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Letters


The Doom Loop

Andrew Haldane charts the growth of leverage – the alchemist’s stone of bank profitability – over the last 150 years (LRB, 23 February). He doesn’t explain why it reached catastrophically high levels during the last decade both in the UK and elsewhere.

In the 1980s, a committee of central bank regulators chaired by a senior banking supervisor at the Bank of England met under the auspices of the Bank for International Settlements in Basel to tackle the problems caused by the disparity in the rules and practices of banking supervision across the financial world, particularly with regard to leverage ratios. The agreement reached, subsequently known as Basel I, introduced the concept of risk weighting into banking regulation, based on the not unreasonable assessment that different classes of risk assets needed different amounts of capital to support them. Banks would be encouraged to focus on low-risk assets, so as to optimise their use of capital. The intended result would be an improvement in the risk structure of bank balance sheets and a ‘level playing field’ on which international banks could compete.

Basel I worked well enough, but the need to address the challenges of changing financial markets, derivative trading etc led to Basel II in 2004, in which the application of risk weighting went into overdrive. As a result of lobbying by interested parties in the banking fraternity, categories of assets such as those rated AAA by rating agencies or by the banks’ own internal models were no longer subject to capital constraint. This of course went wrong as soon as large swathes of AAA-rated supposedly risk-free assets proved to be anything but, as revealed first by the sub-prime debacle in the US and then in the banking and sovereign debt crisis. In real money terms there simply wasn’t enough capital to absorb the losses. In addition, by legitimising increased gearing on an unprecedented scale, Basel II ignored the potential liquidity implications for banks. Thus when the crisis broke even banks that hadn’t had any real exposure to toxic credits were vulnerable, as sources of funding dried up. Past regulation such as Basel II helped create this banking crisis, so when Haldane tells us that ‘Basel III is a good starting point, but may not be the finishing line,’ it is an exercise in the central banker’s art of understatement.

Although Haldane is right that there has been a failure of systemic governance, his ready exoneration of individual and board responsibility is surprising. It is not, he says, ‘a story of pantomine villains and village idiots’ (though the CEOs of RBS and Lehman Brothers and their respective boards surely merit an audition for these parts), but governance in financial institutions has contributed to the systemic failure. The bonus culture speaks to a radical change in the mores of management and governance in banking, and to undo it will require a more brutal response than Haldane suggests. Senior bank executives and board members should be liable to charges of negligence and reckless lending in the event of bank failure and subject to suspension. Unless there is a determined effort to eliminate the chancers and rogues from the banking industry, the most determined regulatory reforms will come to nothing.

Tim Whalley
London N14


It’s hard to be a bastard

Richard J. Evans, in his review of Sebastian Conrad’s German Colonialism, says it was the Germans in South-West Africa who first officially used the term Konzentrationslager, but they had a fine example to copy in South Africa, where British concentration camps had only a few years earlier served to exterminate more than 26,000 Afrikaner women and children (LRB, 9 February). The British military created concentration camps for black Africans too, and many of them – a figure of 12,000 is cited – also died of exposure, disease and starvation. I also know, at first hand, that the German anthropologist Eugen Fischer didn’t coin the name ‘Rehoboth bastards’ (or ‘basters’). That’s what they called themselves, and still do. Missionaries tried to persuade them that the name was shameful, but they were proud of it. I offer these corrections on behalf of my baster relatives, Hans Dreyer, murdered at Pella on the Orange River around 1810, and Augustinus Dreyer, arrested with his mates near Karasberg in southern Namibia on Christmas Eve 2003 on charges of rustling and slaughtering eight sheep and a donkey. As the old song goes, ‘Dis swaar om ’n Baster te wees!’ It’s hard to be a bastard!

Peter Dreyer
Charlottesville, Virginia


Where the Oil Is

Slavoj Zizek observes that ‘any attempt now to link the rise and fall in the price of oil to the rise or fall in production costs or the price of exploited labour would be meaningless: production costs are negligible as a proportion of the price we pay for oil’ (LRB, 26 January). This is unlikely to hold true for much longer. Contrary to popular belief, the chief supplier of US energy needs isn’t a Middle Eastern theocracy with ready access to bottomless pools of South Asian slave workers. It is Canada, where the largest oil deposits are locked up in the ‘tar sands’ of Alberta. Extracting crude from sodden soil has proved so grossly inefficient and environmentally destructive a process that it promises to keep oil prices climbing (assuming, of course, that the extra burden can’t be wholly externalised with help from a business-friendly government). Ironically, the price adjustments needed to break American dependence on what’s referred to as ‘foreign oil’ become increasingly likely as production moves closer to home.

Adrian Versteegh
New York University


Whose horse?

Writing about Diego Rivera’s The Agrarian Leader Zapata, Hal Foster says: ‘the giant steed that stands with its master approves the final triumph over the fallen enemy’ (LRB, 26 January). I hope I am not doing him an injustice in taking his use of the preposition ‘with’ as implying that he sees Zapata as the horse’s master. For surely the relationship depicted between the two is not that of master to steed, but one of equality based on a shared experience of oppression. Foster notes relevantly that ‘this beast … shares the pure white coat and dark oval eyes of the hero,’ to which I would add that they are of almost equal height (the horse may be full-bodied after the fashion of Uccello, but is hardly ‘giant’). There is mutual recognition in those dark oval eyes, and Zapata doesn’t seem to be grasping the bridle in a gesture of domination so much as preparing to cut it loose with his sickle. Meanwhile the fallen enemy lies in his spurred riding boots next to his sabre, the weapon of choice for cavalry, all of which suggests that the horse is standing not with its master but over him. And now, of course, the horse has no master.

John Black
Vancouver Island University


Universities under attack

Over recent decades, enrolment in UK higher education has risen hugely. But this welcome expansion hasn’t led to sufficient institutional variety. The system needs a more diverse ‘ecology’ and more collaboration between institutions. The United States has several thousand institutions of higher education: there are junior and regional colleges, liberal arts colleges offering top-quality undergraduate education but no graduate degrees, huge state universities (many of them world-class) and the Ivy League private universities. We could do worse than to emulate the Californian system established in the 1950s under the leadership of Clark Kerr, the first chancellor of Berkeley. Its three-level structure of colleges enables an enviable combination of excellence, social reach and flexibility (or did until the Californian budget crisis).

The less selective of our universities are too defensive when berated about drop-out rates and ‘wastage’. An American will say, ‘I had two years of college,’ generally regarding the experience as positive. It’s surely better to take a few risks on admission, to give students a chance, and let some leave after two years with a ‘credit’ without necessarily being typecast as failures – and without the universities feeling pressured to see unwilling students through to graduation.

In the US, only a minority of universities have strong graduate schools. We too should concentrate doctoral study, and encourage networking and clustering of institutions. A PhD student needs more than just a good supervisor: he or she needs exposure to a wide range of courses. Concentration of PhD students need not entail an equivalent concentration of research. Many who teach in the best American liberal arts colleges are productive researchers and advise students affiliated to other universities. A diverse system should ideally include counterparts of the best US liberal arts colleges. (A.C. Grayling’s New College of the Humanities may not be the best model, however: an institution prepared to pay ‘star professors’ so much for doing so little, and which intends to make a profit too, seems unlikely to offer its students good value.)

And another point: academia’s current incentive system underrates broad learning and scholarship. The Robbins Report – a manifesto for university expansion in the 1960s, which had a literacy and depth sadly lacking from its later counterparts – saw the academic as having three duties: teaching, research and ‘reflective inquiry’. ‘Reflective inquiry’ is now being squeezed out. But it’s important for its own sake, as well as for the way it enriches both teaching and research.

Martin Rees
Cambridge


Religion, grrr

Rachel Aviv mentions the very large number of stories contributed by L. Ron Hubbard to Astounding Science Fiction in the 1930s and 1940s (LRB, 26 January). The pioneering and long-serving editor of ASF, John W. Campbell Jr, though gifted and hard-headed in dealing with fiction, was a wide-eyed sucker when confronted by charlatanry masquerading as ‘innovative science’ and accepted all the claims made for Dianetics uncritically. Alfred Bester wrote a hilarious account of a lunch with the editor at which Campbell announced that Hubbard’s doctrine had supplanted Freud’s work; that it would abolish warfare; and that it should make Hubbard a suitable candidate for the Nobel Peace Prize.

Sebastian Robinson
Glasgow


Unfair to Expats

I was dismayed by Jeremy Harding’s fantasy about the prospect of Britain refusing entry to ‘ever growing numbers of British returnees – 80,000 plus in 2008 – rethinking their options in Dubai or on the Costa Brava’ (LRB, 9 February). I am a retired EU official who elected to return to the UK after clocking up a quarter century of employment in Continental Europe. My family was among the ‘80,000 plus’ that year. However, the misgivings we felt about returning were a great deal more painful than my original decision had been, in 1981, to leave the UK for an indefinite period. There is a widespread tendency to stereotype all expatriates as over-privileged, tax-shirking cynics. In the same vein, Jeremy Harding is now content to portray expatriate ‘returnees’ as disappointed opportunists who fall back on their country of birth faute de mieux. This is grossly unfair to the thousands of Britons approaching the end of their careers abroad, as opposed to those simply disporting themselves in a sunnier climate.

Robin Charleston
Saxilby, Lincolnshire


Views from Elsewhere

In your issue dated 23 February, you publish five letters from the US, and one each from France, South Africa and Brazil. I know some people think the Brits these days are all illiterate. Am I to conclude that you are out to prove it? Or have you sent me the overseas edition by mistake?

David Lea
House of Lords