Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Thursday, September 29, 2011

Although there is no evidence for it, it is a scientific fact.

If you haven't seen this video then probably have a go now, otherwise none of this will make sense.

I'm still thinking about the Internet Sensation of a couple of days ago, that "trader" Alessio Rastani (not least because I made a bit of an ass of myself on Twitter by passing on the rumour that he was literally a YesMen hoax, sorry about that folks). In terms of whether I spotted him, I'd say I did and I didn't - within minutes of seeing the Youtube video, I had pegged him as a self-publicist and pud-knocker, but I didn't really suspect that he wasn't a trader at all - I just presumed that he was a self-publicising pud-knocker who worked for a bank, there are quite a few (I had him pegged for either a desk junior who had been sent along as a prank, or an overpromoted head at a really terrible brokerage desperately trying to drum up business). The real false note was the immediate citation of what "the big funds" were going to do; something about it rang really false, like if the interviewer had said "Name me three hedge funds" he wouldn't have been able to.

And so it turns out that what he was, was a daytrader and trust fund type (from the fact that he has an Italian first name, an Iranian surname and an American accent while living in London, I bet I could get his home phone number through six degrees of separation). Basically an amateur, sitting at home occasionally having a punt on the Dow e-Mini future (it is worth $5 per tenth of a point on the DJIA). Basically, he wasn't even standing to the guys at Goldman Sachs in the same relation as a blogger to a journalist; more like the same relation as the Aga Khan has to a granny who puts 50p each way on the Grand National.

And this was the guy who apparently speaks for the culture of traders, according to Robert Peston, and others. The fact that he's become the poster child of the Zero Hedge blog tells you pretty much all you need to know about that blog. It's a very Bourdieuvian situation – what we have here is a guy who is a wannabe trader, who goes on TV saying the sorts of things he thinks traders might say (because of what he's heard and seen in media portrayals), and everyone believes him because he's saying the sort of things they expect to hear from a trader. When it turns out that he's no more a trader than he is a nun, everyone says that despite the fact that he's not a trader, his interview tells us a lot about what a real trader would have said (if, more or less per impossibile, one had agreed to appear on a show on a nonfinancial channel, during market hours), because … well, because he sounds like he's saying exactly the sort of things that everyone knows traders say.

I am slightly nostalgic for the days in which Walts stuck to pretending to have been in the SAS, and using slang from Andy McNab books.

But on the other hand, of course … well, Andy McNab actually was in the SAS, and so was Chris Ryan, for all that the two of them write like the biggest wannabe fantasists out there. Are there plenty of traders who dream of a recession?
Well, I said that I thought the guy didn't know what he was talking about, and that he seemed like a wannabe, narcissist and pud-knocker. I didn't say I thought he didn't sound like a trader. Plenty of guys internalise that sort of macho bollocks, just like plenty of us love Wall Street (the original). But the actual emotional psychology of being short a falling market? Well I know that quite well from the inside – one shouldn't necessarily privilege first hand accounts because "I was there" is always a source of unreliable narration, but I do – and it isn't quite like that. I would say that the way you feel when you're short the market into a crisis is not unlike the kind of guilty sense of vindication that lots of people of the Left will admit to (if they trust you, and usually after drink has been taken) having felt in the immediate aftermath of 9/11. It's not pleasure at all, but it's a recognition that a difficult and unpopular thing that you did turned out to have been correct. Cassandra must have felt it as the towers of Ilium burned, so I bet the Greeks had a word for it.

If you take that basic emotional state, bind it up with a more than normal degree of neediness for recognition, and filter it through a person who's better at talking quickly than considering their words, and temperamentally inclined to express themselves forcefully, then that's how you get speeches like Rastani's. That's not how it happened, but those are the excuses I'd be making if had turned out that the guy was the real deal.

The stuff about Goldman Sachs owning the world though? My arse. Only the Economist thinks that. Nobody who has ever traded securities in a public market, in size, for a living, thinks that any individual has any control over what happens at all. You will get people talking a lot about what "the market" can or can't do, will or won't stand for, but that's the sense in which sailors will talk of "the sea".
0 comments this item posted by the management 9/29/2011 01:07:00 PM

Monday, September 26, 2011

The Global Bezzle: Whence it came, where it went and what it means

By way of a reply to both John Quiggin and Brad DeLong, below I set out my view (which is largely based on, by which I mean largely stolen from, Dean Baker's in "The End Of Loser Liberalism", including one big change of position; obviously Dean isn't responsible for my presentation) of the roots of the current crisis, with particular evidence on how the financial sector was really quite irrelevant, other than in performing its normal role of intermediating much bigger imbalances and policy errors ...

The global bezzle

The term, from JK Galbraith's "The Great Crash", originated in a quote about embezzlement:

"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country's business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle."

But I think it's more normally used these days in a generalised sense - simply referring to that proportion of national (and indeed global) wealth which is made up of illusory, unsustainable and (obviously) unrealised capital gains. And the global bezzle matters as an economic phenomenon because people borrow against it, creating burdens of nominal debt which overhang the economy and which deepen recessions. The bezzle, at its peak value in 2006, was historically large, which is basically why we're in the state we're in now.

Whence it didn't come

Given the amount of money used in financial sector bailouts, it is overpowering tempting to assume that the bezzle must have been located somewhere in the financial sector, possibly in subprime CDOs or derivatives or something too complicated to understand. There is, as I've said a couple of times before, a powerful confluence of interests in portraying the crisis as being something incomprehensibly technical in nature. Actually, it was mainly house prices. It had to be.

It couldn't have been the subprime market, it's not big enough. At the peak in 2006, subprime mortgages in the USA totalled about US$1.5trn in total outstandings. This is slightly less than 15% of the total mortgage market, and somewhat less than 10% of total housing values. The S&P500 alone is capitalised at a bit more than US$10trn; the average monthly fluctuation in equity market values as a whole is somewhat more than the total value of the subprime mortgage market. Added to which, you will note that the "financial crisis", with the notable exception of AIG (and of course, AIG is a "notable exception" in the non-pejorative, rule-proving sense, because it was brought down by non-insurance trading and securities lending operations) was more or less purely a banking crisis. Life assurance, pensions and mutual fund companies, to an overwhelming extent, were not exposed to subprime bonds; the main owners were hedge funds and the banking system itself. Given this, it seems unlikely that subprime could possibly have caused a large enough wealth effect to slow the economy down so badly. The US$6trn of housing wealth lost by Americans seems a more likely candidate.

It couldn't have been anything specifically American, it happened in too many different places. Geographically, within the USA, the severity of the recession matches up to the house price rise and fall, not to the incidence of subprime lending. Spain had a very severe downturn, despite having a very different mortgage market; Ireland's was different in another way, while Greece hardly saw a lending boom at all. Australia has seen lending practices aggressive enough to strike fear into the hearts of Americans for years (a credit card linked to the mortgage balance, cobber?), while Canada saw its mortgage securitisation market freeze up rather more totally than the American one did.

The financial sector's involvement was demand-pull, not supply-push. We can contrast the dot com bubble with the telecoms one that happened at almost the same time. In both cases, the financial sector was deeply involved (it is hardly possible to have an investment bubble without them, after all). In both cases, later investigations revealed considerable unethical practice and many cases of out-and-out fraud. In the case of the dot coms, however, it was largely responsive - the public had a more or less insatiable demand for Internet company securities, and the banks were left scrambling to do what they could to satisfy the demand. The telecoms bubble was very different; there was no rabid enthusiasm on the part of the public to fund expensive and predictably unprofitable fibre-optic networks, and the banks had to use every trick in the book to get them done. I would call one a paradigm case of demand-pull and the other a paradigm case of supply-push; in the case of, there was nothing manipulated about the absurd valuation, the company was exactly as unprofitable as it reported itself to be, but in the case of Enron, WorldCom and Global Crossing, the valuation was reverse-engineered and manipulated to the levels it needed to reach in order to justify the transactions that Skilling, Ebbers et al wanted to carry out.

The real estate boom, even the subprime element of it, looks a lot more like dot com than telecom. We can note from the dot com boom that there is nothing inconsistent between classifying a speculative bubble as demand-driven, and there being substantial amounts of fraud, hype and aggressive marketing on the part of the financial sector. There were boiler rooms and chop-houses pushing stocks in the dot com years, plus hourly television ads for online brokerages, along with the (absurdly undignified) birth of the "celebrity stock analyst". But it really is rewriting history to say that dot coms were foisted on an unwilling American investing public by a ruthless financial sector.

The timelines are all wrong. The mortgage bubble was like dot coms. One of the fascinating facts is that, according to three separate teams of researchers who have looked at the LoanPerformance data (a file containing details of roughly half the subprime mortgages ever written), the "massive decline in underwriting standards" for subprime loans never happened. Depending on how you measure it, you might conclude that there was a more or less imperceptible weakening, a more or less imperceptible strengthening of standards, or nothing at all, but nobody has yet found anything to explain the difference in observed default rates between the 2002 and 2006 vintages of subprime loans, other than the fact of the real estate collapse itself.

This is obviously somewhat surprising to anyone (like me) who read the SEC's complaint against Angelo Mozilo, but it is notable that the complaint (which was settled out of court - Mozilo admitted charges of insider dealing but not the ones of misrepresentation which are relevant here) is very keen on describing frightening products like "exception loans" or "80/20s", but much less so on attributing actual numbers to the amount of business written on these terms. The two Fed teams and NERA show a picture of the data which is not very consistent with a sudden decision to abandon lending standards in order to feed a securitisation machine, but very consistent indeed with consistent lending standards being hit by a massive exogenous wall of demand, created due to a housing bubble. Talking about timelines, it is worth noting that more or less anything that happened after 2006 (the peak of the housing market, and the beginning of the destruction of housing wealth) was more about passing the hot potato about than anything else. The famous "Abacus" transaction which starred in the Levin Commission's inquiry, for example, was certainly a very bad deal, but it couldn't have been a cause of the crisis simply based on the date when it happened - it represented a last-ditch attempt to redistribute losses caused by a crisis that had already happened.

Whence it came

So where did the bezzle come from? In my view, it's a mistake to see the mortgage and subprime bubble as a separate entity from the dot com/telecom bubble, and to see either as a distinct entity from the general increase in both personal sector indebtedness in the English-speaking economies, and government indebtedness in Euroland. In the past, I've emphasised one aspect of this - the real estate bubble as a policy response to the dot com crash - but it's actually somewhat larger than that. Although the chart of overall personal sector debt has something of a visible inflection point around 2000, you can see that neither the debt service to income nor debt balance to total income charts for the US household sector really show either event. Although there were undeniable aspects of a speculative bubble to both the dot com and real estate bezzles, the actual long term dynamic here - the build-up of overhanging debt on the US private sector and Euroland public sector - doesn't really look like a bubble. It looks like the cumulation of a long-term and persistent imbalance, ratcheting up the gross debt, which was sustained for longer than it could otherwise have been because of the two speculative bubbles (which inflated the value of the assets on the other side of the balance sheet), and which has now become critical as the asset side has bezzled away, making the net debt position approach the gross debt.

(Wynne Godley was writing about this trend as far back as 2000, before the dot com boom had even peaked, by the way, this point thanks to Oliver "@maxrothbarth" Rivers on twitter).

And it should be clear what we're talking about here to anyone who has paid even a bit of attention for the last twenty years; the Great Trans-pacific Imbalance. The "savings glut", the "China effect", what have you. Basically, the consequence of a) Chinese (also Asian, also to a limited extent other emerging markets) decision to run a large trade surplus as part of a strategy of industrialisation (or because they wanted to be sure never to end up in the position of 1998 Indonesia, or something else), combined with b) the decision on the part of Europe and the USA to accomodate this policy through substantial real appreciation of their own currencies.

If you are importing capital, then the foreign sector surplus has to show up as a deficit in some other sector, mathematically. In the USA it showed up as a deficit in the personal sector, with the increase in indebtedness financing an asset price inflation. In Euroland, it showed up mainly as a big increase in government sector deficit (which in turn piled up in the peripheral European sovereigns, which also ran structural bilateral deficits with Germany), which financed ten years of the Greek policy of "low tax collection and a generous state", although Spain also had a real estate bubble.

There is a temptation to say that this, in some way, reflect power structures - that in the USA, the political importance and power of the financial sector made it highly likely that the eventual destination of the trans-Pacific capital flows would end up in an asset bubble, while the different power structures of Greece made it more likely that they would be channeled to the locally more politically powerful clients. That's tempting, and it might even have been right. But it seems more likely to me that things just followed the path of least local resistance, and that in each country, the natural and easiest borrowing sector ended up picking up the deficit. On this analysis, Germany, Australia and Canada came out OK (so far, and Australia has actually had a big run-up in personal debt) because for one reason or another, they had a large enough surplus on their own export trade to offset the capital account imbalance.

But whatever else is the case, given what happened to the balance of trade, it *couldn't be the case that some sector of the US and European economies didn't end up building up a large debt balance. The only way this could have happened would have been if the banking sector had taken over the reins of monetary policy, and neutralised the capital flows by lending overseas to surplus countries. Since there is no truth to the belief of "doctrine of immaculate transfer" (the belief that international capital flows can be equilibrated without price movements), this is equivalent to assuming that the banking sector would not only have been able to carry out countercyclical monetary policy by tightening its lending criteria in a boom (an act of damping feedback that is pretty steep to demand in and of itself), but also have been able to carry out a currency policy diametrically opposed to the one that the respective central banks wanted to run. I hope everyone can see why this wasn't going to fly, and furthermore (I will try to come back to this), does this really sound like the sort of thing you want the banking sector to be doing as a matter of course? Isn't that what central banks are for? Basically, the job of the banking sector is to intermediate. If it is intermediating a wholly unbalanced state of affairs, it is going to get wholly unbalanced itself. If the Western world is going to assume that it can consume cheap Chinese manufactured goods indefinitely (via a massive structural undervaluation of the yuan), then that is a "real bezzle", which is going to have a counterpart financial bezzle somewhere.

On this view of the world, the global "financial" crisis had a dress rehearsal in the UK housing market bubble and crash of the 1980s/90s. What we saw there was basically a dress rehearsal for the next twenty years, as the UK decided to hold an overvalued currency (as a form of anti-inflation policy), while accomodating an aggressive trading partner (Germany)'s desire to run a large bilateral trade surplus (its response to weak domestic demand). This was when Nigel Lawson' doctrine of the "benign and self-correcting" nature of current account deficits, as long as they resulted from private sector imbalances and did not have a government sector counterpart. It didn't work, for exactly the same reason, which is that the private sector can't do monetary policy in a deregulated economy (in an economy with capital controls, it of course has no option).

Where it went

So what happened to the money then? Well, in my view it went on three very big defaults. But before I name the defaulters, let's think about how the hell it was that this was all allowed to happen. Why weren't people scared? Why didn't the financial system seize up long before the bezzle got so big? Specifically, why did it go on intermediating for so long?

Well, basically, it was tacitly encouraged to do so. There were three big put options. Call them the "Greenspan put" (large asset value falls will always be met by relaxation of monetary policy), the "Market Liquidity Put" (wholesale funding will always be available) and the "EMU Put" (all European sovereigns are implicitly jointly and severally guaranteed).

They all three had a purpose. The Greenspan Put was meant to support the increase in gross debt of Americans, by ensuring that it would be roughly matched by an increase in the nominal (unrealised) value of asset. The market liquidity put is just an expression of the general Bagehot principle of last resort lending, but it was meant to allow the domestic banking sector to finance the increase in personal sector debt, given that personal sector deposits did not grow at the same rate. And the EMU put was needed to make EMU happen.

And as the bezzle grew, the implicit liability grew and grew, and people got more and more concerned about the fact that because these things were never set out in so many words as a proper agreement, nobody had really checked that they were absolutely happy with writing an open-ended cheque. But meanwhile, the world needed to turn; the container ships from Asia kept on arriving, and consequently the bills kept piling up and the deficits needed to be intermediated. And so the financial sector leant harder and harder on the three big puts. And in my opinion it was pretty fogiveable of them to do so. The market liquidity put, most of all. It absolutely was a reasonable assumption for, say, Northern Rock to make that if they were faced with a deposit run which had little to do with the quality of their assets, but which was forced on them by the shutdown of the US market, and triggered by an irresponsible leak from the state broadcaster, that the central bank would perform its function as a central bank. It turned out to be wrong, but given that this is what central banks have been doing since time immemorial, I think it's real hindsight to say (as the inquiry report actually did) that it was completely unreasonable to rely on it continuing into the future. The EMU put was really just as respectable, because it was heavily trailed by the political classes of all the Euro countries, and to a significant extent still is. The Greenspan put? Much less respectable. But much less important, too; intermediation didn't really depend on it.

It's also worth pointing out that there is a huge winners' curse here. In the USA, technical aspects of financial regulation meant that chartered banks could not make use of the market liquidity put. Which is why most US subprime lenders were nonbank specialists, who funded themselves by selling paper to the (nonbank) money market mutual funds. This is what the phrase "shadow banking" really signifies. It makes no sense to talk about the shadow banking system as if it was independent of what banks are allowed to do; the extent of the "shadow" system is defined entirely by what functions (economically) the banks have to provide, versus what they are allowed to do. And to hammer home a point, if there is a massive economy-wide imbalance that needs to be intermediated, it will be. And the question of who ends up intermediating it is decided by an auction in which the most aggressive player wins, not the most sensible.

This is where the bezzle went. Assets are not guaranteed by the US government, even though people kind of thought that they would be. The financial system cannot rely on unlimited central bank support, even though it was kind of understood that they could. And the peripheral European states are not guaranteed by the system as a whole, even though for a very long time lots of people were allowed to operate on the assumption that they would be. While we thought that these things might be the case, we were all a lot richer; that's the definition of a bezzle.

What does it mean?

SO ... here we are. We've got a lot of manufactured goods hanging round the shop, which in one way or another we are not going to end up paying for - they have a counterpart in claims on our economies by Asian economies, which are denominated in currencies that are not going to be worth as much when translated back as they might previously have been. If one was feeling cute, then one might say that we are going to re-export the bezzle, but actually I don't necessarily believe that the Asian economies involved ever made any plans based on the assumption that they were going to get paid back full real-terms value. And we've got a lot of fixed-nominal-terms debt claims hanging around the show, and everything feels like hell, and the main reason is that all the debt is still hanging around, but the wealth has gone, and everyone has realised that so far from being at their ideal consumption/net wealth ratio, they are miles and miles from it. (This, by the way, is my response to Brad DeLong; we've had wealth-destroying events in the past, but fifteen to twenty years into the Great Trans-Pacific Imbalance, there is just sooooo much more debt than there used to be.).

The actual value of housing assets has been falling since 2006; the ability of the household sector in the USA to continue to deny this (and expand the bezzle - it's perfectly theoretically possible for the value of housing to fall as its fictitious component continues to expand) has been gone since 2007. The Greek and peripheral European sovereigns' ability to roll over the EMU Put has been gone for a couple of years. The demand is gone, and therefore so is an equivalent proportion of investment, and so on; when the bezzle goes, it has a multiplier on it like any other exogenous shock. All that can be done is, in the immediate term, to replace as much of the lost demand as you can with government demand (complicated, obviously, within Europe), and in the medium term to use as much inflation as the grey gnomes will let you get away with to close the gap between nominal debt and nominal income/wealth in the sensible, painless way.

But what of the banks? Well, what of them? You'll notice that they don't have much agency in this model. That's because I don't think they have much agency in real life. The Enron/Worldcom/GX bubblet probably marked the chilly limit of their ability to push the credit bubble. If the banks really could systematically supply-push, then there would be a credit channel of monetary policy and some empirical confirmation of Bernanke & Blinder (1988). But there isn't. In fact, the banks aren't lending, not out of lack of confidence or ability to trust one another - they're lending for the more immediate reason that there is nothing out there to lend to. Which suggests to me that a) there is no particular reason to stuff them full of liquidity in the hope that this will "get them lending again", rather than building up risk-free profits and not doing anything with them, and b) there was not necessarily all that much point in bailing them out in the first place. The Credit Anstalt failure triggered the 1930s depression, but that was not today ("I saw Montagu Norman in his prime / Another time, another time"). Specifically, back in the day, bank failures led to wealth shocks (and deflation led to real wealth shocks) because there was a gold standard and no deposit insurance. These days, not so much.

ENVOI: Very bad things happened during the run-up to the crisis. Things were done which were dishonest; things were done which even to this day probably make it administratively more inconvenient to work out the process (although really, and this is my reply to Alex Harrowell part 1, foreclosures are very much a second-order issue. It is terrible to be foreclosed and even more terrible to be foreclosed in a stupidly-organised process than a good one, but we are not in a depression because of foreclosures; we're in a depression because of the massive wipeout of equity in houses of people who are still current on mortgages and always will be).

Really, though, equally bad things are done every year, boom or bust. 2004 was a really great year in the financial markets, apart from for the people who were mis-sold payment protection insurance by the UK banks that year. 1996 was also a good year, unless you happened to be separated from your pension by the "income drawdown" fun and games. All through the boom years of the dot com boom, Household International engaged in absurdly aggressive marketing practices, aimed at some of the poorest people in America, with utterly usurious interest rates widely documented by the past tense community operation ACORN. All these things matter, and I'm wholly in favour of the most condign punishment of those responsible for them. Not least, getting dishonest people out of the industry frees up market share for me.

But it isn't as procyclical as you might think. All the lurid stories about sales forces on methamphetamine, forgery of documents and so on - I'm sure they happened, and it's surely a good use of someone's time to prosecute them. But they're second order. They really are. At the end of the day, the economic function of the financial services industry is to reconcile the desire of savers to have instant access to their money, with the need to invest that money in projects that only pay back over time. In order to do that, you have to set a price to get people's money into and out of their investments, and the process by which that amazingly complicated social reality is organised is 1) much more difficult an administrative task than you'd think, as evidenced by the near-total failure of all efforts to put it on a rational centrally planned basis (this, at base is why it's so wonderfully well-paid), and 2) totally dependent on thick social institutions of trust and good faith. And because of 2), it's a uniquely fertile environment for the kind of person who preys on thick institutions of trust and good faith. That's the majority of the basis for regulation.

But the rest of the basis for regulation - it's to ensure that the system functions in a predictable way. The whole basis of monetary policy presumes a reasonably constant capital/assets ratio in the banking system, and a reasonably constant response of credit to money. There isn't a separate credit channel, but the lending market is a market, and it has to be possible to make it clear at a price equal to the policy rate. If you have wild swings in capital ratios; if you have the kind of agency in the financial sector as a whole that people want to use as a rationale for blaming the financial sector as a whole for the depression, then the financial sector is making monetary policy on its own, as I said above. That doesn't seem like a good idea to me.

Higher capital ratios reduce the gearing of the system. They don't make any difference in steady state, but they make it more difficult to expand credit during booms and they mean that capital is freed up more quickly when balance sheets shrink. There's a tradeoff here between agility of the financial sector to finance genuine economic expansions (or indeed to intermediate policy-caused imbalances), versus the susceptibility of the system to asset bubbles, and there's a sensible debate to be had here. But it doesn't make sense to believe that any regulatory tweaks or changes are going to make the banking system into a new surrogate monetary authority or to delegate cyclical policy to it, let alone currency policy, or even foreign policy (since the accomodation of the trans-Pacific trade was to substantial extent a geopolitical decision), particularly if you're going to ask them to take on this new responsibility for half the wages.
10 comments this item posted by the management 9/26/2011 05:37:00 PM

Friday, September 02, 2011

I know, as Max Boyce said, cos I was there

This post isn't really all that important in the grand scheme of things, but I was there, and so I kind of feel it's at least relevant to set out exactly what did and didn't happen at Prom 62. I had good seats and therefore had a good view of all the protests which took place, which as far as I can tell puts me at a significant advantage over Denis MacShane MP and over Oliver Kamm, both of whom were expressing quite strong views on the subject on Twitter last night. Here's my timeline, because I like timelines.

A couple of months ago: Mrs Digest and I (I have no idea why I'm still calling her Mrs Digest, by the way - her twitter handle is @TessRead) were looking over the Proms program to see which one to go to. I like the Bruch violin concerto, and the Israel Philharmonic Orchestra is probably going to be good - nearly all the big visiting national orchestras are. I don't really remember giving much of a second thought to the fact that it was specifically the Israeli national orchestra on this performance at the time, but I doubt it would have occupied me for very long if I had - I am not really a fan of cultural boycotts full stop and I am not at all aware of any way in which the IPO is used as an instrument of repression (an orchestra makes a poor tool of repression). Not even a pretty stretched "providing infrastructure for settlements" justification like the one used as a figleaf for the Bar-Ilan University boycott.

Before the concert: There were two pens of protestors (I am not sure what the technical term is - basically little squares made out of crash barriers) as we rocked up to the Albert Hall. To my eye, it looked like the pro-Israel one was rather better staffed than the Palestinian one, but this might have been because the Israeli flag is mostly white and thus shows up better in evening protests.

In the queue: People were handing out leaflets. The assembled British middle classes were basically tutting at them and telling them to get stuffed. A Palestinian bloke tried to hand me a leaflet entitled "Orchestra of the Age of Darkness", which was a reasonably good pun, but then he said "oh so you don't care about Palestinians then", so I indicated to him that the conversation had reached a natural end. Then another bloke tried to hand over a leaflet which as far as I could see was encouraging me to go and watch a performance for which I had bought tickets, while I was standing in the queue to go into the hall. Something of a waste of leafletage, I suggested, then he said something like "show your solidarity with Israel by attending this concert", so I told him to nark it too.

The performance starts: As I sit down I kind of start feeling a little bit guilty about being so sharp with the protestors - at the end of the day, I think it's entirely right that the Israel Philharmonic ought to be invited to perform at the Proms on their musical merits and will defend their right to be treated as a normal state, even to the extent of buying a stalls ticket, although probably no further. But ... surely it's also appropriate that there should be some element of protest by the large and active pro-Palestinian movement in this country, given that it is the orchestra of the Israeli state that is playing, and it's the Israeli state that has the fairly serious human rights problem. I make a mental note that I should possibly have given both groups of protestors more opportunity to speak, albeit that I really don't think anyone was going to change my mind about seeing the performance.

The performance continues. Webern's Passacaglia. To be honest I wasn't really getting on with it - not my favourite period of modernism. About two-thirds of the way through there is a quiet bit, and during this bit I realised that a) this piece doesn't have a choral section as evidence by the fact that the choir seats had been sold, and b) the choir appeared to be singing the Ode to Joy from Beethoven's 9th for some reason. I was slow on the uptake here and followed my neighbouring audience member's gaze to the choir stalls, where a bunch of protestors had stood up, unfurled large handkerchiefs with the letters of "FREE PALESTINE" on them, and started singing. Presumably there was some political or satirical lyric to the Beethoven, but I didn't hear any of the words and (since the quiet bit was followed by a noisy bit, which I think Zubin Mehta might have played up somewhat) I don't think anyone else did either. I caught the word "apartheid" being sung as the protestors were being shoved out. (During the process of ushering them out, the letters got mixed up and Tess is 100% positive that at one point they spelled "FREE PIES"). As one protestor was finally being shoved out the door she yelled "Israel is the only democracy in the world which ...(inaudible)". The total duration of this protest was about three minutes I think. The Webern continued for a short while and then ended to what was in my opinion a level of applause not really merited by the music. This was the only time all evening that the protests really interfered with the performance. I thought it was quite exciting.

The Bruch Concerto Mehta walked off, then the violin soloist came on, with what looked like a really nervous grin on his face. I began to feel a bit more sorry for the performers, and made a mental note that while my sympathies were currently divided, I would come off the fence immediately if there were any protests directed at the orchestra itself (suspense prevention: there weren't).

Mehta stood up and got ready to start, then there was a load of shouting from the top circle. Some people had unfurled two Palestinian flags. As far as I could tell, they weren't shouting anything other than "free Palestine". The audience were all hissing back at them - a guy in the row behind me was loudly shouting "Silence!" a few times. I think the orchestra had two false starts while the protestors were being shoved out - this was quite a difficult operation as they were right in the middle of a row. I think the people in that row were probably inconvenienced a bit. Then the music got started - there was a bit of an incongruous round of applause.

The Bruch was absolutely fantastic, and went off without further incident. What I mainly noticed is that because of the previous protest, the quiet bits in the concerto were actually really quite exciting; it added a real edge to them that you didn't know if someone was going to shout "Free Palestine" all of a sudden. I thought that the soloist looked nervous throughout - he was moving around a lot. But he played brilliantly. He did an encore (one of the Bach solo violin suites I think), which was uninterrupted. Massive applause, this time totally deserved.

The interval: The Arena Bar is the place to go for half-time drinks in the Albert Hall, by the way. While we were in there, Tess spotted one of the security people and decided to have a chat with him. Apparently, the protestors hadn’t been arrested or handed over to the police, just chucked out of the hall. It's not actually specifically a crime to make a nuisance of yourself during the Proms – I daresay that if John Law was being heavy handed it could be considered a breach of the peace, but the RAH management apparently took the view that it wasn't worth the trouble. Really exciting atmosphere.

The performance resumes: The second half of the concert was an Albeniz, then Rimsky-Korsakov's "capriccio espagnole". To be honest I really hate these orchestral attempts at sketches of Spain, but there you go. The start of the Albeniz was the biggest disturbance of the night. Mehta had reached the podium and ended up standing there for as much as five minutes, with maybe three false starts, as (I think) three separate groups of protestors did the same thing of unfurling Palestinian flags and shouting "Free Palestine". I think there was one more shouted reference to apartheid as they were marched out. As I say, I had good seats and so I was able to see the expression on Mehta's face and he really wasn't liking it. I got pretty bored with the whole thing myself actually – this protest certainly did impair the audience's enjoyment of their night out. I thought this was quite a poor piece really, although not helped by the fact that my seats were on exactly the same level as the percussionists, and therefore they sounded too loud to me. Never a particularly dignified sight, seeing a male professional percussionist having a go at the castanets. One of the cellists dropped his bow, which was quite hilarious.

Part 2 continues: That was it. There was no protest at the start of the Rimsky-Korsakov, although by that point I think the orchestra had got wise – they started playing pretty much the second Mehta's feet hit the podium. It is a somewhat better piece than the Albeniz, although still much too much of the dum da-da dum in harmonic minor scales that orchestral composers do when they get the idea to imitate a flamenco guitar. Rapturous applause and several curtain calls. Mehta then turned to the audience and said the only words he spoke all evening to us – to introduce their encore piece, the death of Tybalt from Rossini's Romeo & Juliet. Fair do's, that was really good. Then we went home. There were two pretty sad-looking types in the pro-Israel protest pen who were apparently thanking me for my solidarity on behalf of the Christian Friends of Israel. I didn't stop.

Then I got home: And found that a) various usual suspects were comparing what happened to "shades of the 1930s", and that b) the BBC had stopped the Radio 3 broadcast at some point (I still haven't found out when).

For the first, this is in my opinion daft. There are some people who think that any use of the word "apartheid" in the context of Israel is per se anti-Semitic, via a fairly involved multi-stage argument involving a very broad reading of the EU committee's proposed definition of anti-Semitism and some waffle about "unique criticism". I don't really agree with that view at all, but if you do, then yes I can confirm that the word was used, pretty faintly. But anyone claiming that the orchestra was prevented from playing and that the performance was prevented by Nazi thugs … well, either they had no idea what happened at Prom 62, or no idea what happened in Germany in the 1930s. It was a total of less than ten minutes of shouting, none of which was directed at the orchestra itself (and I am very clear about this because that was what I was specifically looking out for).

For the second, I think Radio 3 made the wrong decision. I don't think there is anything sacred about a classical music concert, any more than a sports game or a parade, and the protests weren't disproportionate and should have been shown. My personal enjoyment of the evening was much more affected by the decision to program half an hour of ersatz Iberian clickety-clack with far too many loud cymbals in an echoey hall. I think they should have continued to broadcast it, including the protests. I don't think at all that protesting at a performance by the Israeli national orchestra is weird or wrong; it's basically the kind of dialogue that is a large part of the reason that I'm opposed to cultural boycotts in the first place. There was no "heckler's veto" here; the protestors did their thing, then were asked to leave and as far as I can tell, did so peacefully. The protestors also had the common sense not to do any protesting in the standing section of the arena, where a punch-up might have ensued, which was something I was worrying about most of the night.

All in all, I give three stars out of five to the orchestra, and three stars to the protestors. I thought it was the best night out I've had so far this Proms, and the prospect that someone might be about to suddenly stand up and yell really does enliven the quiet bits. I shall be muttering "free palestine" to myself during boring passages for the rest of the season.

34 comments this item posted by the management 9/02/2011 04:14:00 AM

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