Cheating scales the Olympian heights.

I recently wrote about cheating. Acceptance of cheating seems to be culturally determined. A few years in a British University apparently strains it out of you.

The Japanese Olympus Company makes fine cameras , but I have been more involved with their being a major manufacturer of microscopes and endoscopes. I was shocked that they appointed a British CEO, Michael Woodford, in October and then sacked him two weeks later. The reason given was that he 'failed to understand the company's management style or Japanese culture'. This seemed unlikely since he had worked for the company for 30 years and had been the CEO of the European branch of the company.

Woodford, however, maintained that it was for questioning the firm's 2007 £1bn takeover of Reading-based medical equipment firm Gyrus and the purchase of three other smaller companies. He said it was because he had uncovered a series of huge and questionable payments, and then campaigned for the company to come clean.

Today, Olympus admitted to fraud, dating back to the 1980s, after bowing to mounting pressure to explain a series of baffling transactions that have put the future of the firm in doubt. With the news, Woodford called for the Olympus board to resign, and said he would like to return to manage the company should shareholders wish to reinstate him.

A subdued Olympus President Shuichi Takayama, who staunchly defended the deals when he took over from former President, Tsuyoshi Kikukawa, last month, told a press conference: 'I was absolutely unaware of the facts I am now explaining to you. The previous presentations were mistaken. (a euphemism for lies)' He blamed his predecessor Kikukawa, who quit as president and chairman on October 26, Vice-President Hisashi Mori and internal auditor Hideo Yamada for the cover-up. And he revealed he was now considering initiating criminal complaints against them.

He said Olympus had discovered funds relating to its purchase of Gyrus, which involved a huge advisory fee of £427 million as well as payment of £480 million for three tiny domestic firms, were used to hide losses on the securities investments.
The investment in the three domestic firms was largely written off a few months after the deals closed. It means Olympus, its directors and accountants are now open to possible criminal charges for suspected accounting fraud and shareholder suits.

Ryosuke Okazaki, chief investment officer at ITC Investment Partners, said: 'This is very serious. Olympus admitted it has made false entries to cover its losses for 20 years. 'All people involved in this over 20 years would be responsible. There is a serious danger that Olympus shares will be de-listed. The future of the company is extremely dark.' Olympus' announcement sent its shares tumbling 29 per cent to a 16-year low. The company has lost a staggering 70 per cent of its value, or $6 billion, since it fired Woodford, who had been one of the few foreign CEOs of a Japanese blue chip company.

Olympus said it discovered the cover-up while working with an independent panel set up last week to investigate the deals. Kikukawa and Mori confessed to their roles on Monday night, Takayama said. Mori was sacked earlier in the day while the internal auditor offered to resign. Olympus said it would decide whether others were responsible after further investigation. The independent panel's head, retired Supreme Court justice Tatsuo Kainaka, said his team may recommend criminal charges in its report, which will be completed early next month. Takayama said he believed the loss-postponement scheme had started before the 1990s. The firm said it had funnelled money related to the acquisitions through various funds and other measures to defer posting the unspecified losses, similar to practices seen after Japan's bubble economy of soaring asset prices burst in 1990.

While Olympus did not offer concrete details, Takayama said he believed the company may have initiated the loss-postponing scheme when its earnings had taken a drastic turn for the worse, possibly during a period of yen strength. Such a scheme may have involved creating a fund or special purpose vehicle to buy battered securities at book value, getting them off Olympus' balance sheet. The cost to fund that scheme would have ballooned over time.

The people no-one seems to be apologizing to are Olympus's competitors; other manufacturers of cameras, endoscopes and microscopes, who may have suffered losses by Olympus taking up unfair market positions.

Olympus's fraud seems to have been a reaction to Japan's stagflation. Now that Europe and America have entered a similar economic landscape, can we expect to see similar frauds in Europe and America. We need to be vigilant.

The economy

Growth is slowing down. Official figures have reduced the expected growth in the UK economy this year by 0.2% while keeping next year's figures the same at 2.5% It looks as though the economic recovery is stalling. Despite this, teh recent visit of the IMF was supportive of George Osborne's policies and dismissive of Labour's plans. The reason given was that the setbacks that have taken place this year are temporary ones. Four have been identified. Oil prices have risen because of the turmoil in North Africa, the Japanese earthquake has caused a breakdown of manufacturing supply chains, the Greek crisis has renewed the threat to the European financial systemhas and the European Central Bank’s has decided to start raising interest rates somewhat prematurely.

The Greek crisis seems to have settled again and Spain has not joined teh failed economies, quite, Japanese parts are signaled to start moving shortly and Saudi Arabia seems secure so that OPEC are talking about switching on the oil again.

It is going to be a long slow recovery but 20 years from now it will be seen as a blip.

Meantime over 400,000 new jobs have been created in the private sector in the past year.

Budget

This from Seablogger

I’m reminded of a story I heard about one way the mob does business…they find a small businessman and “persuade” him to take a member as a “minority partner.” The partner proceeds to withdraw funds from the bank account, buy (and steal) inventory on credit, and generally loot the business, eventually leaving the proprietor with a bankrupted business and destroyed personal credit and reputation. Having pushed the limit on legitimate borrowing, is the US Government now using guile to loot the private savings and investments of even non-US investors?

Today Alistair Darling presents his UK budget for 2009/10. It comes the day after a warning from the IMF that the UK will have the hardest climb out of recession of any Western economy and the day after the retail price index went negative for the first time in 45 years.

It is hard to know how to interpret the financial position of the country. In one respect this is just another 'bubble' that has burst. In contrast to most of Europe, Britain has been a householding democracy. We showed our faith in the country by buying a bit of it. I noticed something was up when I took out buildings insurance on my house. The rebuild costs were far less than the market value of the house. Obviously someone was putting a high value on the land.

I wrote yesterday about £8 million houses in Sandbanks (pictured above). This is apparently the site of the fourth most expensive real estate in the world. England (as opposed to the UK) is the most densely populated country in Europe. Not only does everyone expect to own their own house, but a constant stream of immigrants form Eastern Europe, Iraq, Afghanistan, Somalia, India and Pakistan wants to own one to. Fine large houses from the twentieth century were being torn down and turned into one bedroom apartments. There was a lot of money to be made. Typically, a £400,000 house was demolished and an apartment block rebuilt at a building cost of £300,000. It would contain 14 apartments which retailed at £150,000 each. Do the sums. Who wouldn't want a piece of that? The banks offered 100% mortgages at 2% starting interest to rise to standard interest rates after 3 years. It looked like a good investment. You could get on the housing ladder, house prices could only rise, your salary would rise and in three years you could afford the higher interest rate and if you couldn't you could shop around for another fix.

The word 'fix' is a giveaway. It had become an addiction. the rising price of housing was a drug. People were bankrupting themselves to get a part of it. Legislation allowed the addicts to put their pension funds into housing. The elderly gave their life savings to their children to buy into the housing bubble. Unscrupulous bankers lent money to people who had no income. You can't buy a house on benefits no matter how generous they seem.

A secondary market in bad debts arose and there were plenty of suckers to buy them. The banks had a fail safe position. Nobody could contemplate bank failures - they remembered the great depression. Only the government could save the banks. The government has unlimited money. Wait a minute! The government has no money. It has a means of confiscating other people's money by taxation or by inflation or by devaluation of the currency.

People are not stupid. They may be short term stupid. Some of them are long term stupid. But you can't fool all of the people all of the time. I believe Bob Dylan said that(!) Harold Wilson, prime minister in the sixties and seventies, famously lied to us, "The pound in your pocket is not worth less." The pound has been devalued against the Euro and the dollar by about 25%. Now's the time to holiday in the UK.

It is predicted that the Budget will raise taxes and cut public spending. If that meant smaller government I would be all for it but it will probably mean cutting services and the services it will cut will not be the ones precious to the socialist heart.

Pensions will be hit since that will not really be felt for many years. The motorist will bear the brunt because it fits with the government's 'green' agenda. Speed limits will be reduced to save 'greenhouse gases'. There is no point in the government currying favor with the electorate even though an election is only 12 months away, since they are 19% behind in the opinion polls following the scurrilous e-mail scandal. They are now working towards the next election in 2015, trying to leave as big a mess as possible for the Tories to clean up. So the middle classes will be hit with tax rises.

That's one side of the argument. The conclusion is that the government should keep its nose out of business; it should let the market do its job. There were plenty of banks that did not buy into this reckless business model. If banks had failed depositors could have been protected (were protected up to a £50,000 maximum, and the warnings were there that investors should not have all their eggs in one basket) and these banks would have replaced the ones that failed. Some retailers like FW Woolworths in the UK have failed but, in truth, it was a shop that had lost its way and it deserved to fail. It lived on its history, but had nothing worthwhile to sell. Other retailers will move into its premesis and snap up its employees.

The Christian side of this argument says that Haggai (1:4-6) said it all "Is it a time for you yourselves to be living in your paneled houses, while this house remains a ruin? Now this is what the LORD Almighty says: "Give careful thought to your ways. You have planted much, but have harvested little. You eat, but never have enough. You drink, but never have your fill. You put on clothes, but are not warm. You earn wages, only to put them in a purse with holes in it."

The House of God in the UK remains a ruin. I'm not talking about run down church buildings. The church is the people, and the people have had their fill of hedonism. Now is the time to seek sounder values.

The other side of the argument says that it is all about confidence. When I was 17 I was a keen but not very skillful footballer. I played center back for the 2nd eleven. The school was divided into four houses, two named after bishops (Beaufort and Wykham - spelled without the 'e') and two after Victorian novelists (Dickens and Kingsley). I was in Kingsley house together with a few other intellectuals and physical weaklings. Seizing my chance, I stood for Sports captain (we had no members of the 1st eleven at either football or cricket nor the 1st fifteen at Rugby. Our hero was a 4 minute 20 second miler who had left school six years previously). I was not elected; instead they chose a red-haired skinny boy who had transferred from the Catholic school at 16 and as a consequence nothing bad was known about him.

The house football championship was a disaster. We were on the end of drubbings from Wykham and Beaufort and had to face Dickens who had the captain of the 1st eleven and several other stars in their team. To make up a team we had recruited 14 and 15 year-olds and some bookish types who played in spectacles. Predictably, at half time playing down the slope and with the wind at our backs we were losing 3-0.

I don't remember what I said at half-time. Something about the other side not being Supermen. Something about how they would be complacent with such a large lead. Something about believing in ourselves. Something about a good little one beating a slow and over-confident big one. Something about opportunities. I only know that somehow the team played the second half with confidence. They played for each other. They remembered what they could do and forgot what they couldn't. We scored 5 goals in the second half, uphill and against the wind. The following week I was picked for the 1st eleven.

It was all fake, of course; we weren't a better football team than Dickens, any more that Bournemouth were a better football team than Manchester United when they knocked them out of the FA Cup in the 1980s. It is all about confidence.

This was how we escaped from the great depression. In Germany in the 1920s the currency was so devalued that you needed a wheelbarrow to carry home your wages in banknotes, and if you were robbed on the way home they would steal the wheelbarrow. Hitler restored confidence with oratory and military adventures. He got the German people believing in themselves after the calamitous defeat of the Great War and the punitive reparations of Versailles. He picked on a common enemy - the Jews - and united the people. In the States Roosevelt restored confidence in America, first by public works (which were not universally popular) but most importantly by the wartime expenditure. He created the Military-Industrial Complex which survived the Second World War by choosing another common enemy, communism. After Reagan there was no peace dividend. New enemies were discovered, Militant Islam and Greenhouse Gases.

Keynesian economics bought into this idea of confidence. Someone has to have it. Banks have to be confident enough to lend; industrialists have to be confident enough to borrow to invest and employ, consumers have to be confident enough to buy, retailers have to be confident enough to expand, consumers have to be confident enough to invest and so the cycle rotates. When everyone's confidence fails, government has to supply the fake confidence. It helps to have a great orator. Hitler, Churchill, Clinton and Blair all had that ability - so does Obama (in that respect Bush and Brown are and were disasters). They also need a compliant media and the blogosphere is a threat to that. We are not being surreptitiously fed propaganda by 'government sources'; we have to think for ourselves.

The Christian response to this side of the argument is that the real sufferers from the recession are the poor in Africa and Asia who have stopped growing food for home consumption and instead have been producing flowers for the rich man's wife, kiwi fruits for his low-calorie breakfast and fair trade coffee for his sore conscience. The rich man has been salving his conscience by cutting down on air freight greenhouse gases and tightening his belt because charity begins at home. And didn't Jesus say something about the poor being always with you. So the left-leaning Christian says spend, spend, spend, but direct your spending to the poor and needy.

As I said at the beginning of this lengthy piece I am ambivalent about what to do. In truth, I have been little affected by the recession. I have always thought that the inflated price put on my house was a joke. I paid £25,000 for it, which today wouldn't even buy a beach hut. For a while I seemed to be a paper dollar millionaire, though without a millionaire's life style. I have never spent all my income, and although my investments have gone down through the stock exchange fall, they are still probably worth more than I paid for them. My pension is large enough for me not to worry about money ever again. I don't believe that the left hand should know what the right hand is doing with donations so I will say nothing about this. Construe that as you will.

I am concerned about my grandchildren, but they all seem to be talented and they should make their way in the world, but Mr Darling's budget may well affect them. I would like to trust that he knows what he is doing, but the middle verse in the whole Bible (Psalm 118:8) says "It is better to take refuge in the LORD than to trust in man." (even a darling man). Incidentally, for those who like coincidences, 1188 is exactly the number of chapters in the Bible.