Thank you very much for your comment. If being interviewed by Paxman in this high point of one’s televisual career, does this mean that it will be all downhill (meaning downwards) from now on? Or shall we take ‘downhill’ in the other sense meaning that the going will be easier and the message is getting acrosss to a wider public? Let us hope it the latter. I have by the way a buyer for hardbacks. He would pay the full list price plus postage. Do you know of any to spare?

Best — Will

Good to see you on BBC news night this week.

David

Ken Hopper

I am sorry to say that Ken and I have been neglecting this site which accounts for the fact that we have not replied to your message. I will draw his attention to it this afternoon and I am sure he will be right back to you. It is lovely to hear from old friends. I would like to hear more about your Swedish trip.

Best-

Will

“Mearns Lodge” 296 Mearns Road, Newton Mearns. Glasgow G77 5LY

In regard to (1), there is no doubt that a great deal of moral hazard would be created by such a move. The US Taxpayer will be asked to absorb the mistakes of banking management with no certainty of ever receiving any recompense because the assets have such little value (? zero) and virtually no hope of ever realizing any value in the future. The American taxpayer has not received large bonuses; they do not live in lavish apartments in Manhattan or waterfront mansions in Greenwich/Florida. But they are expected to rescue the bank management because of “systemic risk”. Why? New private banks can be created very quickly and they can easily continue the business of banking in America (e.g. Google Bank, IBM Bank, Intel Bank, Berkshire Hathaway Bank etc). There is no pressing need to protect the incompetent bank management and shareholders of the existing errant banks.

And with regard to (2), it is imperative to keep in mind the ultimate goal of any government actions – and that is to restore trust and confidence in the American banking system. There is no guarantee that the creation of government owned “bad banks” will result in improved confidence. In fact, it may result in the opposite effect as rescued banks may struggle to repair their business after admitting that they needed to dispose of their previous errors in such a public manner.

And, finally, none of this will fix the ultimate problem faced by the American economy – a severe lack of credit demand generated by a once-in-a-lifetime deflationary Tsunami of asset prices.

The shareholders and well paid directors of Freddie and Fannie have been on a good run – profits to be shared out and divided amongst the stakeholders – losses guaranteed by the government. As pointed out by Will in his post. Poulson and his colleagues announced that Les Enfants Terribles will be taken into the naughty house and kept there until they start to behave.

Who picks up the cost of the naughty house fees – the school fees – the $200 billion dollar rescue fees? We do. Even worse the effect of all this recent financial skulduggery is the decline in value of our homes, our businesses, our pension funds . Even the value of our good and big companies take a hit and in fact become a bargain for anybody willing to buy them. And there is more, who has got all the money to buy things at the moment?- yes that’s right, the Chinese and the Gulf States. The people who have been manufacturing and saving their dollars and building sustainable businesses for the long term. Back in the west and the financial centres our clever business leaders have been building Potemkin Villages.

The biggest Potemkin Village so far was built on Sunday – the bail out of the twins.

I am just now watching a report on Bloomberg about the investment ratings on Iraqi Bonds now being safer than Bonds issued by a group of very large, regional US banks. US bankers should hang their heads in shame as they await the arrival of the investigating Federal authorities. Unfortunately, I am not at all confident that America’s value systems are robust enough to support those much needed investigations.

The PURITAN GIFT should be required reading for ALL bankers, businessmen & college/university students. In my opinion, it is the most fascinating and important business book I have ever read.

As authors, my brother and I have a lot of sympathy with what you say. We were probably too kind to private equity (PE) in our last chapter. We will review this aspect for the paperback which is due in February. The group of undesirable practices known as ‘financial engineering’ (also known as ‘greed is good’ and exemplified by extraordinary ‘debt leverage’) prevails in both the listed and the unlisted (PE) market. See for example the funding of the British Airports monopoly. The one big advantage that the unlisted market enjoys over the listed market from our point of view is that it is not dominated by the tyranny of the quarterly statement, but that is only one part of a complex picture.

Assuming that we all agree that there were good practices in the past and that the world should revert to them (the basic thesis of our book), then the question is: what should we do about it? I think the answer is threefold.

• the tide is probably already turning, as we describe in the last chapter — see the words and actions of the likes of Jeff Immelt of GE.
• we hoped to speed it on its way by writing our book, which has been a ’slow burn’ but is starting to make an impact. Ken and I are now being asked to address conferences. Both the FT and the BBC have shown interest in our ideas.
• we would like to set up a think tank called the CCS Institute — named after the Civil Communications Section of General MacArthur’s command (see chapter 10) — towards the end of the year to promote our 25 Principles. This idea will be discussed at a seminar in Dublin on October 9/10. This body would be designed to teach the world the lessons that our Three Wise Men taught to the Japanese.

I hope that provides at least a partial answer to your question.

Will (also for Ken)
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