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Who runs Britain?,
This review is from: Who Runs Britain?: and Who's to Blame for the Economic Mess We're in (Paperback)
I think that my review is a bit late. The book refers to a Labour government but without any change in legislation, I would have thought that the situations described in the book are likely to continue.
The big overriding issue that faces capitalism in this country is increased globalisation. Capital and workforces are increasingly mobile so that national boundaries become less important or relevant. This is shown most clearly with private equity. When I studied for my accountancy examinations in the 1990s, I recalled studying different capital structures and looking at the effects of gearing on companies' financial performance. My natural instinct was that companies financed by excessive borrowing were far less stable and more risky than ones financied by equity and retained profits. The book shows the effects of private equity, in which individuals can raise enormouse amounts of money from lenders (and put up little themselves) in order to purchase companies on corporate performance. Some of these companies result in fantastic efficiencies in which the companies make large profits. Furthermore, with a relatively small investment, the Return on Capital Employed ratio looks very impressive. However, Robert Peston points to a number of failures. The key issue is that the risk appears to be unequally spread. As the enterprises are debt funded, there is considerably less corporation tax to pay (so the Treasury loses out) and the companies also lose financial stability. Employment prospects of the workers in these business have been shown to be jeopardised. The book showns how politicians have been weak in combatting this often cynical kind of capitalism for fear that private equity specialists may go to less regulated economies.
The book looks at a number of other issues, such as hedge funds and toxic debt. I am not sure I fully understand the former after reading this book so do not feel qualified to commnet. The latter issue is something to which I have given some thought. The key thing to bear in mind is that one person's debt is another person's asset. The money that is lent to a borrower to purchase a home is of value to the lender because it carries interest over a long period of time. It is also safe because if the borrower defaults on the loan, the lender can simply repossess the property and any outstanding repayments. As an asset it is saleable and markets have developed for the trade of packages of these mortgages, known as Collateralised Debt Obligations (CDOs). The problem with these loans is that too many were made to people in the USA who were considered to be NINJAs (no income no jobs or assets). When house prices began falling in 2007/8 and too many people began defaulting, these CDOs became toxic. I think Robert Peston tells this story very well.
For me personally, the most important chapter was the one on pensions. Unfortunately, it is also hardgoing and does not give enough weight to the underlying demographic issues. Working life is starting later and pension investments are required to finance longer retirements than originally envisaged. This is for more significant than the stories that Robert Peston focuses on in the book.
The book is a very readable journalistic journey. Robert Peston is great at writing about the various colourful characters in the business world and there are some great stories. However, it is not an analytical book that really explains the scale of what is going on. For instance, it does not give any numbers of private equity enterprises compared to the listed stock market based businesses. I also don't think the book answers the question as to who runs Britain.