Trump threat to the Fed
AS one of the bleary eyed who chose to watch Trump versus Clinton live from new York one could not be anything but impressed by Hillary’s calm demeanour and knowledge against Trump’s bombastic fidgety answers and interruptions.
But as a former Washington correspondent I also know how foolish it is to pick an early winner in televised debates, and how American voters can make their minds up on touchstone issues ranging from law and order to gun control.
Moreover, release of a rich man’s tax returns, in a society where everyone thinks they can be a billionaire, may not have the same resonance it has in Europe or among East Coast sophisticates.
The odd thing is that for all his woeful ignorance, ‘the Donald’ was the person with the fresher ideas. His call for a cut in uS corporation taxes to 15pc (from the current 35pc) at a time when big American companies have parked billions of dollars offshore to escape the long arm of the Internal revenue Service is sensible. Moreover, Trump’s dislike of trade agreements – a kind of corporatist conspiracy – would find favour with our own Brexiteers. Indeed, it is Trump’s focus on this which led Hillary Clinton to break faith with the White House’s Trans Pacific Partnership (TPP).
The most market sensitive of Trump’s interventions was his broadside against the uS central bank, the Federal reserve, for debauching the currency. He blamed the Fed and its chairman Janet Yellen for creating a ‘big fat ugly bubble’ and suggested that the Yellen Fed has become too political. The argument has echoes of the case made against Bank of England governor Mark Carney by people who felt the Canadian allowed himself to be used by remain.
The reality is that Carney would have been damned whatever line he took. He showed himself to be well up to the task of governor when it came to calming post-Brexit blues.
The strength of Trump’s attacks on Yellen suggest it would be tricky for her to continue to serve as Fed chairman if he wins in november. Paradoxically, Trump would presumably support a rise in interest rates in December, which Clinton might oppose if the markets are volatile.
Technically the Fed is independent and the chair, although nominated by the President, has to win the approval of Congress. So a sacking could cause a political outpouring.
It has, however, been done before. Jimmy Carter removed his own choice, former industrialist G. William Miller, amid chaos on the financial markets, and replaced him with Paul Volcker. He brought inflation under control but lost Carter the election.
An earlier chairman, Marriner Eccles, battled for the Fed’s independence when he came under attack from Harry S. Truman.
If Yellen felt she couldn’t work with a Trump White House, it should not be a total catastrophe for financial markets. Her deputy Stanley Fischer, former deputy managing director of the IMF, former governor of the Bank of Israel and a decorated economist, would be more than a safe pair of hands. It is hard to think that a Trump win could be anything but disruptive for financial markets.
The irony is that the turbulence it might generate might lead the Fed to postpone the rate hikes until the furore over the election of an economic nationalist had calmed down.
Short changed
MErLIn Entertainments takes pride in the fact that it never sought to avoid responsibility for the Smiler roller coaster crash in June 2015, which left five people seriously injured and resulted in two young women losing legs.
unlike other corporate sinners such as Thomas Cook it acknowledged mistakes early on, said sorry to all and made it clear generous compensation would be paid.
Chief executive nick Varney issued yet another apology, after the company was fined £5m, adding he was determined to make compensation as trouble free as possible.
nevertheless, the case at Stafford Crown Court raised troubling questions. Why did Merlin initially claim ‘human error’ when the court found the cause of the accident was an underlying fault in a flawed system? How sensible is it for a theme park operator to have an incentive system which rewards engineers for keeping downtime to a minimum? And did the punishment fit the crime?
It is disturbing that Merlin sought to pass matters off as human error when the cause was a systems problem and could have cast a pall not just over Alton Towers but many of its 115 theme parks. Similarly, no one should be comfortable with a bonus system that focuses on efficiency not safety.
Finally, the £5m fine looks tiny. The company’s poor systems proved catastrophic and no number of apologies compensates for that. Imagine if the accident had occurred in Florida. Merlin would have been considering whether it needed to file for Chapter 11 bankruptcy.
Instead, Merlin’s shares rose.
Private profits
SOFTWArE group Misys puts out a press release extolling the virtues of its own systems as the SWIFT Accord financial messaging and transfer network is retired. It boasts that it is at the frontier of fintech, with 2,000 customers across 250 countries.
All very impressive. But there is a bit of mystery as to how a uK-quoted software champion sold to Californian private equity outfit for £1.2bn in 2012 is now being readied for a stock market return with a value of £5.5bn.
Alchemy or what?