David Cameron, it has to be hoped, is setting the agenda and preparing the ground for some major reductions in the non-productive part of the economy in the attempt to reduce the deficit, rein back in the absurd spending and waste and to get the public sector 'out of the way' so that enterprise and commerce can create the necessary jobs to rebuild our economy.

It has to be hoped that he takes a bludgeon to the public sector:

1) Reduce public sector salaries on a tiered basis: 5% on salaries >£40k (so marginally above the 40% tax threshold); 7.5% on salaries >£60k; 10% on salaries >£80k; 12.5% on all public sector salaries >£100k;

2) Increase the retirement age by two years for everyone under 55;

3) Move all public sector employees under the age of 40 onto defined contribution schemes immediately.

Let's hope that 22 June is the date that the public sector stops 'crowding-out' the private sector so that resoucres can be allocated efficiently within the economy.

Posted on: 07/06/2010 at 17:18


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Politicians around the world have been vociferous about the structure of CDOs and most importantly the utilisation of the credit rating of a high quality borrower to mask the underlying risk associated with lower quality borrowers. The lowest tier of a CDO is called the equity layer where the highest risk tranche is housed. The entire structure would then be marketed as a high quality investment instrument as it had the protection afforded by the application of a high quality name to 'guarantee' the structure. As everyone knows AIG was used to guarantee many of these structures.

If you think about it this is very similar to the structure of government borrowing within the Eurozone. Poor quality borrowers with poor credit histories (e.g. Greece) have been able to borrow at lower rates thanks to the artificial structure of the euro allowing them to borrow at similar rates to high quality borrowers (e.g. Germany). This flawed debt structure has been further destabilised by the low quality borrowers not even managing within the Maastricht obligations.

As ever the politicians should put their own house in order first.

Posted on: 04/06/2010 at 17:42


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