Book Review: Who Runs Britain? by Robert Peston
Who Runs Britain? by Robert Peston is an excellent book! As a long-time reader of financial news, publications and papers, I was still able to learn a lot! That is rare...
Peston's basic premise is that the way that we have allowed the UK to operate has made a very select few incredibly wealthy at the expense of the rest of the population. In fact, he blames pension fund managers!
You were not expecting those guys to be to blame were you?
His theory is that the UK pension fund management industry likes to invest in solid and sound corporations. That seems reasonable enough so far. However, they prefer a corporation to have borrowing (gearing) levels that are sustainable. This means that if business levels suffer for some reason, the company will not be dragged under and into bankruptcy by their debt levels. Still, so far, so reasonable...
But, these low levels of borrowing make the companies targets for agressive financiers. These financiers are new(ish) to the world and thus far, pension fund managers have been unable to adapt.
Hedge funds, private equity funds and individuals with the capacity to borrow incredible sums of money have been raiding our collective pension pots.
Over the last decade and more, borrowing large amounts of money has been surprisingly easy and cheap. This has enabled private equity funds et al to mount hostile takeovers with borrowed money. They have then forced the company into agressive cost-cutting measures (to pay the interest bills). A few years later, they will find a buyer for the firm, or refloat it to the public on the
London Stock Exchange
and make a huge capital gain.
The really creative ones will also pay themselves a huge dividend in the middle of this transaction!
Peston describes the working of a
fund better than anything I have seen elsewhere, and that description alone makes the book worth a read.
In addition, he writes well about the role of Sir Phillip Green in the UK. Green has been inolved in a takeover battle for that most British of companies, Marks and Spencer, as well as pouching BHS. Peston describes him as 'The King of Jackpot Capitalism'.
He also writes about the Northern Rock - a mortgage lending bank that failed at the start of the credit crunch. It was Peston that broke the story of the bank's troubles to the world and clearly he knew what was going on. There are no 'smoking guns' or revelations about Northern Rock here, simply a description of what went wrong, why and why it was inevitable. Needless to say, the bank had a failed business model, risk management problems and not enough oversight or regulation. Very interesting...
This is not a book about investment for the 'common man'. It is, however, an excellent description of the investment world in which Britons live - and in some ways North Americans as well.
Before becoming the BBC's Business Editor,
had a career writing about finance, The City and business with the Financial Times. The result is that he has known the majority of the players described in this book for over a decade. He has discussed these matters with them at length and therefore offers an excellent overview.
I have recommended this book to a number of friends and I am confident that I can recommend it to almost anyone - at least anyone British!
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