Financial Times News - John Kay Column

How the market proved no panacea for BT

Tue, 17 Nov 2009 20:10:35 GMT

It is 25 years since the public offering of a 50.2 per cent stake in British Telecommunications. Never before had a major state-owned utility been transformed into a public company with dispersed share ownership. The flotation, five times larger than any previous offering on the London Stock Exchange, was not the product of a carefully worked out Thatcherite scheme to roll back the frontiers of the state. It came about almost by accident.

Powerful interests are trying to control the market

Tue, 10 Nov 2009 20:35:24 GMT

You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.

Chaotic evolution defines the market economy

Tue, 03 Nov 2009 22:30:29 GMT

The fall of the Berlin Wall in November 1989 was the defining economic event of our lifetime. It marked the end of the largest controlled experiment in the history of social sciences - the division of Germany into two economic zones, one centralised and planned, the other a market economy. After 40 years, the gap in living standards between the two was so extreme that the experiment terminated.

'Too big to fail' is too dumb to keep

Tue, 27 Oct 2009 22:40:23 GMT

In the 2007-08 crisis, many different kinds of financial institution failed or were saved only by state intervention. Large financial conglomerates - Citigroup and Royal Bank of Scotland. Investment banks - Bear Stearns and Lehman. Smaller retail banks without investment banking arms (but with active treasuries) - Northern Rock and Sachsen Landesbank. Diversified banks, such as Fortis, and specialist lenders, such as Hypo RE. Public agencies, such as Fannie Mae and Freddie Mac. America's largest insurer, AIG. Taxpayers will be footing the bills for a generation.

True survivors do not clutch at straws

Tue, 20 Oct 2009 22:15:36 GMT

Jim Collins' Built to Last was one of the best business books of the past two decades. One of the more intriguing ideas it contains is "the Stockdale paradox".

How the skies proved the limits of regulation

Tue, 13 Oct 2009 22:25:28 GMT

It was obvious from the earliest days of civil aviation that the industry must be regulated. Passengers cannot assess the airworthiness of a plane before they board. While an airline that did not maintain its aircraft would acquire a poor reputation after its planes crashed, that is rather too late for the victims. Even if we were content for market forces to police the relationship between passengers and carriers, few would be content to allow unsafe planes over the skies of London and New York.

Markets after the age of efficiency

Tue, 06 Oct 2009 22:05:27 GMT

Warren Buffett said most of what you need to know about efficient markets. "Observing correctly that the market was frequently efficient, they [academics, investment professionals and corporate managers] went on to conclude incorrectly that it was always efficient. The difference between the propositions is night and day."

Evolution is the real hidden hand in business

Tue, 29 Sep 2009 21:15:24 GMT

Unless you have been asleep, you will have noticed that 2009 is the 150th anniversary of the publication of The Origin of Species. Evolution is one of the most seminal of scientific ideas. Yet the application of evolutionary approaches to problems of business, politics and society has been slow.

Do not discount what you cannot measure

Tue, 22 Sep 2009 21:00:24 GMT

"When you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind." This observation scores high on the list of silly remarks made by clever men, to which its author, Lord Kelvin, made several sterling contributions. The knowledge possessed by Plato and Shakespeare, Austen and Darwin was neither meagre nor unsatisfactory.

Everyday banking with no bill to the taxpayer

Tue, 15 Sep 2009 21:50:24 GMT

In the year since the collapse of Lehman, the phrase "a new Glass-Steagall" has often been used as shorthand. The reference is to regulatory measures that would separate the utility of everyday banking from the casino of financial markets.

'Tailgating' in financial markets puts us all at risk

Tue, 08 Sep 2009 20:35:15 GMT

On Thursday at noon the Bank of England's monetary policy committee will announce its decision on base rates. Suppose I think the rate will stay the same, and the market expects it will rise. At 11am I make a trade that reflects my judgment. I am right, the market is wrong, and I make a profit - perhaps a large one.

In magic or in markets, it isnever rational to be wrong

Tue, 01 Sep 2009 20:30:25 GMT

Last week the anthropologist Keir Martin described on this page how Papua New Guinea farmers would plant only half their land, believing that envious neighbours might employ witchcraft if they did more. This behaviour was evidently not profit-maximising, yet made sense in the context of the beliefs and customs of Papua New Guinea.

Banks brought down by new Peter Principle

Tue, 25 Aug 2009 19:45:35 GMT

Forty years ago, Dr Lawrence Peter enunciated what he immodestly called the Peter Principle. Individuals would find their level of incompetence. If you were good at doing a job, you would be promoted until you were appointed to a job you weren't good at.

George Eliot wrote the book on moral hazard

Tue, 18 Aug 2009 18:45:14 GMT

Middlemarch, England

First-class driving makes little economic sense

Tue, 11 Aug 2009 21:10:22 GMT

You may be planning to take the motorway north from London towards the Lake District or Scotland in this holiday period. If so, you have a choice of routes as you approach Birmingham. You can stick to the original M6. Or you can pay £4.70 and use Britain's only modern toll road.

It may be dismal but economics flies off the shelves

Tue, 04 Aug 2009 17:45:24 GMT

When I tried to market a "popular book on economics" to publishers a few years ago, it was a hard sell. They thought such a book was an oxymoron. Economics was perhaps worthy, certainly boring. Economists, they thought, were people who talked about whether interest rates would go up or down even though they did not know.

What a carve up

Fri, 31 Jul 2009 15:15:20 GMT

Liar's PokerBy Michael LewisHodder £8.99FT Bookshop price: £7.19

True democracy is not just about taking part

Tue, 28 Jul 2009 19:35:14 GMT

Like most people, I want to eat rich desserts, but do not want to get fat. I want to enjoy a secure retirement, but I do not want to save towards it. I want lower taxes, and I also want better public services. Of course I do. It would be odd if I did not. Irrationality does not lie in wanting inconsistent things. Irrationality is being unwilling to make choices between inconsistent things.

Managers doomed to repeat the mistakes of history

Tue, 14 Jul 2009 18:15:28 GMT

After the Japanese attack on Pearl Harbor, a young man called Tex Thornton was appointed to manage a statistical control group for the US Air Force. Thornton recruited a group of individuals like himself - smart, self-confident and very numerate - who were nicknamed the "Whiz Kids". They brought order to the chaos of US military logistics.

John Kay: Dedicated follower? Or asset allocator?

Fri, 10 Jul 2009 17:45:18 GMT

Most investors simply do what others do. You can do a lot worse. The strategy of replicating the portfolio of a typical institutional investor, such as a large pension fund, is both easy and cheap to implement.

Our banks are beyond the control of mere mortals

Tue, 07 Jul 2009 17:25:12 GMT

At Oxford university, I often hear people say there is nothing wrong with the system: the problem is the vice-chancellor/master/bursar/ university officials. And, in a sense, they are right. If the vice-chancellor had the wisdom of Socrates, the political skills of Machiavelli and the leadership qualities of Winston Churchill, not to mention the patience of Job, he or she would be very likely to be able to fulfil the conflicting demands of the post. But such paragons are few and far between. In the meantime we must try to find structures that can be operated by ordinary mortals.

Britain has sunk itself deep into a fiscal black hole

Tue, 07 Jul 2009 15:15:30 GMT

This year, Britain is likely to incur a fiscal deficit of more than 12 per cent of national income. This figure is completely outside the normal experience of developed countries in peacetime. How did it happen and what are its implications?

John Kay: Is insurance worth paying for? Probably

Fri, 03 Jul 2009 18:10:22 GMT

Scott Fitzgerald claimed that the mark of first-rate intelligence was the ability to hold two contradictory ideas in mind at the same time, and still function. Thinking in terms of probabilities is a technique for managing Fitzgerald's problem.

Britain has sunk itself deep into a fiscal black hole

Tue, 30 Jun 2009 18:15:25 GMT

John Kay: How to stay safe when doing-it-yourself

Fri, 26 Jun 2009 16:35:19 GMT

The first share I bought was in a small shipyard called Robb Caledon. The purchase was both a rewarding investment and a rewarding lesson in investment.