of Banking Audit – financed by an Audit Tax on banks, which would more or less replace the fees banks currently pay to their private auditors – would ensure that a stringent watch could be taken on risk taking, and that banking balance sheets can be kept in check.

Nationalizing bank audit is a neat “third way”, if you like, between returning to the light and limited touch of the past, and all-out state intervention in banking through ownership of stakes in large banks.

Can it happen? I’m not sure the government is feeling bold enough. But it should do. The time for being squeamish about nationalization is past: I think we’re all past the days when it meant going for the “commanding heights” of the economy.

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All women shortlists: now for the bonkers science part…concentrate

March 23, 2009

I was expecting my post on LabourList to generate some interest, but 61 comments? Blimey Charlie!

I think there are three separate issues here, and all of the commenters are trying to address them at the same time (in fairness, so was I when I made the post).

The first point is “Airdrie and Shotts CLP should grow up, and learn to accept collective democratic decisions”. This was the main thrust of the post (which was, alas, ignored by the comments – maybe they all agree?)

The second point is “All Women Shortlists are morally right, or at least, not morally wrong”. Of course, this is purely my own judgement, and clearly, it’s a divisive issue (in and out of the Labour Party).

I’ll probably return to the second point in the future. However, right now I want to address the third point: “open shortlists disadvantage women”.

Unlike the first two, this is actually quite straightforward and objective, because there’s data that we can look at.

New Labour MPs elected 1992-2005, by sex

New Labour MPs elected 1992-2005, by sex

Since the 1992 general election, 398 freshly-minted Labour MPs have entered the House of Commons – meaning there were 398 full selections that resulted in the election of a Labour MP. Of these, 289 were men and 109 were women. I’ve illustrated this is a pie chart (because I’m good to you like that).

So, of all of the MPs we elected, only 27% were women. This isn’t so good – and this includes the women who were selected from All Women Shortlists.

If we only include those MPs selected from open shortlists, the picture is even starker: 289 men to just 51 women. I’ll even give you another pie chart for that.

New Labour MPs elected from open shortlists, 1992-2005

New Labour MPs elected from open shortlists, 1992-2005

Now, if selections are fair – that is, they are equally likely to produce a man as a candidate as they are a woman – then they’re analagous to tossing a coin. If you toss a coin a couple of times, then you may well find that either heads or tails dominates; but the more you toss the coin, the closer the result will come to 50% heads, 50% tails. This is known as the law of large numbers.

This is because tossing a coin – or, indeed, selecting a candidate in a fair selection process – is a Bernouilli trial with a probability of 0.5 for each outcome: “man” or “woman”.

Hang on, I can hear you say – 340 selections may not be quite enough to really test the system. Could this result be random? In fact, if you’ve really been paying attention and you know your stuff, I might also hear you say, “a repeated Bernouilli trial is defined by a Binomial Distribution; what is its standard deviation?”

If you’re in the latter category of people whose voices I can hear in my head (and it’s not often I say that, I hasten to add) – you’re quite right that this is Binomially Distributed (the Binomial Distribution being used to model a series of n independent identical trials with two outcomes, each with a value of p and 1-p respectively).

The varience is defined by this equation:

Im right good at maths, me

I'm right good at maths, me

So, in this case its value is 340 x 0.5 x 0.5, or 85. The standard deviation – the usual test of the spread around the mean in a set of trials – is the square root of this, which is 9.219.

As the number of trials in a Bernouilli series increases, they tend towards a Normal Distribution – the bell curve we all learned about in school. (This is because of something called the Central Limit Theorem, but going into that would just be showing off).

Unlike this blog post, this distribution is Normal.

Unlike this blog post, this distribution is Normal.

In a normally distributed set, you expect 68.2% of results of your trial to be within 1 standard deviation of the mean, as shown in the pretty diagram on the right. In this case, this would mean that – 68.2% of repetitions of 340 open fair selections would lie in the range of 160 men-180 women to 180 men-160 women. 95.6% of repetitions would be within 2 standard deviations of the mean – the range 150 men-190 women to 190 men-150 women.

However, our result – 289 men and 51 women – is right down in one of the tails. If you repeated 340 fair open selections loads and l0ads and loads of times, the likelihood of any one of them being what we have is extremely small – far, far less than 0.01%.

So, we can conclude one of two things. Either, we have a fair system which has thrown up a truly freakish result, with similar odds to me winning the lottery this week; or, open selections are, for some reason, inherently unfair. I’m with the latter as the more likely explanation.

Fire up the tenner machine!

March 7, 2009
Dowload tenner.pdf and press print 10,000,000,000 times

Dowload "tenner.pdf" and press print 10,000,000,000 times

I’ve had just about enough of Tory commenters insisting that Quantitative Easing is an egregious, Mugabe-esque affront to all that is holy in our economy.

To hear them, you’d think that Alistair Darling just got “tenner.pdf” on his screen, set it to print loads and loads of copies, and started throwing them into the street.

Let’s get something straight. The type of hyperinflation in Zimbabwe, or in Gernmany or Belgium in the 1920s, is caused when governments print new money to do things like pay the salaries of government workers. Because there’s no change in the aggregate amount of goods and services in the economy, and because the natural rate of inflation isn’t changing, the value of money plummets.

Quantitative Easing refers specifically to when the economy is threatened with a deflation – and let’s remember, inflation is running at 0.1% right now, and house prices are still in a deep slump – and the central bank prints new money to buy bonds.

Get that? It’s used exclusively to purchase government gilts, or to lend to banks and other financial institutions.

Given that a) the major cause, and ongoing cause, of the present crisis is a catastrophic lack of liquidity in credit markets, and b) Conservatives get nearly as apoplectic about government debt as they do about lax monetary policy, having the government lend money to banks is surely not quite as bad as they make it sound?

The importance of public spending in a recession

February 11, 2009

It is compulsory for Labour Party members to illustrate any mention of unemployment with a picture of the Jarrow Marchers.

It is compulsory for Labour Party members to illustrate any mention of unemployment with a picture of the Jarrow Marchers.

With the news today that unemployment may top 2m for the first time since 1997, it’s now clear that the recession is well advanced and that the worst may well not be over.

Over the past 18 months, the widely-held notion that both main parties are “just the same” appears to have been blown wide apart: partially, at first, because of the stark sylistic contract between Brown and Cameron, but latterly because of their very different responses to the recession.

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