tim's experiment

Let me get my retaliation in first. Property prices are now falling. Even real estate professionals, for whom optimism is an endemic disease and a professional necessity, are resigned to a “correction”. They are now murmuring that prices might float down in a vague way over the next two years. This seems to me rather unlikely. Bubbles do not deflate gently over two years. They pop. That is why they are called bubbles. Anyway, with the first signs of the bubble deflating, or bursting, as you will, we also get the first bleats about “negative equity”.

This opaque phrase describes a simple situation: the home you bought becomes worth less than the loan you took out from the bank to pay for it. Let us say you pay $10 million for a flat. You borrow $9 million of this from the bank. Prices then fall. You find that your flat is worth $8.5 million. The value of the flat has now become minus half a million dollars. In theory at this point you might give up, stop your repayments and move to your nearest Macdonalds. But why should you? In theory your bank may ask you to put up extra security for the loan, but in practice for reasons we will come to in a minute that will not happen either. So why should you worry?

This is actually a good question. Your flat is still doing for you all the things it was doing before. You can live in it, raise kids, entertain guests or whatever takes your fancy. The bank is not going to kick you out as long as you keep up the mortgage payments. This is because they will then end up with a flat worth $8.5 million which is on their books as $9 million. They will immediately have to acknowledge losing half a million bucks. So as long as you keep up your payments you don’t have to worry about the bank. This is, of course, not a good time to sell your flat. But you are neither homeless nor out of pocket as long as you continue to live in it.

So why does the doleful chorus about negative equity rise every time property prices go down? Well the news is not so good if you bought a second flat as an investment, an almost universal hobby among Legco members, business people, professionals and what have you. Your investment has turned into a lemon. Instead of making money for you, it has landed you with long term payments which exceed what you are getting from rent and do not exceed the income you could have got from some alternative gamble like the stock market. If you bought a flat to live in, then “negative equity” is a theoretical concept, at least until you want to move. If you bought it as an investment, on the other hand, then “negative equity” is a painful reminder that real estate, like other investments, can go down as well as up.

It is interesting to see people who usually subscribe to the idea of general self-reliance and small government, calling for rescue from the consequences of their own folly. If the government proposes to provide pensions, public housing, relief for the poor or protection for the underpaid that is a deplorable interference with the beneficial operation of market forces, and an invitation to idleness and welfare dependency among the lower classes. If, on the other hand, the already rich are losing money on their property investments the government has a duty to rescue them from the toils of negative equity by manipulating prices upwards.

There are two other funny things about negative equity. One is that in the illustration quoted above I omitted the small detail that while the value of your flat was declining from $10 million to $8.5 million you were presumably paying off the loan. So the amount you still owe the bank should have declined accordingly. In fact the only way you could fall into this illustration is if you got a 90 per cent mortgage, which is actually rather unusual. So to fall into negative equity you must either have bought the flat quite recently or have succeeded in assembling loans worth a very large proportion of the price. This is not uncommon with investments, but much rarer with people buying a home for themselves.

The second oddity worth noting at this point is that the financial authorities are perfectly aware of the risks of buying an item with a volatile price – like property – on credit. So there are limits on the proportion of your price which you can borrow from the bank as a mortgage. Currently I believe the limit is 70 per cent. However this limit is routinely circumvented by real estate developers in their efforts to sell flats: they will put you in touch with people who will lend you the rest of the price, or most of it. So the people who are now complaining actually caused the problem.

It is difficult to rejoice in falling property prices. But it is only difficult if you own property yourself. The unavoidable fact is that if the price of any good falls there will be winners and losers. The winners will be those who need it and don’t have it, while the losers will be those who need a continuous supply, plus those who bought it as an investment. Since the vast majority of people in Hong Kong can only dream of owning their own home – let alone owning an extra home as an investment – we must suppose that a general fall in property prices is good news. Bleating about “negative equity” is merely a way of asking the government to over-rule this in the interests of people who made bad investments.

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Apologies for the long break in appearances, which was due to a technical problem. The right side of my keyboard developed a mysterious ailment, which meant that when I pressed one button I got two letters l;uijke thuis. My IT consultant (my son, who really does work in IT) diagnosed a case of digital dinosaurism. My keyboard was disintegrating because I hit it too hard.

No doubt this is a result of learning to type on a typewriter – which, my children, involved pressing a key which was connected to a series of levers which eventually stamped a letter on a sheet of paper through an artfully arranged strip of inky ribbon.

One of my regular editors suggested that I was pressing too hard for a proper modern keyboard because of suppressed hatred of someone, possibly CY Leung. I am sure this is not the case. I do not hate Mr Leung. I just wish he had more respect for the truth.

Let us take his latest outburst, which started with the claim that calls for independence from a few would damage the whole of Hong Kong. This is, it seems to me, highly questionable. In places where freedom of speech is offered, many nutty things will be said. There is no reason why visitors or potential investors should be put off by this, any more than they have been by the continuing effort to inform Hong Kong people, and visitors, about the sufferings of mainland Falun Gong believers.

But Mr Leung now offered an interesting manoeuvre, which when practiced in Tsimshatsui camera shops is known as “bait and switch”. No central government, he said, would support a city which called for independence. Well that also seems a bit dubious. It is a recurring habit of pro-China commentators to make sweeping generalisations about the rest of the world which are wrong. We have, for example, been told at various times that nobody allows non-nationals to vote, that no country would put up with having an occupation in its business district, that no country allows its citizens to talk about independence. All wrong.

But even if you subscribe to Mr Leung’s theory about the way a central government would react to calls for independence, note the not too subtle change which has been worked here. We have gone from a few people calling for independence to “a city that calls for independence”. But this is an impossibility. No mechanism exists through which Hong Kong can call for independence, or indeed anything else. We are saddled with a political system which cannot even call for universal pensions, popular though these would certainly be.

Indeed it will be interesting to see how candidates present themselves in the upcoming Legco elections, because it has become increasingly clear that there is a wide range of measures which the city does “call for” but which our political system is not prepared to deliver. There is nothing mysterious about this. Most of us would happily sign up for a decent pension, standard working hours, a generous minimum wage, reform of the MPF, a health service more or less free at the point of delivery and generous arrangements for education up to the age of about 21. Yet all of these things have been shunted over the last five years into the “too hard” basket, leaving the government struggling to square a circle by making homes cheaper without depressing property prices.

Now that people have worked out who is making the real decisions about such matters, and that these decisions are not being made by the Hong Kong government, calls for independence are understandable, if perhaps not very realistic. Our leaders are helpless puppets who do not care what we think. Independence would cut the strings. For that reason, of course, it will not be allowed.

Still, calls for independence have had one useful effect. People who have been complaining for 19 years that Hong Kong needed to legislate against sedition have now discovered the Crimes Ordinance, and in particular the sections of it which deal with sedition. I do not personally believe that they could be used against peaceful advocates of independence but at least the Liaison Office groupies now know that they are there.

I must, though, sadly pour water on the suggestion that the section dealing with Treason, suitably interpreted, could be used to suppress independence talk. This belief rests on the shaky foundation that the wording in the ordinance, which refers to “the Queen” could be reinterpreted in the light of post-handover blanket changes in terminology to apply to the Central government. There is a problem here in the rest of the ordinance. Treason consists of various acts which do not concern us here (taking up arms … aiding enemies) and more relevantly “denying the title”. This is a technical term which cannot be extended to cover any suggestion that some part of Her Majesty’s realm, or Mr Xi’s, would be happier if allowed to go its own way.

Denying the title refers to a quite specific verbal act, which is suggesting that the Queen or her ancestors at some point usurped the legitimate succession which, in the more obsequious history books, connects her with William the Conqueror. It would cover those nostalgics who seek to revive the claims of the House of Stuart (deposed in legally murky circumstances in 1688) and those gluttons for lost causes who look back with regret to the demise of the House of York (last serious claimant killed in battle in 1485). Over the years there have been occasions when the orderly succession was – shall we say nudged? – by prejudices against juveniles, women or Catholics.

However no such ambiguity attends the enthronement of Mr Leung, who emerged from a legally ordained process intended to produce a result satisfactory to our external rulers. The suggestion that his successors would fare better if chosen without outside interference is not seditious. It’s common sense.

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The offence of gaining access to a computer with dishonest intent is fast becoming a textbook example of how the rule of law can morph into the abuse of law to get prosecutors whatever they want. The latest case involved a man who put a camera in his bathroom to produce pictures of a lady using it. Where does accessing a computer come into this? He looked at the resulting video on his cell phone. When we last visited this topic a High Court judge had just decided that a cell phone was a computer. Fans of judicial lawmaking may clap here, if they wish. The almost infinite possibilities of this offence have not been lost on other people. The other day a DAB stalwart suggested that people who organised protests on their mobile phones could be prosecuted for “dishonest access” as well.

Indeed, why stop at cell phones. Many household appliances now have more computer power than a computer did a few years ago. Your car has more microchips than wheels. My new steam oven has enough computer power to baffle me. We also have one of those Japanese toilets which provides a variety of extra services and packs plenty of electronic ingenuity. Are you keeping your drugs stash in the washing machine? Could be a big mistake.

Now for the root of the problem. The relevant part of the Crimes Ordinance goes like this:

“(1) Any person who obtains access to a computer-

(a) with intent to commit an offence;
(b) with a dishonest intent to deceive;
(c) with a view to dishonest gain for himself or another; or
(d) with a dishonest intent to cause loss to another, whether on the same occasion as he obtains such access or on any future occasion, commits an offence and is liable on conviction upon indictment to imprisonment for 5 years.

Now I do not think you need to be a mindreader to work out what was going on in the collective head of the legislature when this item was passed. The intention was to criminalise the act of obtaining access to a computer which you were not entitled to access. The idea that an otherwise boring or trivial crime might be transformed into a passport to five years of enforced leisure if you did it over an iPhone would have struck the people who voted for this as absurd.

As of course it is. Our man with the camera in his bathroom is clearly a pig. No gentleman would do such a thing. Still, he is I think entitled to wonder what is going on here. If he was committing an offence, why was he not charged with it? If he was not committing an offence, then how does this provision apply to him? I see the “intent” bit is necessary to deal with cases where the posited crime was not consummated. But that is no reason to use it when the miscreant has achieved his fell purpose, whatever it was. Is it the legal view that a video of your maid in the shower is a “dishonest gain”?

It is distressing that the misuse of this provision has been allowed to continue for years, albeit with most of the victims being small potatoes who were not lavishly lawyered. Do judges never look at the laws they are applying? Is this a symptom of the idleness and complacency which are the hazards (I will not say the hallmarks) of prolonged judicial office? The late Lord Bingham devoted much of his retirement to examining what the rule of law required. One of the items he came up with was that “the law must be accessible, and as far as possible intelligible, clear and predictable”. Another standard worth a few moments thought in the Department of Justice is “public officials at all levels must exercise the powers conferred on them in good faith, fairly, for the purpose for which the powers were conferred”.

Perhaps we need to lower our standards these days. We can take comfort in the thought that abuse of the law is, so far, still done only by properly qualified lawyers. The Liaison Office’s hilarious variations on “treason” are a treat to come later.

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The whole of the Hong Kong commentariat – or at least that segment of it which likes banks and the Hong Kong government – has been churning out explanations for Joshua Wong’s mysterious difficulty in opening a bank account at HSBC. As often happens when the destination to be reached by an argument is more important than the means for getting there, the two leading innocent explanations flatly contradict each other.

On the one hand we have the apologists for the banking sector, explaining that Mr Wong’s status as a high-profile person would mean his account, if he were allowed to open one, would need constant supervision and attention. No doubt this is necessary to ensure he does not join many famous people in sending his money to Panama.

On the other side we have people who, perhaps, do not like banks but really dislike Mr Wong. They say that Mr Wong, far from being a high maintenance celebrite, is a nobody. He is a young man with no job and no income. Why would a bank anywhere want such a customer?

Well times may have changed but I found this last question easy to answer. Mr Wong is a student. Banks have long since realized that by being nice to people while they are students they can snare customers whose future prospects are bright, however poor they may be now.

When I was a student this recruitment of the poor but promising was conducted with enthusiasm. All the banks advertised in student publications, however disreputable the other contents of those publications might be. All sorts of goodies were offered as an inducement to setting up an account. Indeed having inherited the family connection with Barclays before I reached university I rather resented the fact that I could not qualify for any of the presents.

The University of Lancaster’s then small and isolated campus had two bank branches, which in those days averaged out at about a branch per 1,000 or so students, which seems rather generous. Also generous was the general attitude to overdrafts. The manager of the Nat West branch, who was particularly famous as a willing lender, once explained to me that his employers accepted that his branch should not be measured by any of the usual banking metrics: its job was to recruit grateful future customers.

Universities continue to enjoy this sort of service, though. Baptist University also has two bank branches. As banking in Hong Kong is almost entirely a duopolous enterprise split between the HSBC group and the Bank of China fleet we can hardly expect more.  I suspect that if Mr Wong had turned up at a university branch where penniless young people are the standard cannon-fodder he might have opened an account without anyone noticing.

This may of course be quite wrong. One of the strange features of Hong Kong life is that although banking is supposed to be a fiercely competitive business one hears many complaints nowadays from people less newsworthy than Mr Wong of how difficult it is to open an account.  Perhaps both explanations are true. They don’t want you if you are rich and famous – too much trouble – or if you are poor and obscure – no money, no profits.

Certainly there is a particular problem for small businesses wishing to open a business account. Banks do not make it easy and will often flatly refuse. I have heard several sad stories of people tramping the streets of Central in search of a bank which was willing to take their business.

Indeed a popular view in start-up circles is that this would be a better route for government aid than the usual loans, advice, start-up parks and what have you. To boost business creation what they need is a simple bank, doing the simple stuff – cheques, deposits, credit cards – and skipping the investment advice, “financial products”, insurance disguised as financial products, and other efforts to diversify in the direction of rich customers. It should be willing to open an account for anyone with a business registration certificate, an ID card, and a deposit. It should have no connection with New York, so the American authorities can be told what to do with their FATCA forms.

It is one of life’s little paradoxes that the same bank which paid multi-million dollar fines for doing business with Mexican dope fiends is now threatening to close the accounts of harmless charities if they cannot prove they are not American.

Meanwhile what is poor Mr Wong to do if he really wants to open a bank account? Well there’s always the British Virgin Islands. They, it seems, are not fussy.

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