The Financial Policy Committee is now in session

A deep failing of the former tri-partite arrangement for regulating financial services in Britain was that the Bank of England held formal responsibility for ensuring financial stability, but had no actual means of putting said responsibility into practice. Instead, it was left to cheer or not from the sidelines while the people with actual power - the FSA and the financial institutions themselves - played their deeply destructive games.

That the FSA still can’t manage to publish its report into the RBS disaster provides a practical example of its deep, practical incompetence. That its most senior figures have admitted how prior to the credit crunch they focused too much on the risk attached to individual institutions as opposed to systemic risk (we’re stuck in the arse-hole of a systemic crisis) and did so firmly believing in the efficient market hypothesis (this is noncy bollocks, they simply assumed the financial services industry wasn’t driven by greedy, short-sighted cunts who point blank refused to look further than the next quarter or next half year’s results regardless of whether doing so blew everybody’s feet off), compounds this by making clear they were looking in the wrong direction and didn’t understand what they were looking at anyway.

Thankfully(?), the lovely new interim Bank of England Financial Policy (i.e. stability) Committee resolves both these issues of responsibility without power and regulation by shitwits through its membership, which makes clear who the daddy is these days;

- Mervyn King, Governor of the Bank of England is the chair
- Paul Tucker, also Bank of England, is the chair when Mervyn is unavailable
- Charlie Bean, also Bank of England, is a member as is
- Paul Fisher, Bank of England, and
- Andy Haldane, Bank of England

See a pattern? Actually, it would have been even more pronounced except Sir Richard Lambert, former Bank of England monetary policy committee member chose not to join at the last minute, which leaves:

- Adair Turner, FSA chairman (but not Chair of the FPC and not even its deputy chair) and
- Hector Sants, FSA Chief exec

There’s a coupla other bods, one a retired investment banker who used to work in a US investment bank and the other an ex US federal reserve cunt (err hang on a mo does that mean US banks are viewed as so much of a threat to the stability of the British financial system senior figures are required to assess how much of a threat it is and how to manage it?). There’s mebbe someone else from the Treasury as well, but fuck it, this is a Bank of England production, which is funny cos I mean seriously, the idea that terribly lovely Hector or “public intellectual” Adair could ever hold there own with the Bank of England boys is a farce.

What rammed all this home to me was hearing some Bank of England financial stability bod giving a presentation the other day. It wasn’t so much the content, rather it was their manner; the near palpable sense of excitement about the extent to which the FSA has been made their bitch. Like back in the day the Bank would identify what they considered to be a problem, do some analysis, some charts and what no and that’d be it. Now? The FSA, that’s Adair and Hector, is the Bank of England’s bitch and will do what they‘re fucking told when they are fucking told and fucking like it, which is funny cos I was reading some of the usual financial journalist shit yesterday and they actually thought some of the actions being taken by the FSA were actually FSA initiatives, as fucking if (so there’s been a fundamental shift in power people ain’t cottoned on to yet that needs brought out a tad more than it has been so far).

Anyhoo, if you want proof of the FSA’s new and significantly lesser status just check out the FPC’s minutes and all the ways its recommendations sets out what the FSA will do on its behalf. Like for one there’s tacitly introducing counter-cyclical capital provisioning (at least until the various Basel shite gets sorted), then there’s the FPC agreeing to advise the FSA to tell banks to beef up all their reporting of exposures to sovereigns on an ongoing basis, to provide additional detail on forbearance, the potential threat of the moment, and so on. In essence the FSA has been reduced to the Bank of England’s tool, which is cool cos the FSA is full of them. It also means Hector and Adair are Mervyn‘s bitches. Lets hope he at least uses spit. Actually, given how fucking shite the FSA was and is and how much they still get paid, lets not.

Strike trap

I’ve always been shite at chess. The only reason I briefly made it into my primary school chess team was when this lassie I played in the chess club made a mistake and knocked her king over in disgust. Oh Arna where are you now I wonder?

But, even me with my shite chess skills I know that with industrial action there’s always manoeuvring going on. The classic example of this was the miners strike. Now take any political position you want and please do remember what actually happened at Orgreave, but that aside dear god the NUM were fucking morons in a hey, lets wait until winter has passed and the government that wants to destroy us has stocked up on coal and made transport arrangements for moving it about Britain and only then go on strike. Jezuz.

Private sector unionism being mostly fucked, a government wanting to cut costs has to take on the public sector unions. And so it seems they are. And again the miners strike provides some useful lessons, the biggie being most Labour politicians will fucking desert them so don’t even waste breath asking for support. Instead call them the bunch of cunts they are and be done with it.

That still leaves the bigger picture thoughe, something I’ve never in any dealings I’ve had with trade unionists had much sense they had much of a fucking clue about. So in the spirit of that here goes;

Government has a 5 year spending plan, you can find out what the headline numbers are here. Key to this is cutting costs on an ongoing basis. The magnitude of the cuts are not something that’s been experienced in the last 50 years i.e. see what’s happening today? Well that’s what’s going to happen tomorrow and the next day and the day after that and so on and its not something you‘ve ever experienced in your utter fucking puff.

To give a practical example, as from something like September this year multi-year public sector pay freezes come into force - now if inflation is 4% this year that’s a 4% pay cut in real terms. And if inflation is still 4% next year then that’s another 4% pay cut. See? That’s an 8% pay cut in total. Ouchy. So shit won’t be getting any better, in fact it’ll be getting worse, permanently worse (or are civil servants dumb enough to be expecting a 10%+ pay rise in 2013 to make up for what they’ve lost out on?).

Hence any government wanting to fuck shit up over the medium-term will provoke a fight now, the idea being it’ll win in 2011 and as a result kick the fight out of the unions who won’t challenge said shit in 2012 and 2013 (or 2014 for that matter). So there, that’s the bigger picture. Its not a “trap” as Ed “Suck-on” Balls calls it, it’s a pragmatic, thought out plan and not one that appears open to much negotiation. Its also one that will presumably see hunners of shite about gold plated public sector pensions being wanked over in the Tory press whereas the reality is that normal sods are being forced to pay for the bank bail outs out of their own pockets. And the fact is if the public sector lets itself get fucked in 2011, then it’ll also get fucked in 2012 and 2013 at the very least in every way imaginable.

As an aside I mind for some reason going to a meeting organised by the EIS in response to the McCrone agreement and associated proposals to do away with Assistant principal teachers and senior teachers. What came across was very clear - the union had given them up during the negotiations and despite a few tub thumping fannies thumping tubs, it wasn’t in any way supporting those affected. What also came across was that the room was full of assistant principal teachers and principal teachers who for the most part didn’t have a fucking clue about how they’d been stitched up or what was coming. If that’s how the public sector is today, then they’re fucking fucked and can go and fuck themselves for being such ignorant fannies.

A 22nd June P.S. - was hearing informally today teachers are now leaving thehttp://www.blogger.com/img/blank.gif EIS in favour of the SSTA because the former hasn't been aggressive enough in its negotiations. Shit could be getting interesting.

A 28th June P.S. - And so it goes. The Spod himself has blogged about how there shouldn't be a strike/the government has cocked up negotiations i.e. a predictable, critical stance formulated to attack political opponents/not alienate Middle England. Personally, if I was a trade union baron I'd (a) ask for my money back and (b) feel an utter fanny for pushing the Spod into the party leadership

Summarising economic policy over the last 6 or so years

A thing that confuses me is why the main thrust of economic policy isn’t summarised in ways that are honest, open and easy to understand. It’s a pain because if they were, then the rationale behind them could be considered more readily along with their objectives and outcomes. Plus those who stand to win or lose by them would be better placed when it came to elections. It would also provide a useful means of responding to the usual charge of politicians being all the same.

Partly, I reckon, the problem is to do with the Oxbridge way of presenting everything in guarded, coded language. However, the main thing is the political process wherein a third of a party’s MPs are too thick too understand and aren‘t in a position to do anything anyway, a sixth oppose “it” on dogmatic grounds because whatever “it” happens to be doesn’t fit in with their world view largely on point of “principle“. Another third don’t understand it, but do have a sense of there being “something” in place, its just they’re too busy climbing greasy poles to question anything the party machine turns out, which leaves a final sixth who are both in the loop, understand what’s going on BUT know a bald statement of how shit is might alienate 17% of a crucial demographic in 23 marginal constituencies.

It all hammers home the point we get the politicians and politics we deserve. Despite that I reckon the following is a reasonable summary of how shit has been the for the last 7 years or so, which you can make of as you will.

1) Pre-2007 or the Sarah Beeny years; these were characterised by low unemployment, sustained growth, Chinese cheap labour made import driven low inflation and light touch financial regulation that supported a cheap credit fuelled consumerism and asset bubbles, the assets being company values, houses and commercial property.

Ahh, the good times, when any idiot could buy a house to do up, then sell and as long as he or she spent too long cocking it up the market would have moved so much they’d still make a profit (and kid themselves it was all down to their financial acumen).

Alongside this government got taxes from property sales, construction and the financial sector to piss away on grandiose projects like the multi-billion pound Connecting for Health disaster, PFI/PPP shite and a tacit regional policy of inventing all these government call centre jobs that involved redirecting taxes paid by the London and the South East into offices located in ghastly Northern, Welsh and Central Scottish post-industrial shit holes.

2) 2007 - 2010 or Panic Stations; oh shit, the credit crunch! Even instinctive Tories I know think the Labour government handled this well. I agree with them and think its funny cos politically all the credit should go to Alistair Darling. What stands out is the extent to which government was (a) creative in its responses, most obviously with the Asset Protection Scheme, when to address the crisis of confidence in banks it drew an insurance policy line under them, and (b) did so while avoiding the moral hazards seen in Ireland and the US, by making the banks pay for the insurance AND building in one fuck of an excess.

Alongside this government spending was maintained in a counter-cyclical type style to the point where these few years will probably be considered a golden age for public sectors workers - they had job security, good pensions, pay rises and even better benefited from monetary policy.

Monetary policy here had a coupla strands. One was the quantitative easing experiment, a thing economists, then economic historians will be arguing about for the next hundred years. Essentially, this - based on what Bank of England bods have said at shindigs I’ve attended - propped up corporate asset values. Err great.

Alongside this the Bank slashed interest rates to 300 year lows, which meant existing debt became fuckova cheap i.e. more affordable, to avoid hunners and thousands of personal and corporate insolvencies. It also encouraged people to spend cos they were getting fuck all interest on their savings and meant all the fannies that were balls deep in debt were let off the hook as long as they were on a variable rate mortgage.

Sterling was also made to take a tumble because the Bank was hoping to make exports more competitive/prompt an export led recovery because that’s kinda all they know what do to in response to an economic downturn (see fer instance the post Exchange Rate Mechanism experiment period and also devaluations prior to Sterling moving to a floating exchange rate in the early 70s).

3) 2011 onwards - Now is the winter of our …… fucked up discretionary spending and real household disposable incomes gone tae buggery; except, counter cyclical spending can only ever last so long, which is why now that financial markets are volatile, but relatively stable compared to what we saw in say 2008 and 2009, we’re entering into an age of austerity when public spending gets the big, bad, rough wahoo.

Here is when shit should get interesting because the real ideological differences should start to emerge, like this Tory fucktard speaking out in favour of flexing the minimum wage.

Now this is a lovely example of ideology, except, of course, single issues have the tendency to get picked up by and run with by politicians so as to blow them out of all proportion to avoid any debate about the big picture (just like during the election when there was all that pointless shite about how to most effectively tinker with VAT).

But, fuck it. In this new age of austerity lets try and do some big picture stuff. Like in the 6th biggest economy in the world is it right that the wages of thousands of people should be so low they need to be subsidised via tax credits? And why the fuck in such a large economy, relative to the population, should pensions and car for the elderly be an issue? Why is inequality increasing alongside the emergence of these questions and is there any connection between this and the ongoing assault on pensions, employment conditions and what no?

Just some random thoughts I guess. Oh and this Ed Balls shite about is the public sector being lured into a trap - the grotty wee cunt should ‘fess up; Labour doesn’t want to be associated with (a) strikes and (b) explicitly preserving decent terms and conditions of public sector employment. By contrast, the choice the public sector is facing is straightforward - get fucked or get fucked after putting up a fight.

As a P.S. the 1926 General Strike was a bag of shite. The tragedy for the left is that the only general strike to have worked in Britain was driven by Northern Irish bigots, which is why it is perpetually swept under the carpet.

Rings

Ring fence? Ring piece more like. The UK banks that got fucked during the current credit crunch, got fucked because of the following:

- They were over reliant on wholesale funding (i.e. they borrowed too much money from institutions as opposed to yer average man in the street) to finance their lending, an approach never tested before in a financial crisis.

- The sudden mass realisation US sub prime mortgage debt wasn’t triple A (and no one knew what losses it would actually generate), followed by the subsequent Lehman collapse and associated realisation banks could be allowed to fail, prompted, then drove a global, institutional crisis of confidence in banks. As a result wholesale funding dried up.

- Those banks most reliant on wholesale funding had coincidentally enough also gone mental with their property lending both to yer average man in the street buying a new build buy to let reclaimed land/city centre en-suite yuppie flat, but more importantly to commercial property investors and developers. And seriously, by mental I mean absolutely fucking mental.

- A vicious circle was then rapidly established wherein the mental property lenders couldn’t finance their mental property loans and property prices built on having mental money thrown at them collapsed. This in turn gave wholesale funding institutions even more reason not to lend cash to the UK banks reliant on them because the banks had suddenly gone from having commercial property loans done at say (lets be charitable for a mo) 90% loan to value to holding billions of debt secured against assets with a loan to value of say 130% i.e. call in the debt, sell off the asset and its still 30% under water/a 30% loss on loans where the lenders had only been making say 1% p.a..

- RBS adds a bit of colour to this because it also pissed away its cash buying up a bit of ABN Amro. However, stories like this, this and that suggest it also went as mental as an Irishman with the property lending.

The reason for raking up old coals, stating the obvious etc., is straightforward; it wasn’t casino banking wot dun it for the UK banks that were nationalised, baled out or taken over, it was shit-mental lending and funding arrangements.

This isn’t news, this is fucking obvious. This is shite the ring fencing of banks doesn’t address. Like why the fuck is ring fencing such a big deal as opposed to introducing Tobin taxes for all the rentier casino bank financial activity that does nothing but generate volatility, add a commodity price premium we all have to pay and generate otherwise avoidable transaction costs simply to finance commodity/derivative/currency trader bonuses?

I reckon its due to politics and prejudice. Rather than tackle, address or more importantly redress the actual causes of the current fucked up British economy, ring fencing keeps the focus on the casino banking rhetoric and all that entails in terms of bemoaning the multi-million pound bonuses paid to well not that many people actually.

Now personally, I’d be happy enough if the few that did get the big bonuses got fucked roughly into a cocked hoop by a horse-cocked gorilla with anger issues. Except I don’t see ring fencing affecting them in the slightest (unless it increases the cost of capital associated with their activities and hey presto they become less profitable/generate smaller bonus pots), rather they’ll be moaned about in political soundbites, but otherwise left to their own devices.

What ring fencing will do though is let politicians claim they’re doing something, anything even. And by doing so politicians will be able to avoid actually doing anything about the cunts that caused all the problems for the British economy in the first place. Like why aren’t the mentals involved in all the mental property lending being strung up by their balls around Trafalgar square? Don’t worry we’re ring fencing casino banking. Aren’t banks continuing to lay off tens of thousands of staff who had fuck all to do with the losses? Don’t worry we’re ring fencing casino banking. And so on.

And if you really want to identify who made the big bucks out the bubble, it wasn’t actually bankers. Check out property week instead which will give hints to the mental property lending that at its height involved shit like:

Some joker sets up a Special Purpose Vehicle (SPV) i.e. a standalone company/legal entity

Said SPV borrows say £90m to do something involving property with the Joker/founder chipping in say £10m. In the event of things going pear shaped well tough cos there’s no recourse to any other assets the Joker owns what with him having a proven track record, being terribly sophisticated, having invited very senior bank bods to his daughter’s wedding and what not.

That’s day 1. Day 2 the SPV uses the loan to pay the Joker a £20m dividend thus making sure he gets all his money out plus another £10m.

Day 3, who the fuck cares, the Joker has already made a 100% return/£10m. I don’t know, mebbe the SPV buys a portfolio of Belgian public toilets or mebbe a shopping centre. Does it matter? Yer man has already made his money and then some with no recourse to his other assets if it all goes tits up.

Day 4 the bank declares big losses on Joker loans that have left big holes in the bank's balance sheet. The taxpayer bails out the bank, filling in all the multi-million pound Joker holes.

So yeah, ring fencing, casino banking ya de ya de ya avoid the issues, doesn't point any well deserved fingers and so on. Cunts.