The most stylish fellow passenger in Delta Air Lines’ business class cabin from Atlanta to Heathrow last week was a chap in shades and a hoodie with a couple of kilos of bling round his neck. Inquiries in the galley identified him as ‘2 Chainz’, a Georgia-born rapper whose real name is Tauheed Epps. I gathered he had invited the flight crew to call him Tad — and naturally I was keen to befriend him myself, but the Dracula’s-coffin configuration of Delta’s flatbeds made conversation all but impossible. So I was left trying to guess his thoughts on the issue of the ‘fiscal cliff’.
That is the impending crisis in which the expiry of George W. Bush’s tax cuts, combined with a federal spending squeeze also scheduled for January, will cause a sudden $600 billion shrinkage of the budget deficit that threatens to plunge the US economy, and possibly ours with it, straight back into recession unless compromise is reached to soften the impact. Any self-respecting hip-hop artist is, of course, highly likely to have voted for Barack Obama (93 per cent of African-Americans did so) but Mr Epps’s holding of portable precious metal and decision to seek his fortune abroad — in his UK debut at the Electric Brixton alongside DJ Semtex, in case you missed it — suggest a pessimistic view of domestic economic prospects under the re-elected president. Judging by hislyrics (‘It’s mine, I spend it’), he’s also no supporter of tax hikes for higher earners.
These opinions would align him with much of America’s middle class, who wait to see whether Obama will be any more potent in his second term than he was in his first when it comes to arm-wrestling Congressional Republicans such as House Speaker John Boehner. The argument is chiefly about symbolic tax rates and power struggles between the White House and Capitol Hill, much less about spending cuts or ‘sequestration’ — which if all happens as planned, will be broad, shallow and not in protected areas such as federal pensions and veterans’ benefits. Brinkmanship will drag on into the new year until, in Washington’s special way, the toughest decisions get kicked down the road again. But an extended stand-off combined with new tensions in the Middle East will depress markets and intensify the late-autumnal gloom — personified on this side of the pond by Sir Mervyn King’s starkly pessimistic performance last week — that is dampening recovery hopes everywhere.
And that means investors will continue searching for safe havens — making rapper-style gold accessories a prudent yuletide gift for any grandchild. In the meantime, if you need something to raise your own pre-Christmas spirits, download 2 Chainz’s ‘Birthday Song’. ‘All a’want fuh m’birthday is a big booty hoe,’ he chants. In such uncertain times, who can really blame him?
My eye is caught by an organogram of the new structure of financial regulation that comes into effect early next year. It’s a feast of acronyms garnished with a spun-sugar basket of reporting lines, like one of those high-camp creations from The Great British Bake Off. The Financial Conduct Authority is the ‘ongoing legal entity of the FSA’ (which ceases to exist) and is accountable directly to the Treasury and parliament. The Prudential Regulation Authority is a subsidiary of the Bank of England, whose Financial Policy Committee will have ‘powers of direction and recommendation’ over both new bodies — which are also linked by a dotted double arrow indicating ‘co-operation and co-ordination’, and a stronger line indicating a PRA veto over FCA action it considers ‘may threaten financial stability’. Are you with me so far?
The creation of distinct bodies responsible for prudential oversight (ensuring firms are strong enough not to threaten financial stability) and ‘conduct’ (fair competition and consumer protection) is often referred as the ‘Twin Peaks’ approach. To me that summons memories of David Lynch’s deeply mystifying television drama of the early 1990s, but to regulation buffs it recalls the Australian model that performed so well through the 2008 financial crisis. The fear among financial firms, particularly those which can’t afford large compliance departments, is that an already hefty burden of red tape is about to intensify; the fear among critics of the sector’s recidivist tendencies is that new complexity means new opportunities to ‘game’ the rules and shaft the customer.
FCA chief executive designate Martin Wheatley is eager to assure us the latter is not the case: enforcement will be tougher, dubious products will be swiftly stamped upon, and he has made a start by condemning internal commission payments for product-pushing by retail banks. But much depends on the ‘co-operation and co–ordination’ that was absent from the previous organogram linking the Bank of England, the FSA and the Treasury. You might think, for example, it would be useful to add ‘co-location’ to the formula: but the FCA’s 3,000 staff will stay in Canary Wharf (in the FSA building, which I’m told is too cheap to be given up) while the PRA’s 1,000 migrate to Moorgate, close to the Bank. Separation creates clarity of purpose, but is a cast-iron excuse for non-communication.
That whiff again
I have written before about the ‘dangerous whiff of financial sophistication’ that hangs over Ocado. The online grocery venture created a decade ago by a trio of former Goldman Sachs men was a strong, well-executed business idea, backed by worldly investors with very deep pockets. But many commentators thought its flotation in 2010 was premature and overpriced, and its unusually volatile shares have been a popular target for short-sellers betting it will eventually go pear-shaped. That prospect, amid rumours of an impending breach of banking covenants, was staved off again this week by a controversial £36 million equity-raising. The shares soared — but still look too much like casino chips to me; as I’ve said, this one’s best left to the professionals.
This article first appeared in the print edition of The Spectator magazine, dated 24 November 2012