Tag Archives: journalism

Book Review: A Mathematician Reads The Newspaper by John Allen Paulos

This has been my latest coffee table book that I dip into a few pages at a time. The premise is that maths is not well understood, but that it’s all around us. Paulos’ plan then is to educate us through a number of examples, which run to just a few pages each.

From the start, though, one is struck by a very heavy American bias. I think he tries to name drop by using examples of people he thinks his readers will know, but outside of the USA, names of the justices of the US supreme court are not commonly known pieces of trivia. That left this UK-based reader a little nonplussed, as it could have been made far more inclusive.

It’s a real shame, particularly as I read through the first part, which was on the subject of politics, its relentless US-centricism detracted from some otherwise very good prose. Paulos doesn’t really go into much mathematics here. His focus is more about rational thinking and how that can apply to things of a mathematical nature. So do not expect a particularly pedagogical text or worked examples. Numbers are fairly thin on the ground. As such, some who, like me, picked up the book expecting a book primarily about mathematics might be left wondering if the title wasn’t a little misleading.

In truth, it’s much more about general rationality than it is about maths. Given the expectations generated from the title, this inevitably left me rather disappointed. I know it was a follow up to an earlier book of his, entitled Innumeracy, which may have been closer to a better title for this work than the one it has.

The way the book is supposed to be structured is meant to roughly mirror a newspaper. So the front part of the book has more politics, the middle is more ‘lifestyle’ and there is a bit about sports (almost invariably US-based sports) towards the end. At times, the link to the typical newspaper seems rather tenuous, even if the general thrust of the argument is sound. Yet for a science writer, Paulos just seems to lack any great level of enthusiasm. Many of the best science writers (I think here of the likes of Feynman, Dawkins, Penrose and Sagan) have an attitude of “[isn’t this brilliant? Come, let me show you]” whereas Paulos is more towards the brow-beating end of the spectrum. There is little joy to be found, with an air of despondency at other people’s lack of nous.

The other fact that cannot be avoided is that, though it was only written in the mid 1990s, it hasn’t aged well. Any talk he has of computers or the possible threat the internet would be to the newspaper industry seem rather dated. That cannot be a criticism against the author, though, as one cannot expect him to be a prophet. Rather, it is a word of caution intended for any potential reader. Though I cannot say I would be in a great rush to recommend this book to anyone. The material covered here may be found in many a popular level book on mathematics and are dealt with in more detail and with a greater level of engagement than may be found here.

Debt and the ratings agencies

Last night, before I went to bed, there were rumours circulating about the possible downgrade of the American credit status by one of the ratings agencies. When I woke up this morning, it was confirmed.

This week has been extremely very busy for me, so I have not a very good opportunity to keep on top of all of the facts. So I’m just sharing some thoughts, and if you spot any mistakes, omissions or the like, then please let me know.

At the start of the week, the reporting we had in the UK about the US “debt crisis” was along the lines of saying it was on a knife-edge where different factions who had a say in the matter could not agree on whether or not to raise the debt ceiling, an international version of a credit limit. This made no sense to me, really. If I have a time limit to pay my credit card bill, it doesn’t help if the action I take is to simply increase my credit limit. What I need to do is to start paying down the debt. Mercifully, my own finances are in good order (which is helpful, since I do work in finance!) and I can always pay down my debts.

But let’s suppose that I had managed to save enough of a deposit and get a mortgage. I would need to pay down this mortgage at a sensible rate. I’d need to make sure I had enough cash to pay for my everyday needs. If I paid too much, too quickly, then I’d have to cut back on some of the essentials. In terms of national economic finance, this would mean public service cuts which inevitably means unemployment. This is the strategy which the current conservative-led government is pursuing.

What the americans seem to have done is remortgage their country. It’s not a long-term solution, and I was shocked when I found out that they had raised their debt ceiling several times over the last few years (I forget the precise number).

What fascinated me was the credit ratings agencies. I have a lot of questions that I haven’t found adequate answers to. To me, as a mathematician, it would be fair to call me a Platonist. So I view the credit ratings as merely recognising a platonic reality that already exists. So if the US has become less credit-worthy, then the downgrade merely reflects this, rather than the US becoming less credit worthy as a result of the downgrade.

But who are these credit ratings agencies? A brief look at their websites show they have some blurb but not a lot of substance. What is surprising is that they seem to be listed companies, rather than international bodies. So who are the shareholders and what are their political-economic agendas? The same question could be asked of those who run the companies. I’d love to find out their political links and leanings, but I don’t have the spare time to research.

Book Review: Treasure Islands by Nicholas Shaxson

I became interested in this book after reading an endorsement from it by the writer and columnist, George Monbiot, who I have some time for, even if I don’t agree with him in all things. The subtitle of the book, Tax Havens And The Men Who Stole The World, gives a better impression of what the book is about. This also impinges on my own area of professional expertise: accountancy. I have often been struck by how poorly tax related issues are reported in the news, particularly issues of tax avoidance and evasion. So while most people are aware that the former is legal and the latter is not, the “common knowledge” of such matters goes no further than this. Even amongst people who are more politically aware, I still hear and read comments such as “companies try to avoid capital gains tax by….” which demonstrate an ignorance that companies are not liable for capital gains tax. It is purely a tax levied on individuals. Or similarly, the term non-domiciled (non-dom, for short) as a shorthand for people who don’t pay income tax, when the truth is that a person’s domicility is irrelevant as far as income tax is related; as that is entirely dependent on their residency status.

Anyway, I digress. My hope was that Shaxson would be more financially literate than the vast majority of most journalists. In the first chapter, I seemed set for disappointment, due to a lack of clarity in his terminology and a very clumsy attempted sleight of hand in order to make an erroneous point of rhetoric. The particular point in question was on page 12 when he mentions some companies “did nearly $750m of business in Britain but paid only $235,000 in tax…” Now the phrase “did x amount of business” is not particularly precise or helpful, though in more careful wording, one might say that $750m is the revenue. However, his implication is that this inherently unfair. But what he doesn’t state until the following chapter is that tax is based on profit, not revenue.

From this shaky start, the book massively improves. Shaxson’s main thrust is that a tax haven is about secrecy and being able to hide income behind layers of silence. He then goes about giving a history of how these structures have arisen. He begins with a look at probably the most famous tax haven in the world: Switzerland. The notion of this being a tax haven is not so much the fact that they have generally low taxes (which is still true) but more to do with the code of banking in that country and the laws surrounding it. For Shaxson, the term he uses constantly is secrecy, although the term confidentiality may equally be used. The difference is merely the connotations each word has, depending on your political leanings.

Given my introduction above as a recommendation from George Monbiot, there is little room for doubt as to Shaxson’s own left-of-centre leanings. His broad approach is to give the historical story of how tax havens have come into being along with the key lobbyist who have sought their existence and protection as a proxy for the protection of their own wealth.

The book is quite wide-ranging in its scope, though I found the most interesting sections to be those on the Caymen Islands, Jersey and the City of London. Ironically, it was while I was reading the chapter on the square mile that I was on a tube train on the Northern Line going from London Bridge, through Bank and Moorgate, up to Old Street, thus traversing the City and passing almost (if not actually) directly underneath the Bank of England. It gave a wonderful sense of irony, and though a few people glanced at the cover with interest (I do not have a Kindle, nor do I wish to own one). It reminded me that I would still like, at some point, to sit outside 1 Canada Square whilst reading a copy of Das Kapital.

As mentioned earlier, Shaxson does write about some topics that I know quite a bit about, having worked in those areas for some years. Specifically, he talks about accountants, auditors, LLPs and the International Accounting Standards Board (IASB). It is here that he woefully falls short of anything resembling understanding, which leads me to question the integrity of the rest of the book, where I rely on his word to provide an accurate picture.

Audit

To be specific, he refers to auditors as “the private police force of capitalism” and “audits are the main tool through which societies know about, and regulate, the world’s biggest corporations.” This is pushing a widespread misconception that leads to much misunderstanding and unnecessary vilification. An auditor is not a regulator. Their job is only to provide an opinion on whether or not the financial statements give a “true and fair view” of the company’s position at the period end and the activities during the period being audited.

When I worked as an auditor, one of the jobs I was given was to make notes on the 2006 Companies Act, and present it to one of the partners. This was immediately after it was published, so no one really outside of Parliament had had a chance to read it in full. At the time it was (and I think it still is) the largest single piece of legislation ever passed by the UK Parliament. The role and duties of an auditor are very clearly laid out in the Act, though they take up a tiny amount of space, as deference is effectively given to those who make the accounting standards. For publically listed groups of companies (which make up less than 1% of the total number of companies in the UK) these standards are set by the aforementioned IASB. The standards are known as the International Financial Reporting Standards (IFRS).

Financial Reporting Standards

Now I do not agree with 100% of the IFRS standards. When I was studying them, there did appear to be some level of obfuscation, where the standards are derived from a set of principles laid out in what is known as The Framework. What we end up though are standards like IFRS 9, which is a labyrinthine standard relating to exotic financial instruments which are very seldom used in the vast majority of companies. Though it makes sense in a step-by-step logic derived from the Framework, when looked at as a whole, it just seems devoid of common sense. One of the principles is to make financial statements understandable to the ordinary reader, unversed in accountancy and reporting standards. I have tested this on a small scale by giving some accounts to some non-accountants to have a read to see how well they understand them. I must add, that these were from publically available accounts published online by the companies in question, all of which were audited by different firms from the one I worked for, so there is no hint of any potential breach of confidentiality. Shaxson’t beef though is not with the standards that tend to baffle. Instead, he is not happy about segmental reporting, where a company breaks down its figures into the different segments that are used to report to management. He would rather make all companies disclose all cross-border transactions.

Transfer pricing

The basis of this is transfer-pricing, which he misleadingly states is a method by which companies move costs into high tax areas and profits into low tax areas. The reason I call this misleading is that in a short space, the author has misdirected in several different ways, which is quite an impressive feat. The first is in financial literacy. He treats costs and profits as though they are unrelated. It is like saying I’ll move my apples to Germany and my oranges to Switzerland. If you move costs to a higher tax jurisdiction then you do not then move your profits. Your profits are your total income minus your costs; yet Shaxson seems to be unaware of this most simple of equations. The other is to pretend that transfer-pricing is a tax dodge mechanism, when it is the precise opposite. Transfer pricing is the mechanism by which to avoid the unfair transfer of costs for tax minimalisation purposes. These agreements have to be presented to the auditors (who will usually bring a tax specialist onto the team for this purpose) and the agreements are subject to inspection by HMRC, who can prosecute if they think a given company is trying to avoid paying taxes by such methods.

LLPs

The last point which I think needs addressing is that of limited liability partnerships (LLPs). LLPs are portrayed by Shaxson as a tax-dodge vehicle which the big 4 accounting firms (PWC, Deloitte, KPMG and Ernst & Young) pressured the UK government into adopting. What he fails to mention is that the reason they were set up was to recognise the growing corporate nature of professional service firms such accountancy firms and law firms, which had historically been for the most part plain old partnerships. These would be governed by partnership agreements, but the English Law (I cannot speak for Scottish law or that of any other jurisdiction, as I have never studied, nor taken any exams in it) that governs partnerships was not designed for firms that had grown to the size of large corporates, where company law was more apt for this. So the LLPs were set up as a half-way house whereby large swathes of the Companies Act were adopted by the LLPs, whilst allowing them to retain their partnership structure, thus not destroying the heritage and ethos that allowed them to flourish; along with the many mergers that happened along the way to give the weird and wonderful compound names and acronyms that govern the largest firms in the marketplace.

Conclusion

OK, so that was an extremely length aside. But if you’d read this far (or seen the word ‘conclusion’ and skipped straight to it – tut tut to you for your laziness), then you show the level of patience needed to get through Shaxson’s book. As demonstrated above, it is not factually correct in all places, which does undermine slightly the credibility of the rest of the book. That said, I do not think it is entirely erroneous and would recommend it as an introduction to the history of tax havens and how they operate. There are some incredibly powerful testimonies included; most notably for me were those of William Taylor’s battle with the Corporation of London, the secrecy laws that are in place in the Cayman Islands and the subculture that pervades Jersey.

Read it with due scepticism, and learn what you may never have realised was going on right outside (or even inside) your office.

The News of the World: some thoughts on the cause of its fall & the consequences

I am writing this this offline on the evening of the 7th of July. I know the news has been moving very fast this week, so I apologise if this is already out of date by the time I get round to publishing it online.

Much has been said and written in the last few days about the News of the World hacking scandal. By the time I left my office this evening, it had been announced that this Sunday’s paper would be the last and that the proceeds of the final sales would go to some unnamed “good causes.” For the avoidance of libel, I acknowledge that the allegations made against the News of the World are as yet unproven, and any references to these actions ought to be read in that light.

So why did the paper close. It seems to me that the watershed moment in the hacking affair was the revelation that the phone of Milly Dowler had been hacked. Before this, the dominant theme of the story had been the phones of politicians and celebrities; the usual tabloid fodder. Though the alleged actions were illegal, there was nothing that sparked a widescale moral outrage at them; we are used to those in positions of power using underhanded and dubious means to achieve their goals. But the hacking of the phone of a murder victim seemed to flick a switch that had hitherto been unnamed. The escalation of the revelations from there only compounded the problem.

At this point, there began a pressure campaign on those who advertised in the NOTW to withdraw their funding. I cannot say for certain how much this pressure was applied by those who do not read [sic] the NOTW, though the impression I got from my limited viewpoint was that the non-readers were in the majority. Had it merely been a boycott from buying the paper, I am not convinced the paper would have folded with such rapidity, since any boycott would have been from those who never bought it in the first place, which is pointless. As the majority of a paper’s profits are made from its advertisers, removing this source of funding was always going to hurt the paper. When it became clear that the paper would not be a viable source of profit, it was decided to terminate the paper’s operation. It would be nice to think it was an act of conscience, but I don’t think this is the case. The business of the paper is the business of Rupert Murdoch: making money. The evidence seen so far seems to point to the idea that all actions taken were motivated by the love of money; even if sometimes this exhibited itself indirectly.

A further course of action which was possible, and which I advocated, was to pressurise the vendors of the paper into not selling it. Unless the vendors had a contract with the paper (or its parent company) then I cannot see that it would be impossible for a vendor to choose not to sell it.

What I find interesting to reflect on is that in spite of this being hailed as a victory for public opinion, it was corporations that ultimately swayed the matter to the extent that the paper folded. I don’t think that it would have done so if the advertisers hadn’t pulled out. So is it the case that the advertisers were the real champions of ethics? Well, I did find a list of those advertisers and it makes for interesting reading. It is not exactly made up of companies who are well-known for being champions of corporate social responsibility and one could certainly write several books containing the accounts of the misdemeanours by the likes of Tesco and Asda, amongst others.

So I would propose that the closing of the paper, while initiated by a mob mentality motivated by moral outrage, was ultimately decided by those corporations who feared for their own profits being damaged by the public boycotting of their own products and services in protest, had they not withdrawn their advertising funds.

Call me a cynic, but the whole thing seems to be about money and greed, rather than a fundamental sense of right or wrong.

At the time of writing, there was an unsubstantiated rumour going round that there was to be a planned merger of The Sun and the NOTW anyway, and that today’s announcement was merely an accelerant to that process. Part of this rumour included the proposition that the websites thesunonsunday.com and thesunonsunday.co.uk had been registered as domain names on the 5th of July this year. If someone who is more knowledgeable on how to check such propositions than I could confirm or deny this, that would be much appreciated.

So now that the announcement of cessation of publication has been made, what will be the likely outcome? Well, in the short-term it looks like we will have one fewer right-wing newspaper on the shelf on a Sunday. It’s not a huge step of progress, but it is a mild improvement. Ideally, I’d rather see more left-leaning papers as the closest we have to these are The Independent and The Guardian, and these are not exactly bastions of liberal freethought at all times.

Given the close links between the NOTW and The Sun, I think it likely that there will be a limited number of transfers going on, though I think it reasonable to assume there will be some job losses. While the problems at the paper may have been fairly widespread, I strongly doubt that everyone who worked at the paper was party to the hacking. So inevitably there will be some innocent people who are going to lose their livelihoods as a result; and what prospects do they have? Though the NOTW was never the most respectable of papers, I would not like to cast aspersions on everyone who worked there. If I try and put myself in the shoes of a budding young journalist, and the NOTW was the only national paper to offer me a job I would be tempted to take it. But given the seriousness of the allegations, will the fact that time spent at the NOTW will be on someone’s CV consign them to history as far their journalistic career goes. I have spoken to a number of people who formerly worked at Arthur Andersen, and who were not able to get a job in accountancy after Enron, in spite of the fact that they may have been very good at their jobs and acted at all times with the utmost integrity.

What of the prime minister and his involvement? I would like to think he’d resign as a sense of duty and seeking to do what is best for the country; though I have never been given any reason to suppose that he has anything but his own interests and those of his friends and business associates at heart. It is now 10pm and I just saw on a preview of Newsnight that Andy Coulson is expected to be arrested tomorrow (the 8th). This may damage the prime minister a lot, though unfortunately the British public are a fickle lot with short memories. I suspect the Lib Dems lack the spine to pull out of the coalition and will seek to hang on to the bitter end of the 5 year term. By this time, the NOTW will be a distant memory, as will the 2012 Olympics and many other national embarrassments, though it is yet to be seen whether or not Ed Milliband will, by then, have actually done anything productive.