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Paul Fullerton: Our inexperienced politicians, like many bankers of the noughties, do not have the ability to manage risk

This is an article by Paul Fullerton.

Our inexperienced politicians, like many bankers of the noughties, do not have the ability to manage risk

An odd comparison perhaps, but I am not referring to the commonly-held cliché of a banker as a rich, greedy gambler in the financial markets. I mean our own domestic bankers – those who lent recklessly to British zombie companies and any old property deal, and, when all went wrong in the financial crisis, didn’t know what to do so retreated, squeezed credit policy and slowed the recovery.

I speak with a little knowledge, having retired from the Credit function of a large bank, and having spent the last years of that career cleaning up lending mistakes.

Banking is simple. It is risk management. That requires judgement, something not valued and therefore lost in the run up to 2008, and it is that quality of which I see an all too familiar absence now in our politicians.

If one lends, one will lose money; lending sensibly results in acceptable losses in proportion to the profits of the bank. Too lax a credit appetite will result, eventually, in unsustainable losses; too tight an appetite will restrict the bank’s ability to lend in the market, make a profit and operate as a normal business. The competent banker is able to exercise judgement on the facts of a proposition as to the balanced and acceptable level of risk to take for his enterprise to exist in the business world. Governments need to do the same with their policies which affect people’s lives.

In banking, those who didn’t have that judgement were generally either, well, ‘thick’, and couldn’t see risk at all; or relied on others to tell them (and accepted that without thought or challenge); or, panicked by unexpected losses, were so fearful of any risk that they hid behind excuses and conditions to avoid lending altogether.

In the current Covid crisis, our government has managed to move from each of these categories to the next with remarkable speed.

I, and I suspect most of us, would forgive them for their initial incompetence in not seeing what was coming given the misinformation from China, but they moved swiftly to the ‘what do the experts say?’ stage. Like a business plan produced by a company’s accountant, a bunch of Imperial forecasts saying what the presenters wanted to sell were taken as gospel. An incompetent banker would do the same.

The banker with judgement, however, would go straight to the Assumptions page (generally hidden at the back) and pull those apart, and sensitise those assumptions to more realistic evidence and experience-based numbers, and then take a real-world judgement on what is likely to happen, and the wider impact of the decision, before making that decision.

It would also be of little surprise for me to say that very few business forecasts survive prolonged contact with the real world, so early divergence would be quickly reviewed to understand why, to see if the risks had been misunderstood, or had changed, and whether a different approach was necessary. In other words, in that sort of scenario one should take a step back from the numbers, and try understand what is really going on.

That would all be good risk management, and the exercise of sound judgement, but just like those of our bankers who were not competent, our government chose not to challenge the ‘experts’, nor to consider the cost of the wider impact of their decisions, and then they decided to double-down and ignore the reality going on around them. Nothing to see here, ‘we’re following the science’, move along now…

Then they moved into the stage of panic, a sense of fear that their psychologist advisers encouraged them to push, and one which, once let loose with such earnestness, continues to grip them and the nation: a narrow, blinkered, bunker obsession resulting in a dog’s dinner of lockdown and ever-changing rules and regulations so technocratic, so complex, so illogical, so contradictory – I hear that ice rinks featured in a major announcement last week –  that Dilyn the dog might be concocting them by scampering around a Ouija board.

Like the incompetent banker who is too frightened to lend because of all the mistakes made, and because of ‘risks’ which he is unable to understand, or see in perspective, the government is too frightened to return the nation to normal life.

But, like banking and many business activities normal people manage everyday, living with risk is normal life, it is part of the human condition. It always has been, and it always will be.

So why have our politicians been unable to cope with managing the Covid risk realistically, unable to show judgement? After all, we all already know that Covid simply was not what was forecast – the risks were vastly exaggerated, and the actual progress of the disease was of a scale which we have barely noticed in the past. We never previously felt the need to impose the societal or financial damage of the last few months, let alone continue to overreact in the face of reality, for previous epidemics of a similar scale.

Could it be that they, on the whole, have never done anything apart from politics, so have little experience of real-life risk? Are they trapped in a Westminster bubble? Or could it be that they have no conviction, no innate need to ‘do the right thing’, unpopular or otherwise, and are just obsessed with today’s optics, and the need to be liked? In many ways, those optics are of their own creation – their terrorising and infantilisation of a large part of the population has been remarkably effective.

Whichever it is, they are just as incompetent as  – and have done far more damage than – those bankers of the noughties who, like them,  just did not ‘get’ risk management.

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14 thoughts on “Paul Fullerton: Our inexperienced politicians, like many bankers of the noughties, do not have the ability to manage risk

  1. “Could it be that they, on the whole, have never done anything apart from politics, so have little experience of real-life risk? ”

    … or are they also demonstrating a wider educational problem in being unable to grapple with very basic statistical issues of probability and risk?

    … also fueled by a dangerous desire to control simply for its own purpose, and driven by those who do, indeed, have a purpose : profit.

  2. Civil servants & academics who are often the real drivers of government policies are selected for their credentials — been to the right schools, demonstrated their commitment to “Diversity”, etc — not for their competence or ability.

    Politicians are mainly selected for their ability to brown-nose the very small group of people who choose candidates — not for their sagacity or their common sense.

    We the people have theoretical control over the politicians, who have theoretical control over the civil servants. But in reality, most of us vote tribally for whichever brown-noser the little cabal pushed forward. The fault, dear Brutus, is in ourselves, not in our stars.

  3. I wonder what proportion of the cabinet & shadow cabinet have degrees in mathematics or hard science? I am not suggesting that this alone makes an expert, but if so educated then a politician might at least know what questions to ask, follow the answers and respond in a scientifically sceptical manner.

    It occurs to me that the same thing applies to the climate change racket. Beyond carbon, I wonder how familiar these muppets are with the rest of the periodic table. Or do they know that the stuff is fundamentally important to organic chemistry & life.

    Or, maybe, it’s just about the money. The Westminster Windbags & Whitehall Wormtongues are on the same gravy trains as the pharma & eco lobbyists & corporations.

  4. All perhaps true – but what is required of politicians and civil servants is not to analyse risk but to organise those who do.

    Why was it not possible, back in January, to convene groups (one or more) to discuss and brainstorm the problem of the oncoming virus?

    As we have seen over and over again this year, the world is bursting with intelligent and sensible doctors and scientists any one of whom could do far better than the government at balancing the risks of the virus and the measures taken against it.

    Why not have a group discussion with a couple of doctors, a couple of scientists, an economist or two, a banker and a few business people?

    A civil servant could chair the meeting and have minutes taken – things that civil servants excel at doing.

    After a few hours’ discussion, we would have a preliminary rough list of considerations. The likely worst and best case harm done by the virus; by measures taken in the NHS; by effects on care homes; by a lockdown or other isolation measures; etc.

    A list of questions for further study would emerge, and gradually government would be presented with more and more accurate guidance.

    Instead, it seems that everything was stood on its head. The government, instead of seeking guidance, issued it to everyone else. And, as might be expected, it was grossly, harmfully, utterly wrong.

  5. “I wonder what proportion of the cabinet & shadow cabinet have degrees in mathematics or hard science?”

    Devonshire Dozer, I imagine the answer is “practically none”. In China, on the other hand, it’s “almost everyone” – if you include engineering, which is basically applied science. (Indeed, when you come to think of it, a doctor or dentist is really just an engineer who specialises in human bodies).

    “The Chinese Government Is Dominated by Scientists and Engineers”

    https://gineersnow.com/leadership/chinese-government-dominated-scientists-engineers

  6. ‘ Could it be that they, on the whole, have never done anything apart from politics, so have little experience of real-life risk?’

    In a nutshell. Mostly from financially secure backgrounds, no wider experience of life. Moral hazard: they gamble with and lose other people’s money with no cost or other consequences to themselves.

  7. “have never done anything apart from politics,” They have done nothing with their life but climb the greasy pole; always to the fore when awards are made, melting away before any blame is to be had. This applies not just to government but to their allies in academia, media, and corporations. Now comes the supposed ‘big one’ and they have no talents to offer. But, of course, this is the big opportunity to take the centre stage they desire, to play the great hero: so they act out their fantasy of being decisive, to be the one in charge, only to fall flat on their faces. All at our great cost.

    The little emperors have no clothes — not even a nappy to save their faces.

  8. Good narrative. Thanks

    Risk is one failure, another is no plans/objectives eg what is target for ending face nappies?

    then they decided to double-down and ignore the reality going on around them

    Exactly, and they continue to do so

    Could it be that they, on the whole, have never done anything…

    Yes, all in para

    Incompetent? Yes, plus deluded, greedy, weak and arrogant

    Being an MP, Councillor etc should be a vocation (like ministers), not a job

    @DevonshireDozer
    In Cabinet only two have BSc – one Chemistry, other Physics. Rest are all Arts

  9. Goodness knows what happened to the Swedes, did they not get the phone call, the email? Everyone else is in lockstep, it can’t be coincidence.

  10. “I wonder what proportion of the cabinet & shadow cabinet have degrees in mathematics or hard science? ” is debated, above.

    However – it’s not as simple as that.

    It’s clear that many ‘experts’ in the public eye at present, with PhD’s in the ‘hard’ sciences, are remarkably poor at the basics of scientific inquiry. They may have a technical expertise in a narrow field, but the essential basic skill of rationally assessing data seems to totally escape them. Ferguson is the obvious example – unable to perform the basic functions of recursively looking at the picture of inputs to and outputs from a black box model that hasn’t worked on a consistent basis. GI > GO is perpetuated with no apparent feedback.

    Many of the Public Health and Epidemiological professionals seem to suffer from the same essential skills bypass – and we are the victims of narrow and myopically tendentious analysis. The failure to assess the consequences of lock-down is the most egregious example of this.

    That is why individuals such as Professors Heneghan, Friston and Gupta – and other ‘contrarians’ stand out. They have that wider ability.

  11. **our government chose not to challenge the ‘experts’, nor to consider the cost of the wider impact of their decisions, **

    It’s hard to fathom how anyone could imagine CV-19 as other than political: that it’s not deliberately engineered to cower the populace as a prelude to implementing something like the CCP social credit system. But get it from the horse’s mouth, let a man who could not unreasonably be called Boris’s guvnor speak for himself:

    https://twitter.com/BlackRock_UK/status/1294215477158449152

    And it’s not ‘risk’ if you’re ‘too big to fail’. I like to quote GK Chesterton on this theme because he so pithily captures how people are bamboozled by language into imagining Capitalism and Communism as polar opposites because of their theoretical model regardless of the data / reality: as if ‘private’ ownership of capital in and of itself is decisive politically irrespective of concentration:

    GK Chesterton:

    “Bolshevism and Big Business are very much alike; they are both built on the truth that everything is easy and simple if once you eliminate liberty. And the real irreconcilable enemy of both is what may be called Small Business.”

    It’s no different in principle to Diversity or ‘racism’ / ‘anti-racism’, another concept where official orthodoxy reverses reality. The least racially antagonistic non=white MPs represent majority white constituencies, whereas the most ‘divisive’ tend to be racially similar to their constituents. Are we to believe that in either case people are voting for their parliamentary candidates in spite of how they look or what they say? Or does ‘racist Britain’ stand the truth on its head?

    For anyone unaware of what social credit means check page 7 of this Civitas report on Sino subversion:

    https://www.civitas.org.uk/content/files/2449-A-Year-of-the-Bat-ppi-72-WEB.pdf

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