Jeremy Warner's Outlook: An era of low inflation or asset price bubble as King maps out a bumpy road for the Bank
Quaero is a pointless search in vain; 'FT' moves to settle with Collins Stewart
news.independent.co.uk
Published: 17 January 2006
What the good burghers of Kent made of the Governor of the Bank of England's analysis of long term interest rates at a dinner last night organised by the local newspaper, the Kent Messenger, is anyone's guess, but if the port hadn't by that stage already addled the brain, they would have been witness to one of the most clever, thoughtful and instructive analyses of modern monetary policy to have graced a British dinner table in many a long year.
The Governor's subject was the persistence of exceptionally low long bond yields, a curiosity which Alan Greenspan, chairman of the Federal Reserve, has already described as "a conundrum". Mervyn King, the Governor, professes not to know the answers either, yet he advances a wholly convincing set of explanations.
These fall broadly into two categories. One explains low interest rates as the outcome of an increased propensity to save and lower willingness to invest in the world as a whole. The second explains them as the result of rapid growth in money and credit, which in a "search for yield", drives asset prices up and interest rates down.
In his speech, Mr King questioned whether either of these things might persist. Yet if they do, and the world's capital markets are returning to an era of low real rates more akin to the 19th and early 20th centuries, then the level of official interest rates required to balance overall demand and supply would, in the long run, be lower than has been thought necessary.
If on the other hand they don't, then at some point the ratio of asset prices to the price of goods and services will revert to more normal levels. Prices of goods and services might rise to "catch up" with those of assets as increased money leads to higher inflation. Alternatively, asset prices might fall as markets apply more traditional assessments of financial risk.
Whatever happens, the Governor is sending out some important signals here. One is that asset prices may become as keenly watched in determining monetary policy as price inflation. Another is that official interest rate policy is as likely to be influenced by trends in international capital markets as domestic supply and demand. The Governor predicts a bumpy road ahead.
Quaero is a pointless search in vain
Few business ventures are as obviously doomed to failure as Project Quaero, a Franco-German attempt to create a European rival to Google and Yahoo!. In its very concept a government initiative backed by some of the slowest moving, entrenched and monopolistic corporations on the planet Quaero (from the Latin "I search") is deeply flawed. The kiss of death is delivered by Jacques Chirac, President of France, who has given the project his official blessing. It's hard to imagine a worse endorsement.
As an example of the sort of muddled backward-looking thinking that still instructs European industrial policy, Quaero takes some beating. Whatever it is that M. Chirac and Quaero's other supporters think they are competing against, by the time they've designed and built their system, the world will have moved on and their project will be just another an industrial relic.
Nearly everything of value that has come out of the internet was from tiny, entrepreneurial beginnings. Google itself was the brainchild of two Stanford University graduates, and even the mighty Microsoft was once run from the back of a garage. Governments rarely innovate except by chance, still less are they capable of commercial exploitation.
As for search, this is one of the fastest moving and innovative businesses on earth which is giving rise to a myriad of competing technologies. Google has succeeded because it has achieved incredible brand recognition. No government backed organisation is ever going to be so fleet of foot or achieve such levels of cool, nor indeed is this something government should aspire to.
That European policymakers can still believe the way to respond is through state sponsored endeavour is deeply depressing. Create an environment where business can succeed and the rest will come naturally. Why can't President Chirac and others see it? Plainly they don't want to.
'FT' moves to settle with Collins Stewart
Once a legal juggernaut gets rolling, it can prove very hard to stop. Witness the BCCI liquidators' absurd lawsuit against the Bank of England and Equitable Life's equally hopeless attempt to hold its former auditors, Ernst & Young, liable for the society's financial ruin.
Another case in point would seem to be the legal wrangle between the Financial Times and Collins Stewart Tullett, the City stock and money broking firm run by the irrepressible Terry Smith. The libel action should finally have come to court yesterday, but was adjourned while the two sides attempted to hammer out a settlement.
This is a case that should have been settled amicably with a drink and a handshake right at the start nearly two and a half years ago. But pride and intransigence allowed the wound to fester untreated, and it is only now, with the clock at quarter to midnight, that the two sides have been able to break the impasse.
The deal was said to be as good as done last night, though it remains to be seen on what terms and as with all grudge matches, there was still room for the fight to break out anew with the first light of dawn. The appointment of a new editor at the FT, without the baggage of his predecessor, would presumably have helped. It's not the new man's battle, so it's easier for him to eat humble pie. Even so, the grovelling apology which is customary on such occasions together with whatever sum of money the FT has agreed to pay, is not going to be easy.
I'm a journalist, so I'm bound to be sympathetic to the FT's stance. Yet to defend allegations of impropriety which the offending article's authors were never in any position to prove always did strike me as a bit of a sticky wicket. These came from an embittered former employee who it later transpired had attempted to blackmail Collins Stewart into an oversized pay-off. This made the source doubly suspect.
In any case, the FT never seriously attempted to argue that the allegations were true. Rather, its defence was that the dossier which made the allegations carried legal privilege, in that it was part of a bundle of papers filed at court in support of the employee's unfair dismissal claim. No other news organisation which obtained details of the claim took this view. Everyone else was a good sight more cautious with the material.
The FT further suggests that even if the allegations were untrue, there was a public interest in airing them, since readers were entitled to know what was being said about this fast growing investment bank the so-called Reynolds defence.
Again, this is a point of view I've much sympathy with as a journalist. It is a repeated source of frustration to financial journalists that they are not able to report why, for instance, a share price has bombed because to do so may be libellous.
More difficult to understand is why the FT didn't immediately apologise once it realised the allegations couldn't be made to stand up. This was the practical, as well as the honourable thing to do, the more so for the FT, which is the City's house journal and relies for its livelihood on a decent relationship with the movers and shakers of the financial world. In newspapers, as in all walks of life, it is always best to admit when you are wrong and move on.
Part of the problem, no doubt, was Mr Smith himself, a famous pugilist who has been positively relishing the opportunity for his moment in court.
He can hardly be blamed for that, yet his original claim for £230m in " special" damages was ludicrous, and even his outstanding claim for £37m would indeed do serious damage to our noble profession if anywhere near upheld, making us overly cautious and anodyne in our reporting and analysis. As someone who made his name with a brilliantly iconoclastic and combative approach to investment analysis, Mr Smith must surely realise that. Still, for the moment, vindication is his.
j.warner@ independent.co.uk |
