Salmond is on the hook | FT Alphaville

Salmond is on the hook

Alex Salmond looks smug as a bug right now. His popularity in the Scottish polls is approaching that of Nicolai Ceausescu when he was running Romania. He should be careful what he wishes for. His pick’n’mix approach to Scottish independence plays straight to the xenophobic basic instinct of the complaining Scot, but when it comes to the details, things are likely to get very awkward.

The biggest asset at stake here is North Sea oil, still valuable after all these years. The SNP likes to draw an east-west line through Berwick on Tweed, which puts about 90 per cent of the reserves in Scotland. However, the line of the existing boundary follows the Tweed in a north-easterly direction. Project it into the North Sea, and Scotland’s share drops below 60 per cent. That could spell the difference between solvency and permanent austerity for Scotland, so it’s unlikely that the two sides will easily agree.

The biggest liability in question is the British banking system. Lloyds escaped to England last year, but RBS has its registered office in St Andrew Square in Edinburgh, and you can’t get more Scottish than that. Salmond has tried to slough off the little matter of the £187bn state bailout for the bank, arguing that the crisis was made in London, so the cost should stay in England. This looks like pure wishful thinking. The country of incorporation is far more than a technicality. Legally his case looks threadbare, and in their newly-cautious state, the rating agencies would be unamused. Even today’s shrunken RBS would loom as large over Scotland as the Icelandic banks did over their homeland.

He’s also told us that he’d like to keep the pound. That’s possible, but he’d have to understand that the printing presses would stay in  England, and monetary conditions would be set to suit the English, rather than anyone else who happened to use the currency. Scotland could find that very painful when the Bank of England next has to raise interest rates to prevent the English economy from overheating – and however distant that prospect may seem today, the time will surely come.

That brings us to the knotty question of the national debt. The leaping Salmond has yet to pronounce on that, but since the Scots are about 9 per cent of the UK population, logic suggests that they should take on the same proportion of the £1 trillion (and rising at about £400m a day) that the UK has borrowed. To that liability must be added a share of the cost of the even greater pension promises made to government employees on both sides of the border.

Set against these questions, the problem of what to do about the nuclear deterrent, membership of the EU or precisely who can, and cannot, vote on the break-up of the United Kingdom seem almost tractable. Still, it could be worse. He could be proposing to introduce gaelic as Scotland’s official language, so aren’t we lucky that we have until the 700th anniversary of Bannockburn in 2014 to find solutions?

The artifice of alternative assets

Google “Untitled (1950)” into your laptop and you’ll be offered a handsome framed print of Mark Rothko’s “distinctive multiform painting” of that title, for £100 (including delivery) from John Lewis. Do not think of giving it to Pierre Lagrange, even as une plaisanterie. He’s unlikely to see the joke.

He’s already the owner of a work with that name, and he paid a pre-crash $17m for it. He thought he was buying a work by Jackson Pollock. Unfortunately, it seems that some of the pigments in it had not been invented before Jackson stopped composing and began decomposing in 1956. As I said, Lagrange is not amused. It’s not that he can’t take a joke, or even that he can’t take the hit, but a fake’s a fake, if that’s what it is, and nobody likes being conned.

This Pollockish picture illustrates a curiosity of the art world.  Jim Grant quotes Aline B Saarinen: “If a fake is so expert that even after the most thorough and trustworthy examination its authenticity is still open to doubt, is it not as satisfactory a work of art as if it were unequivocally genuine?” The answer is no, because beyond some point it ceases to be art and becomes a trophy like a yacht, a means of keeping the score among the very rich, who are more likely to view it as an alternative asset class. The authenticity is the only thing that really matters. Without that, it is merely a curiosity.

On the face of it, the case against Untitled (1950) looks pretty ominous, but it’s far from proven, and promises hours of innocent fun for observers unless the spoilsports settle quietly out of court. At best, there will be a permanent questionmark over the painting. Its added notoriety value is unlikely to compensate for the loss of complete authenticity. As for Lagrange himself, he’s also lost quite a bit of value elsewhere. He was the L in GLG, the hedge fund that was sold to Man Group for $1.6 billion in 2010.

The timing of the sale demonstrated the sort of market savvy that had made GLG so valuable. Outside shareholders were offered cash, while he and his two co-founders took Man shares and promised not to sell them for three years. Bad move. The Man price, around 240p then, is barely above a pound today. Still, at least the shares he got were undisputedly genuine.

Please give generously

This week’s good cause is an immigrant from a poor country who has struggled to make his way in an alien land, while supporting his wife and four children. Now 41, John has stuck with the same employer for nearly 15 years, often working long hours in a country where his native tongue was not that of the locals. During that time he oversaw the grisly task of dismembering the carcase of a monstrous corporation after a takeover disaster. He saw many of his colleagues fall by the wayside, and only this week has had to preside over a terrible slaughter of jobs. He has borne these misfortunes without ever complaining to the authorities. Throughout, John has thought only of maximising reported profits for his employer, sometimes using remarkable ingenuity.

That employer is now a state pensioner, having been rescued at great cost by the taxpayer. As a sign of its gratitude for his long(ish) service, the bank where he works presented him with a pre-retirement present, a gift-wrapped package of shares and options. Tragically, thanks to circumstances quite beyond the management’s control, some of those options are worthless today. The shares in John’s little package are only worth a pitiful £4.3m, so please give generously. Oh, I see we already have.


Last year’s Something for the Weekend columns available here.
For more Collins, try Neilcollinsxxx